Zara owner Inditex beats rival H&M with jump in profits and sales

The fashion retailer has focused on faster delivery times and a better online presence while H&M’s sales have disappointed

Zara’s parent company has enjoyed an 8 per cent profits boost (Getty)

The world’s biggest clothing retailer, Inditex which owns Zara among other brands, beat its competitors as well as stock market expectations with an 8 per cent profits boost as it focused reported a jump in profits as it focused on quicker deliveries and a slicker online presence to drive up sales.

First-half operating profits jumped to €1.61bn (£1.38bn) and the company said sales continued to rise in the first few weeks of the third quarter.

Inditex, which owns more than 7,000 stores in 91 countries, this year lowered its target for retail space expansion as it focuses on bolstering online shopping. The strategy also includes bigger stores in key markets, as part of an attempt to maintain growth after revenue increased eight-fold since the company’s 2001 initial public offering.

Inditex has outperformed “fast fashion” peers such as H&M, whose August sales disappointed the markets.

“In light of the difficulties being experienced among clothing peers, today’s results act as another reminder of the quality of the Inditex business model,” Exane BNP Paribas analyst Simon Bowler said in a note.

As part of its digital expansion, Spain-based Inditex is set to roll out online sales for its brands in Turkey, a market of 75 million people. It’s also on track to open its first Zara store in Auckland that same month. Like-for-like sales, which exclude currency movements, increased 11 per cent in the first half.

Inditex is not alone in betting on online fashion. Amazon has moved aggressively into the space, and sold £12.6bn of clothing last year, more than the combined online sales of its five largest online clothing competitors, including Gap, and Victoria’s Secret owner L Brands.

Inditex is also benefiting from the steady pace of economic growth in Spain, where the retailer gets about a fifth of its sales. The local clothing market grew an average 3 per cent in the three-month period through July, according to the Spanish statistics agency.

Currency fluctuations hurt Inditex on two fronts as the strong dollar raised costs for the 35 per cent of garments the retailer sources from Asian countries. Meanwhile, the weakness of the Russian ruble, British pound, Mexican peso and Turkish lira eroded sales growth.

Bloomberg