Steaming ahead with its focus on high-tech services and sleek, futuristic stores, Zara-owner Inditex held its edge over rivals in the first half of the year, reporting a 10 percent rise in net profit as sales were spurred on by expansion of its store network and online platforms.
“The model that we’ve developed allows us to operate our stores and online business in such a highly integrated manner that it is practically seamless,” the company’s chairman Pablo Isla told analysts in a conference call.
Growth came from all regions and all channels, according to the group, which, in addition to Zara, also owns labels including Pull&Bear, Massimo Dutti and Bershka. In a bid to build on its agility, the fast-fashion retail giant has been investing heavily in sleek, new store formats and state-of-the-art systems including radio frequency identification, or RFID technology to track clothing, along with new logistics hubs and digital studios. Online and in-store stockrooms will be fully integrated by next year, the company has said.
Sprucing up its vast store network, which it is also continuously expanding, remains central to the company’s strategy, executives stressed in the conference call.
“It’s very much about the quality of what you offer and in a very, very precise manner,” said Carlos Crespo, the company’s newly named chief executive officer. Before being tapped for the top job, Crespo, Isla’s top lieutenant, had held a key role in the company’s digital push.
In the webcast conference call Wednesday, Inditex executives showed images of new store formats for Zara home and kids stores, set for next year — showing uncluttered, modern spaces with white and airy backgrounds, dotted with plants.
Recent store refurbishments and new openings for Zara include its Pamplona store, an expanded store in a historic building of the city center, an expanded store in Dubai mall — stretching more than 54,000 square feet with men’s women’s and children’s collections in one space.
A new logistics hub in the Netherlands will come into partial use this year, and will be fully operational in 2020, the company said.
Net profit amounted to 1.55 billion euros for the period ended July 31, outpacing sales growth of 7 percent to 12.82 billion euros, with both figures hitting new highs for the company.
“We believe Inditex’s quick response and its relatively integrated business model has allowed it to continue to outperform in most markets,” said Richard Chamberlain, an analyst with RBC. First-half results were broadly in line with expectations, with like-for-like second-quarter sales slightly ahead of RBC’s forecast while gross margin was a little weaker than analysts expected, he added, in an emailed note to clients.
The analyst downgraded the shares from “top pick” to “outperform,” noting RBC estimates were in line with consensus following a “strong run” in the share price.
“Fleas jump, elephants don’t. We expect Inditex to deliver high-single-digit earnings growth going forward with an attractive 4 percent dividend yield,” the analyst said.
The retailer also said sales between August and Sept. 8 have risen 8 percent in local currencies; the company targets a full-year figure at between 4 percent and 6 percent.
The company expanded its online platform for Zara over the first half in Brazil, the United Arab Emirates, Lebanon, Egypt, Morocco, Indonesia, Serbia and Israel, and integrated its online platform in a number of countries in the Middle East. South Africa, the Ukraine, Colombia and the Philippines are scheduled to be added during the third quarter. Inditex intends to offer Internet sales everywhere in the world by next year.
Inditex is also adding to its Zara Home offer, selling it online in the U.K., and launching its first line of kitchen utensils.
On the environmental front, Inditex, which was one of the original Fashion Pact signatories, has been working to burnish its image with Zara’s first recycled denim collection and a new capsule collection of its Join Life label called “Care for Water” made from organic cotton from India. Zara’s Join Life label flags garments that fit higher sustainability standards, representing 20 percent of Zara garments this year, with a goal of 25 percent of all clothing sold by Inditex next year. The company is also seeking to eliminate plastic bags, and has done so for Zara, Zara Home, Massimo Dutti and Uterqüe.
Inditex has also taken its environmental thrust to China, and Isla recently met with Beijing mayor Jining Chen to detail the group’s plans on this front.
In other brand news, Massimo Dutti held a see-now-buy-now runway show in Barcelona earlier this month, which it broadcast on the label’s social media channels. Bershka has been bringing concerts to stores, with Nathy Peluso performing at a Barcelona store, and the label is working on a collaboration with Billie Eilish. Uterqüe, meanwhile, is working on a limited-edition luxury edition of cosmetics with Estée Lauder label Bobbi Brown.