PARIS – If consumers are tightening their belts amid inflation and cost-of-living concerns, they are still buying them at Zara.
The high street brand’s parent company Inditex continued its growth streak, though the sales progression moderated in the three-month period to April 30.
The Spanish fast fashion behemoth said sales in the fiscal first quarter of 2024 rose 10.6 percent at constant currency to 8.2 billion euros.
That growth rate is a tick down from last year’s 15 percent first-quarter growth and a full-year increase of 18 percent at constant currency, as the company benefitted from a high street shopping boom.
The sales numbers were just ahead of analyst consensus, with gross margin slightly softer than expected, “likely reflecting the impact of pricing,” said RBC analyst Richard Chamberlain as the company has executed a slow and gradual price increase strategy.
“Inditex’s differentiated business model has helped it to deliver strong outperformance during and after the pandemic,” Chamberlain added. The first quarter sales increase suggested some pent-up demand following a cool and rainy start to spring in southern Europe, he noted.
“Inditex’s sales comparables now become tougher, partly due to consistently strong trends last year,” he added. “We now expect trends gradually to normalize.”
The continuation of double-digit sales growth demonstrates Inditex’s strength against rival H&M, where sales have been flat for several consecutive quarters.
High-street fast fashion retailers have taken a hit from China-based, online, ultra-fast fashion distributors including Shein and Temu, but Zara appears more resilient as it positions itself as a fashion player rather than a source for bargains, even as consumers rein back their spending.
Zara has stayed competitive in the Chinese market, where it launched livestreaming last November. The concept has been a hit there, and the company will now expand that to the U.K. and U.S. “in the coming weeks,” Inditex chief executive officer Óscar García Maceiras said in a call with analysts following the release.
The weekly five-hour shows have helped retain customer engagement in China, as the company has downsized its physical retail footprint since the pandemic.
Maceiras said the livestream shows will be available on its own platforms. In China, livestreaming is available through social media platform Douyin.
Strong full-price sell through in the quarter has seen inventory decline 3 percent as the company has taken measures to curb excess stock.
Supply chain turbulence due to shipping issues is under control, said Maceiras.
“There was a normalization in the supply chain conditions,” he said, in comparison with last year’s inventory excess following a post-pandemic product boom. “Despite Asia, there have been some issues, as you know, with the Red Sea. We continue managing the inventory on the supply chain in a very, very efficient way…execution is one of the key focuses of our business.”
The company, which also operates the upscale Massimo Dutti brand; younger concepts Pull&Bear, Bershka and Stradivarius; lingerie and loungewear brand Oysho, and standalone Zara Home flagships, opened new stores in 23 markets during the time period. It operated 5,698 stores by the end of the first quarter.
The growth in square footage contributed to the sales growth numbers, Maceiras indicated, without giving specific data.
It’s all part of the company’s continued net space expansion plans, which will see another 5 percent added over the next two years.
The space expansion and revamps will continue the company’s efforts to position Zara as a fashion brand, with a focus on aesthetics to set it apart from the low-cost image of fast fashion.
“The focus on an ever more enhanced customer experience comes as a result of the continuous process of upgrading stores with strong architectural features, and with highly curated internal spaces,” said Maceiras.
One example is the new Zara Home store in Paris, a three-floor flagship that took over the former space of the Conran Shop. The store presents limited-edition capsule collections, and includes a personalization area and a café space managed by local coffee company Dose, a new concept for Zara stores.
Zara revamped one of its Paris locations on Rue de Rivoli with its new uncluttered design concept across 22,600 square feet and three stories. The store houses new boutique-style spaces for specific product lines including lingerie, shoes and accessories.
Zara also opened in Athens, Greece, in May, and Tashkent, Uzbekistan, in February. It also revamped its store in Chicago, moving from a smaller location into a 28,000-square-foot former Lord & Taylor space.
The strategy has seen smaller, scattered stores close in cities such as Seville, Spain, while the brand has opened one larger store in the city’s Plaza del Duque center, said Maceiras.
In the same time period, Inditex expanded other brands with openings from Massimo Dutti and Oysho. It also reopened 48 stores across its seven labels in Ukraine.
Momentum continued going into the second quarter. Sales at constant currency were up 12 percent year-over-year in the period May 1 to June 3, Inditex said.
The sales are volume-driven, Maceiras highlighted, not due to currency fluctuations, but he declined to address the impact of currency on its sourcing from locations such as Turkey. Inditex has large production volumes coming from that country, which has been hit by soaring inflation.
Inditex is also moving forward with a significant logistics investment, first announced in March. That will amount to 900 million euros a year for the next two years.
The logistics spend will add to enhanced customer experience and integrating online sales with physical stores, said Maceiras. “The best customer experience also requires to have the capabilities needed to provide them what they are looking for, where, when or how they want. We are executing within these contexts,” he said.
However, due to this integration, the executive said it was “impossible to understand” or to break down online versus physical store sales numbers.
Gross profit increased 7.3 percent to 4.9 billion euros. EBITDA rose 8 percent to 2.4 billion euros in the period, while net income was up 10.8 percent to 1.3 billion euros. The company holds 7.6 billion euros in cash on hand.
