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Zara Owner Raising Prices Again

Zara parent Inditex reported a 24.5 percent increase in first-half sales through the end of July, despite charging more for some products. It’s rolling out another round of mid-single-digit price hikes this fall to manage rising costs, the Spanish conglomerate said Wednesday.

In a Nutshell: “We try to have a very stable pricing policy. But when there are temporary impacts coming from inflation in specific markets, what we do is try to adjust that to basically absorb that into the gross margin,” Marcos López, Inditex’s capital markets director, said during an analyst conference call Wednesday.

Customers don’t seem to mind the online order returns charge Zara instituted this year, López said. “In fact, it’s been extremely well accepted…In terms of customer reaction, we haven’t had any significant setback at all,” he said, adding that customers are in fact making their online returns at Zara stores as intended instead of at third-party locations. From a sustainability perspective, “customers understand that this is a trend that will go on in the coming years across the industry,” López said.

Inditex worked to get Asia-sourced commodities more quickly and rushed in shipments to avoid “possible supply chain tensions.”

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A Narcisco Rodriguez collaboration and the “Into the Night” collection with brand ambassador Kate Moss helped drive sales.

“We continue to deliver upon our long-term goals. We offer a unique fashion proposition defined by creativity, design, quality and beauty. The continuous optimization of the customer experience is key to our approach,” Inditex CEO Oscar Garcia Maceiras said. “Sustainability and digitalization also remain at the core of our strategy.”

The company opened stores across 24 markets and ended the period with 6,370 doors. October will see the opening of the Zara and Zara Home store at Battersea in London, which Maceiras described as “one of the most ambitious urban development projects” to reshape living, transport, culture, retail and leisure south of the River Thames. He said the store will include women’s, men’s and children’s wear, and home. “It also includes all the features of our digital store mode, allowing a complete digital experience. Customers can also use clothing recycling points, helping us to push forward in terms of circularity,” Maceiras said.

While Zara seems to be growing faster than Inditex’s youth-oriented concepts, Macieras said the company is “very happy with all of the performance of all of our concepts. They continue to grow year after year with double-digit EBIT (earnings before interest and taxes) margins and with very strong online growth. We are targeting different segments of the market, but all of concepts share the same business model and the same way of reacting to fashion trends to provide with the customer wants now fresh high-quality fashion.”

Net Sales: For the first half, net sales grew 24.5 percent to 14.85 billion euros ($14.83 billion) from 11.94 billion euros ($14.12 billion) a year ago. Sales at Zara and Zara Home jumped 29 percent to 10.93 billion euros ($10.92 billion) for the period.

Online sales, which “progressed satisfactorily and were positive” in the second quarter, are expected to exceed 30 percent of total sales by 2024.

Inditex said gross profit jumped 24.5 percent to 8.6 billion euros ($8.59 billion), while gross margin reached 57.9 percent and was the “highest in 7 years.”

Looking ahead, the company said its autumn-winter collections have been “very well received” by customers, with store and online sales in constant currency from Aug. 1-Sept. 11 up 11 percent from the year-ago period.

Earnings: Inditex said net income rose 41 percent to 1.8 billion euros ($1.8 billion).

The net cash position at the end of the half rose 15 percent to 9.2 billion euros ($9.19 billion).

“The future growth of the Group is underpinned by the investment in our stores, the advances made to the online sales channel and the improvements to our logistics platforms with a clear focus on innovation and technology. We estimate investments in 2022 of around 1.1 billion euros ($1.1 billion),” Inditex said. The company sees “strong growth opportunities,” and said the “flexibility and responsiveness of the business in conjunction with in-season proximity sourcing allows a rapid reaction to fashion trends and allows us to enjoy a unique market position.” The nine-months report is slated for Dec. 14, 2022.

CEO’s Take: “The strength of the fully integrated business model has been clear in recent times. We plan to continue developing these key long-term advantages in order to maximize organic growth. The goal is to increase our differentiation in order to provide a unique customer experience. A key focus is on high-quality stores with the aim that they be fully integrated digital and eco-efficient,” Maceiras said.