Zara owner Inditex boosted by pick-up in Spring sales

By Corina Pons

MADRID (Reuters) -Zara owner Inditex reported a pick-up in recent sales from its Spring/Summer collections, boosting its shares on Wednesday as the world's top fashion retailer delivered quarterly results in line with expectations.

The Spanish company said sales rose 12% between May 1 and June 3 from the same time the year before, helping to lift its shares almost 5% to a one-month high in early trading. Rival H&M's shares were up 1.8%.

Inditex also reported a 7% rise in sales for its first quarter to the end of April, an expected slowdown from a year earlier when it benefited from a post-pandemic shopping spree.

The company, whose brands also include Pull&Bear and Massimo Dutti, is battling intense competition from the likes of H&M, Shein and Temu by chasing and delivering fashion trends faster through investment in logistics and technology.

Inditex has outperformed competitors in recent quarters, benefiting from investments in new store and online experiences such as livestream shopping, where consumers can stream shows presenting fashions online and easily click to buy.

CEO Oscar Garcia Maceiras told analysts the company would expand livestream services through its own platforms to markets including the United States and Britain following good results in China.

"We expect to launch this new service in the coming weeks," he said, adding the company would also boost store selling space by about 5% a year until 2026 after improving or opening stores in 28 markets in recent months. Inditex now has 5,698 shops.

The company also launched its upmarket Massimo Dutti brand on JD.com in China in the quarter.

'PENT-UP DEMAND'

Inditex reported 8.15 billion euros ($8.87 billion) in sales for the three months to the end of April, compared with analysts' average forecast of 8.1 billion euros in an LSEG poll.

Sales between May 1 and June 3 "suggest some pent-up demand after a cool and rainy start to spring in southern Europe," said RBC analyst Richard Chamberlain. He estimated a 20% increase in sales for the rest of the second quarter.

Xavier Brun, portfolio manager at Madrid-based Trea Asset Management, which holds Inditex shares, said the company was currently "competing against itself", with a strong performance last year making for a tough comparison this year.

Inditex benefits from selling products at higher prices outside its home market of Spain. For example, in the United States, its second-biggest market by sales, the average price of new handbags rose 54% year-on-year in the first quarter and was up 19% for women's blazers, according to global retail analytics firm EDITED.

Some investors expect Inditex's valuation to increase. Its shares trade at just under 23 times expected earnings for the next 12 months, above 19 times for H&M, LSEG data show.

"We still see upside potential for its (Inditex's) 2024 sales and expect the stock to re-rate," said Bestinver Securities analyst Patricia Cifuentes.

Inditex said it expected adverse currency moves to cut 2% from sales this year, up from previous guidance for a 1.5% hit.

First-quarter net profit rose 11% to 1.29 billion euros ($1.40 billion), in line with analysts' average forecast. In the first quarter of last year, net profit jumped 54%.

Analysts had expected a slowdown in sales growth in early spring, partly due to weakness in southern Europe and strong competition in top markets like the United States from Shein.

Inditex said it planned to invest 900 million euros per year through 2025 on expanding logistics capacity, mainly in Europe. The company reported 3% lower inventories at the end of April versus a year earlier, which analysts said showed efficiency in delivering fashion trends.

($1 = 0.9192 euros)

(Additional reporting by Helen Reid; Editing by Aislinn Laing, Mark Potter and Charlie Devereux)