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Zara Owner Beating H&M in the Fast Fashion Game

Higher prices helped sales at Zara parent Inditex rise faster than analysts expected for the nine month reporting period, while flat fourth quarter sales in local currencies at fast fashion competitor H&M are raising some concerns.

Inditex

Net income for the nine-month period ended Oct. 31 rose 24 percent to 3.11 billion euros ($3.31 billion) from 2.51 billion euros ($2.67 billion) on a 19 percent spike in net sales to 23.06 billion euros ($24.53 billion) from 19.33 billion euros ($20.56 billion).

“In the current challenging context, these results clearly reflect the strength of our unique business model: fashionable collections, an appealing shopping experience and a team highly committed to achieving achieve profitable and more sustainable growth,” CEO Óscar Garcia Maceiras said.

“Sales were positive in all geographic areas,” Inditex said of its interim results. Both traffic and store sales rose, while online sales jumped for a healthy year-on-year comp. The Bershka parent said Autumn-Winter collections were “very well received by our customers” while “store differentiation” was cited as fueling strong sales.

In its first-half report in September for the period ended July 31, Zara’s parent said it planned to roll out another round of mid-single digit price hikes this past fall to manage rising costs. Earlier this year, Zara started charging a fee for online returns sent back through a third party to encourage free in-store returns.

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Inditex said gross profit rose 19 percent to 13.5 billion euros ($14.37 billion) and gross margin reached 58.7 percent. It ended the period with 10 billion euros ($10.64 billion) in net cash. The nine-month report also includes a 14 million euro ($14.9 million) charge on top the previously reported first quarter charge of 216 million euros ($232 million) for its operational exit from Russian Federation, which closed 502 stores before Emirati conglomerate Daher Group purchased the business.

Inditex reported a 12 percent bump in store and online sales in constant currency between Nov. 1-Dec. 8 versus a year ago. On Nov. 3, Zara launched its “Zara Pre-Owned” fashion resale platform in the U.K.

The company opened stores in 30 markets, bringing its total company-operated network to 6,307 at the end of the reporting period versus 6,657 a year ago. Minus Russia, Inditex added 152 stores since Nov. 1, 2021, the start of the current fiscal year. Its largest market is Spain.

Inditex said inventory was up 27 percent on Oct. 31, 2022, and up just 15 percent as of Dec. 8.

The Spanish fast fashion retailer said its sees “strong growth opportunities” ahead.

“The flexibility and responsiveness of the business in conjunction with in-season proximity sourcing allows a swift reaction to fashion trends and results in a unique market position. Our fully integrated business model has great growth potential,” Inditex said.

It also said it expects online sales to exceed 30 percent of total sales by 2024.

It plans to report full year results for the period ending Jan. 31 on March 15, 2023.

Hennes & Mauritz Group

The No. 2 fashion retailer after Inditex said fourth quarter sales for the period ended Nov. 30 rose 10 percent to 62.45 billion Swedish krona ($6.05 billion) from 56.81 billion Swedish krona ($5.51 billion) a year ago. However, sales were flat on a local currency basis. The results were just slightly ahead of what analysts were expecting, given that the quarter also included the start of the holiday selling season. Sales at the local level also reflects the impact of foreign exchange rates.

It ceased Russia and Belarus operations during the quarter, with the last of the stores closed on Nov. 30 after selling off the remaining inventory. About 25 to 50 stores in China were temporarily closed in the quarter because of new Covid outbreaks.

For the full year ended Nov. 30, 2022, net sales rose 12 percent to 223.57 billion Swedish krona ($21.68 billion) from 198.967 billion Swedish krona ($19.29 billion). Net sales rose 6 percent on a local currency basis.

H&M plans to publish full year results on Jan. 27, 2023.

On Nov. 30, the & Other Stories, Cos, and Arket owner said it would cut 1,500 jobs to save about 2 billion Swedish krona ($193.8 million). It’ll take a restructuring charge of 800 million Swedish krona ($77.5 million) in the fourth quarter.

“The cost and efficiency programme that we have initiated involves reviewing our organisation and we are very mindful of the fact that colleagues will be affected by this. We will support our colleagues in finding the best possible solution for their next step,” CEO Helena Helmersson said at the time.

H&M said last month that Cos will open a Mexico City flagship next summer as it launches in the North American nation.

Earlier this month, the company responded to the greenwashing lawsuits it’s fighting in separate states.