Another Record for Zara Parent Inditex, as Net Profit Gains 22% in Q3
PARIS — Inditex, parent of the Zara chain, delivered an early holiday present to its investors, reporting record profit in the third quarter and a stellar start to the fourth quarter.
In the three months to Oct. 31, net profits at the Spanish fast-fashion behemoth climbed 22 percent to 1.59 billion euros year-over-year. Sales were up 14 percent in constant currency for the period between Nov. 1 and Dec. 11, as the holiday shopping season gets underway.
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“What a show of strength as [Inditex] has ended the calendar year with a strong fiscal third quarter, which confirmed strong market share gains,” said Jefferies analyst James Grzinic in a trading note. “As well as the ability to navigate accelerating [currency exchange] challenges whilst still driving very solid margin expansion, this is a business expanding profitability to new highs as asset turn continues to improve and cost efficiencies build further.”
The results were released just a day after the company pulled a Zara ad campaign that critics deemed insensitive to the Israel-Hamas war. Zara announced Tuesday it would pull the ads featuring model Kristen McMenamy after days of uproar.
Chief executive officer Oscar García Maceiras did not comment on the controversy in a call following the release of the results.
Instead, he highlighted the company’s growth, and moves to upscale its fashion designs and key shopping locations — even as consumers have become more cautious, particularly as China-based online retailers like Shein nip at its heels. Inditex has focused on omnichannel integration and improved customer experience, he said.
“Inditex managed to capture price-sensitive customers during the economic slowdown. However, Zara is trying to enhance their brand through higher-quality fashion offerings. Our experts believe this strategy can help them hold onto their market share without getting into direct price battles with Shein,” said Third Bridge analyst Yanmei Tang.
Shares edged up 1 percent in midday trading following the news, though the stock is up nearly 20 percent since Oct. 31.
The launch of beauty gives Zara a huge potential to grow and only requires minimal space within stores.”
Yanmei Tang, Third Bridge
Maceiras focused on the company’s growth in the U.S., highlighting Zara openings in Baton Rouge, La., and San Antonio, Texas, as well as the expansion and architectural upgrade of its store at the Dadeland mall in Miami in the third quarter. It will open in Roseville, N.Y., next month.
These openings are key to the company’s U.S. strategy. “We continue to see significant opportunities for our selective growth there,” Maceiras said. The U.S. is the brand’s second biggest market.
The company is also focusing on strengthening its China sales, launching a new weekly livestream experience on the social network Douyin there. The high-value production is shot in a studio in Shanghai, runs for five hours and includes runway shows, walkthroughs of the fitting rooms and makeup area, and “behind-the-scenes” views of the camera equipment and its 75-person strong staff.
This type of glossy production will soon roll out to other markets, Maceiras said.
“We’re adapting to our customers, trying to offer them the best experience everywhere, all the time. In China, it’s obvious that digital is integrated into people’s everyday life,” he said. “Feedback received from our customers has been very positive.” He did not disclose if the company has seen an immediate boost in sales in the territory.
Asked if Inditex anticipated further price hikes as wages in Bangladesh are set to rise following a series of violent protests by garment workers in that country in November, as well as anticipated wage increases in Turkey, Maceiras did not answer.
“There are many factors in markups, markdowns,” he said, noting that currency fluctuations are a strong deciding factor. “When looking at the gross margin, you cannot just extrapolate one single factor, you have to put everything together. Our model provides stronger stability in terms of the margins, and this is what we keep on focus on.”
Maceiras noted that its supply-chain hiccups of early last year “have experienced a normalization” and inventory is more tightly controlled, allowing more full-price sales. The weaker euro-to-dollar exchange rate has been “favorable” to its bottom line.
And it’s not just Zara showing gains. Maceiras said that all brands had grown and he highlighted the company’s diversification.
Inditex adjusted its retail mix across its seven brands. Inditex operates Bershka, Pull&Bear, Massimo Dutti, Oysho, Stradivarius and Zara Home in addition to its core brand Zara. The company opened flashy flagships worldwide as it develops its other brands.
In the third quarter, traditional basics brand Massimo Dutti debuted in London’s upscale Battersea Power Station; the trendier Bershka brand set its first flagship in Milan’s landmark Galleria Vittorio Emanuele II, while youth-skewing brand Stradivarius opened its first stores in Stuttgart and Dresden, Germany.
Zara has also been moving heavily into the beauty space. It launched a new “layering” collection in the third quarter, whose concept encourages sales with purchases of multiple bottles of various scents, as well as hair products in the start of the fourth quarter. The category is poised to be a growth driver for the company, Maceiras said.
“The launch of beauty gives Zara a huge potential to grow and only requires minimal space within stores,” Tang added.
Zara rolled out its pre-owned resale platform in additional European markets on Dec. 12, following its trial in the U.K. and France. Maceiras said that concept will be extended to “all core markets” by the end of 2025. He also noted that in its social efforts, the company will recruit employees with disabilities to reach 2 percent of its global workforce.
Looking at the first nine months of the year, sales were up 14.9 percent in constant currency year-over-year to 25.6 billion. Inditex rang up profit of 4.1 billion euros.
The results came just ahead of analysts forecasts, which RBC analyst Richard Chamberlain chalked up to its strong omnichannel development and investment in tech, such as RFID tags.
“We view Inditex as a strong omnichannel fashion retailer, which historically has benefited from its speed to market and product department-driven manufacturing process,” he said in a research note. “Inditex’s strong sales densities have enabled it to earn a mid- to high-teens margin historically, which we think it can maintain.…We think [Inditex’s] outperformance is likely to continue in [the second half].”
Inditex’s full-year results will be released on March 13.
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