Inditex sees first-half sales slowdown, but profits boom, H2 looks stronger

There’s been plenty of speculation in recent days that Inditex might not turn in the impressive sales figures we’ve become used to from the world’s biggest fashion retailer. And the rumours turned out to be correct as sales rose ‘only’ 7.2% in the first half.

But this is one firm that knows how to squeeze out a profit and net profit rose over 10% in the six months to the end of July.

And despite the weather in June having (literally) dampened the sales picture, the company said August and the first eight days of September saw constant currency sales rising 11% (better than H1’s 10.2% constant currency uplift) so the slowdown seems to be easing.

It’s been helped no doubt by the late summer sun in August and the autumnal weather that has characterised September so far. It’s important not to underestimate how much the ‘right’ kind of weather at key moments helps fashion retailers.

Looking back at H1, Inditex said it “continued with a very robust operating performance due to the creativity of the teams and the strong execution of the fully integrated store and online business model”.

The SS24 collections were “very well received by our customers” as sales reached €18.1 billion, “showing very satisfactory development both in stores and online”. Sales were positive in all concepts.

Gross profit increased 7.5% to €10.5 billion and the gross margin reached 58.3%, up 19 bps versus H1 23. EBITDA increased 8.1% to €5 billion, EBIT increased 11.9% to €3.5 billion and pre-tax profit 10.6% to €3.6 billion. Net income increased 10.1% to €2.8 billion.

The company added that the AW24 collections have also been very well received, as evidenced by that higher rise in constant currency sales.

Inditex was also helped in H1 (and will continue to be boosted in H2) by store openings with the group opening locations in as many as 34 markets. At the end of the period, it operated 5,667 stores, and Europe (excluding Spain) has been a big focus with the resul that 49.9% of its sales now come from the continent compared to 47.8% a year earlier.

And it said it continues to see strong growth opportunities. It operates in 214 markets with “low share in a highly fragmented sector”. It expects “increased sales productivity in our stores going forward” and the growth of annual gross space in the period 2024-2026 is expected to be around 5%. It says space contribution to sales should be positive in this period, “in conjunction with a strong evolution of online sales”.

The new store design for Zara created by its Architectural Studio is featured in openings, enlargements or relocations such as Lisbon Rossio, Valladolid Constitución, Liverpool One, Thessalonica Tsimiski, Eindhoven Rechtestraat, Greenwich Connecticut, Riyadh Al Nakheel and Bangalore Mall of Asia.

But Zara isn’t the sole focus. It’s optimising its store presence with major openings, enlargements and relocations in all concepts, with key examples including Bershka London Oxford Street, Massimo Dutti Miami Aventura Mall, Stradivarius Bogota Calle 82, Pull&Bear Paris Passage du Havre, Zara Home Milan Palazzo Ferrania and Oysho Lima Jockey Plaza.

A significant initiative for this season will be the arrival in the next few weeks of its Zara Streaming experience in “key markets” such as Spain, US, France, Italy, Germany, UK, Ireland, The Netherlands and Canada following the launch in the Chinese market in November 2023.

And the Zara Pre-Owned platform, currently available in 16 European markets, will reach the US by the end of October 2024.

All this will be supported by a logistics expansion plan happening this year and next. This “extraordinary” two-year investment programme focused on the expansion of the business allocates €900 million a year to increase logistics capacities and will boost the company’s sustainability and tech operations.

CEO Óscar García Maceiras said: “The design and quality of our fashion proposition and the experience we offer our customers are, together with the efficiency and increasing sustainability of our operations, the keys to the solidity of these results. Our fully integrated model continues to generate opportunities for profitable growth across all concepts, regions and channels.”