Inditex SA’s first-quarter earnings beat analysts’ expectations, thanks to bigger stores that are encouraging shoppers to buy more of the Spanish company’s fashions despite price increases.
Operating profit rose 43% to €1.48 billion ($1.6 billion) in the three months through April, the Arteixo, Spain-based textile maker said Wednesday. Analysts expected €1.35 billion.
Inditex keeps increasing sales with fewer brick-and-mortar stores by focusing on bigger locations and making those shops more efficient. The company has boosted productivity at its Zara chain by replacing hard tags on clothes with new security technology that will speed up checkout times at the cashier.
The group has trimmed less profitable boutiques, with the total falling by over 17% since 2019, not including 515 stores it shut in Russia last year.
The gross margin, a measure of profitability, rose to 60.5%, a record level for the first quarter.
Revenue in the first weeks of the second quarter rose 16% at constant currencies, compared with 15% growth in the first quarter.
Inditex has been trying to make larger, more attractive stores, and it’s paying off. Last year, the company enlarged 94 stores, and there are plans for more, including London’s Zara in Westfield Stratford and Paris’s Zara in Rue de Rivoli, which is set to double in size. The group expects gross selling space to increase by 3%.
Customer visits have increased after the pandemic restrictions and Inditex has managed continued price hikes, along with most of the fashion industry. A survey conducted by Credit Suisse’s analyst Simon Irwin in autumn found that entry prices at Zara have risen 20% year-on-year while the price of more expensive items remained flat. Irwin estimates that the overall market was up by high single digits during the spring-summer season.
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