Zara store in Westfield, Stratford City, East London.Shops at Westfield, Stratford, London - 10 Nov 2017

PARIS — Inditex posted a 3 percent rise in first-half net profit as the fast fashion retailer continues to sharpen its tools for an e-commerce era and plans for 4 percent to 6 percent sales growth in the second half.

Profit for the Zara owner over the period was 1.41 billion euros while sales grew 8 percent in local currencies. The strong euro weighed on net sales, which were up 3 percent to 12.03 billion euros, with growth in all regions.

“The strong first-half results are the re ult of a solid sales and operating performance, arising from the unique strength of the group’s integrated and sustainable business model,” said Inditex chairman and chief executive officer Pablo Isla.

The new company guidance for the second half of the year was based on a warm reception to the fall and winter collections, executives said, indicating they planned to provide more visibility to financial markets on a seasonal basis.

Earlier this month, Isla announced plans to sell all of the company’s brands online around the world by 2020. The Spanish fast-fashion retailer has integrated stock management in Zara stores in 25 markets with aims to reach 48 by the end of the year, and in the next two years in markets all over the world for Zara and its other brands. Other labels include Pull&Bear, Massimo Dutti and Oysho. Executives flagged Oysho’s recent push into sportswear as making the label “more and more relevant.”

Pressed by analysts in a conference call for more details on the plans for online shopping throughout the world, executives noted that in terms of delivery, the idea was not to build additional logistical capacity but rather take advantage of existing online stockrooms around the world for a “light capex” deployment.

Executives told analysts that the fully integrated stock system would make it possible to sell two- or three-week-old garments that stores don’t have room for given the fast pace of deliveries, noting there is no capacity limit to space online.

“This is a simple example of what this stock integration means from the point of view of management of stock of the season,” Isla noted.

“Full integration of our stock [is a] very important element to our approach to business…full, full accuracy of the stock in any particular store in the world,” he added.

Zara continues to fine-tune its store networks, recently opening its Corso Vittorio Emanuele flagship in Milan, featuring an online section with an automated pickup point that can handle 900 orders at the same time. It also opened a sprawling new store in Bilbao, on the Gran Via, where sales are outpacing the rate of four recently closed stores in the city combined, executives said.

“This is why we shouldn’t focus on number of stores but we should focus on space growth,” Isla noted.

Earnings before interest and tax, which rose 2 percent to 1.78 billion euros, fell slightly below expectations while financial results were slightly higher than expected, noted Richard Chamberlain of RBC Capital Markets in a research note. The analyst added that the forward guidance was positive and said market reaction to the results would likely be positive.

Analysts at Raymond James concurred, noting the report would likely serve as reassurance that the group could “sustainably outperform the fashion market. The analysts expect the group is set to grow market share in Europe, which they estimate to be 4.4 percent where it generates two-thirds of group sales thanks to its “best-in-class” supply chain.

“We are always managing inventory carefully, I would say, with our business model, with the flexibility, with the ability to react within the season, that is for us the most relevant element, this global, fully integrated approach between stores and online,” said Isla.

 

 

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