Business

Profits at Zara owner Inditex jump to €3.1bn as fast fashion retailer raises prices

Analysts expect clothing giant will face more cost increases over the coming months, including pay demands

Zara owner Inditex has reported a 12 per cent rise in sales in the run-up to Christmas. Photograph: Balint Porneczi/ Bloomberg

Wed Dec 14 2022 - 09:33

Zara owner Inditex posted a 24 per cent increase in profit after tax for the first nine months of its fiscal year, as price rises helped offset weakening global demand for clothing.

The world’s biggest fashion retailer’s store and online sales rose 19 per cent from a year ago, slightly faster than analysts had expected. It has raised prices by 5 per cent or more since the spring to offset rising costs.

The company’s net profit in February-October reached €3.1 billion, up from €2.5 billion a year ago.

Inditex has performed well since Marta Ortega, the daughter of the founder-owner Amancio Ortega, took the helm as non-executive chairwoman in April.

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Known for its ability to quickly deliver the latest designs to consumers thanks to its flexible sourcing, Inditex has lately been offering more “high fashion” Zara pieces designed for special occasions. The approach has allowed it to sell higher-priced items and attract shoppers from the luxury segment of the market, according to company sources and analysts.

Sales increased 11 per cent during the third quarter, a slower pace than in previous months, reflecting a weakening consumer environment. The company’s second-quarter sales had increased 16 per cent from the same period a year ago.

The fashion giant said its sales between the start of November and December 8th increased 12 per cent from a year ago. Sales were positive in all geographic areas, it added.

Analysts expect the company will have to deal with more cost increases over the coming months including pressure from workers for higher salaries.

About 1,000 shop assistants who work at Zara and its other fashion brands went on strike during Black Friday in La Coruña, the company’s home town in northern Spain, to demand better salaries, while others protested in Madrid a day before.

“The strikes that have been reported in Spain in Inditex stores suggest there is further upward pressure on wage inflation,” said Deutsche Bank analyst Adam Cochrane.

Those workers are planning to strike again the day before Christmas and in early January after rejecting the wage increase offered by Inditex until 2024. Two large local unions agreed upon the new salary proposal.

Inditex’s main rival, H&M, became the first big European retailer to start laying off staff this month in response to surging inflation and soaring costs related to the war in Ukraine.

– Reuters

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