Inditex announces record third quarter, reveals future growth opportunities
In addition to continuing to break financial results records in the third quarter of this fiscal year, Inditex is certain of its growth potential. This is what the company's CEO, Óscar García Maceiras, emphasized during his presentation to analysts on Wednesday, December 14.
"We have significant growth opportunities," the executive even repeated on several occasions, referring to both economic progress and international expansion. In the first nine months of the year, the textile company recorded "all-time highs" with turnover up 19% to 23.06 billion euros and net profit up 24% to 3.2 billion euros.
"Our growth opportunities stem from our global presence in 215 markets, with a low market share and a highly fragmented sector," said the chief executive officer of the company based in Arteixo, A Coruña, insisting that the company's goal is to "maximize organic growth".
He added: "Our business model is operating at full speed and we believe that we have great opportunities for expansion."
For his part, Inditex CFO Ignacio Fernández celebrated the company's "very good performance" despite the "challenging environment".
During the first three quarters, Inditex increased its in-store and online sales in all geographic regions, with the U.S. market remaining the second most important in terms of sales volume behind only Spain, and recorded "robust sales" in all retail channels, highlighting the "strong performance" of its flagship retailer, Zara. On the digital channel, Inditex did not provide detailed data yet indicated that sales were "satisfactory" and were above the same period last year when growth stood at 28%. By 2024, Inditex's goal is for 30% of its turnover to come from the online channel.
After opening stores in 30 different countries, the company operated a total of 6,307 points of sale worldwide by the end of the period, compared to the 6,657 stores it had as of October 31, 2021. In the third quarter of the current fiscal year alone, Inditex shut down a total of 63 stores.
Oysho was hit the hardest, with 17 net closures, bringing its total number of boutiques down to 521. Zara, the company's flagship brand, currently has 1,935 stores (including 53 Zara Kids and 456 Zara Home stores), 11 fewer than at the beginning of the period.
Meanwhile, Bershka and Massimo Dutti recorded 12 store closures, reducing their retail networks to 657 and 605 points of sale, respectively. Finally, Pull&Bear currently operates 858 stores, eight less than three months ago, and Stradivarius remained constant, with 920 points of sale.
China, United States and Russia in focus
In terms of geographical areas, the Spanish company has pointed out that sales performance has been dependent on and affected by the various restrictions and confinements. However, Marcos López, Inditex's director of capital markets, stated that the company is still eyeing the Chinese market despite the current widespread prudence in the sector.
"We are confident about our opportunities in China in the medium and long term. The region's potential remains significant and the market will continue to be one of the group's priorities," he said.
Inditex currently operates around 180 physical stores in the region. On October 14, the group's long-standing manager in the region, Eva Serrano, was appointed global brand president of Calvin Klein. Inditex has placed Eugenio Bregolat at the head of the Chinese market.
In the United States, another priority market, Inditex currently boasts 100 stores and does not plan to expand its physical presence. To mitigate the impact of the cessation of the group's activity in the Russian Federation, Amancio Ortega's company has included in its earnings report a charge of 14 million euros, in addition to the already recorded 216 million euros in the accounts for the first quarter of the current fiscal year.
Inditex estimates that "this provision substantially covers the impact" of its withdrawal from the region, where it had 515 stores and 9,000 workers as of March 5. According to analysts, the market represented more than 5% of the company's global turnover, exceeding 5,000 million euros. Last October, the Spanish conglomerate sold its business in Russia to the Daher group. The financial details of the transaction have not been disclosed.
In view of potential supply chain disruptions this year, the company has "temporarily" brought forward inventory additions to ensure product availability. As of October 31, this had grown by 27%, while inventory levels were 15% higher as of December 8. The company also expects ordinary investment for the year to remain at 1.1 billion euros and, at current exchange rates, the currency impact on sales for the year to be neutral.
Regarding prices, Inditex is keeping the same strategy announced last March. That is to say, an increase "in a progressive and selective way, affecting certain categories, products or collections, only in circumstances that make it necessary to protect margins". According to López, price increases are limited to single digits.
As with all the presentations of the group chaired by Marta Ortega, the executives again repeatedly insisted on the strong operating performance of its integrated model.
"We continue to grow thanks to our unique fashion offering focused on creativity, design, quality and beauty; optimized customer experience, sustainability and the talent and commitment of our teams," said García Maceiras, emphasising the company's priorities: "To continue to invest in business development, to offer a unique experience and to propose an increasingly cutting-edge fashion offering."
This last point is undoubtedly one of the areas that is accelerating the most under the renewed presidency through exclusive collaborations, premium collections and iconic campaigns to improve the quality of the product offering as well as customer perception.
Next grand opening on the Champs Elysees
Regarding future prospects, the CEO mentioned that the company will be continuing its strategy of opening "strategic flagship stores in key locations", such as the recent opening of Zara's 6,000-square-meter megastore in downtown Valencia, and the chain's store renovations in Busan and Kyoto. Following these lines of retail deployment, the brand will have a "grand opening" next spring in Paris. As FashionNetwork.com had anticipated, Zara will relocate its already existing store on the Champs Elysees from number 92 to 74 of the coveted avenue.
According to the CEO, the flagship store will have a surface area of 3,600 square meters, will incorporate its new store concept and eco-efficient design, and will feature spaces dedicated to specific collections such as its premium line entitled 'Origins', as well as its beauty and lingerie categories. This store opening could coincide with the upcoming Paris Fashion Week, in which Zara usually participates through pop-up events, or even with the presentation of annual financial results, scheduled to take place on March 15, 2023.
Finally, García Maceiras revealed that the company is also planning to roll out the 'Zara Pre-Owned' program to "more key markets over the next year."
Launched in the United Kingdom last November, the initiative consists of an integrated platform available on the Zara app and in its physical and online stores, through which customers can access repair, resale and rental services for the brand's garments.
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