Zara owner Inditex reports strong holiday sales and lifts margin outlook

By Corina Pons and Helen Reid

The world's biggest fashion retailer reported a net profit of 4.1 billion euros ($4.42 billion) for the nine-month period to end-October, up 32.5% from a year earlier. Sales in stores and online gained 11%, slower than the 19% growth seen 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.

"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, adding that Inditex is managing to sell more clothes at full price.

Inditex shares were up 1.6% by 0900 GMT.

In a sign of the market's confidence, Inditex's valuation has recently overtaken H&M. Inditex shares are trading at around 21 times expected earnings, while H&M's price-to-earnings ratio is 19.

Inditex's third-quarter sales growth for August-October did slow, though, to 7%, down from 16% growth in the second quarter. Unseasonably warm weather may have affected sales in several markets, said Patricia Cifuentes, senior analyst at the securities division of Spanish fund manager Bestinver.

Inditex also sees currency impacts from a stronger euro denting sales by 4% this year, up from 3.5% previously expected.

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.

CEO Oscar Garcia Maceiras told analysts the business was working well in the U.S. market and Inditex continued to see "significant opportunities" for growth there.

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.

($1 = 0.9276 euros)