Zara owner Inditex reports strong holiday sales and lifts margin outlook

The company behind Zara and other brands is cutting store numbers and investing in larger, more attractive stores, as well as improving its logistics to deliver online orders faster than rivals.

The gross margin increase puts profitability back up at levels not seen since 2015, Wittet said, saying Inditex is managing to sell more clothes at full price. (Image credit: Reuters)

Zara owner Inditex saw strong holiday season trading with sales up 14 per cent in the six weeks to December 11, it said on Wednesday, as it reported earnings in line with analyst forecasts and raised its margin outlook for the year. The world's biggest fashion retailer reported a net profit of 4.1 billion euros ($4.42 billion) for the nine months to the end of October, while sales in stores and online gained 11 per cent, slower than 19 per cent growth a year earlier.

The company behind Zara and other brands is cutting store numbers and investing in larger, more attractive stores, as well as improving its logistics to deliver online orders faster than rivals.

Thanks to these changes, Inditex now sees its 2023 profit margin gaining 75 basis points, having previously guided to a stable gross margin.

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"They're in a very good place and they continue to gain strong market share," said Alistair Wittet, portfolio manager at Comgest in Paris, which holds Inditex shares.

The gross margin increase puts profitability back up at levels not seen since 2015, Wittet said, saying Inditex is managing to sell more clothes at full price.

Third-quarter sales growth for August-October did slow, though, to 7 per cent, down from 16 per cent growth in the second quarter. Unseasonably warm weather may have affected sales in several markets, said Patricia Cifuentes, a senior analyst in the securities division of Spanish fund managers Bestinver.

Inditex also said currency impacts from a stronger euro would dent sales by 4 per cent this year, up from 3.5 per cent previously expected. Inditex shares were little changed in early trade, as analysts said its strong performance was already priced in.

While cutting overall store numbers, Zara plans to open more stores in the United States, its second-biggest market, and the group is investing in new checkout and security technologies to halve the time it takes customers to pay in-store.

"The company is enhancing its ability to deliver online orders very quickly and its capacity to put in stores what consumers want most," said José Ramon Iturriaga, fund manager at Abante Advisors, which holds Inditex shares.

Inditex's results came a day after it was forced to pull a campaign by Zara which triggered calls for a boycott after some saw the imagery of statues wrapped in white as evoking corpses in shrouds in Gaza.

As it seeks to boost sales in China, Inditex said it recently launched a weekly five-hour "livestream experience" on Chinese social media platform Douyin showing customers footage of catwalks. The livestream will soon be available in other markets, Inditex said.

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