Recently, Inditex Group, the parent company of Zara, released the first three quarterly report of the fiscal year 2023.

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For the nine months ended Oct. 31, Inditex’s sales rose 11.1% from a year earlier to 25.6 billion euros, or 14.9% at constant exchange rates. Gross profit increased 12.3% year-over-year to 15.2 billion euros (about 118.2 billion yuan), and gross margin improved 0.67% to 59.4%; Net profit rose 32.5% year-on-year to 4.1 billion euros (about 31.8 billion yuan).

But in terms of sales growth, Inditex Group’s growth has slowed. In the first nine months of the 2022 fiscal year, sales rose 19 percent year on year to 23.1 billion euros, while net profit increased 24 percent year on year to 3.2 billion euros. Patricia Cifuentes, a senior analyst at Spanish fund management company Bestinver, believes that unseasonably warm weather may have affected sales in several markets.

It is worth noting that despite the slowdown in sales growth, Inditex Group net profit grew by 32.5% this year. According to the financial report, this is due to the substantial growth of Inditex Group gross profit margin.

Data show that in the first three quarters, the company’s gross profit margin reached 59.4%, an increase of 67 basis points over the same period in 2022. Along with the increase in gross margin, gross profit also increased by 12.3% to 15.2 billion euros. In this regard, Inditex Group explained that it was mainly due to the very strong execution of the company’s business model in the first three quarters, coupled with the normalization of supply chain conditions in the autumn and winter of 2023, and the more favorable euro/US dollar exchange rate factors, which jointly pushed up the company’s gross profit margin.

Against this backdrop, Inditex Group has raised its gross margin forecast for FY2023, which is expected to be around 75 basis points higher than FY2022.

However, it is not easy to keep your position in the industry. Although Inditex Group said in the earnings report, in the highly fragmented fashion industry, the company has a low market share and sees strong growth opportunities. However, in recent years, the offline business has been impacted, and the rise of fast fashion online retailer SHEIN in Europe and the United States has also forced Inditex Group to make changes.

For offline stores, Inditex Group chose to reduce the number of stores and increase investment in larger and more attractive stores. In terms of the number of stores, Inditex Group’s offline stores have been reduced. As of October 31, 2023, it had a total of 5,722 stores, down 585 from 6,307 in the same period in 2022. This is 23 fewer than the 5,745 registered as of July 31. Compared with the same period in 2022, the number of stores under each brand has been reduced.

In its earnings report, Inditex Group said it is optimising its stores and expects total store area to grow by around 3% in 2023, with a positive contribution from space to sales forecast.

Zara plans to open more stores in the United States, its second-largest market, and the group is investing in new checkout and security technology to halve the time it takes customers to pay in-store. “The company is increasing its ability to deliver online orders quickly and to put the items consumers want most into stores.”

In its earnings release, Inditex mentioned the recent launch of a weekly live experience on its short video platform in China. Lasting five hours, the live broadcast featured a variety of walkthroughs including runway shows, dressing rooms and makeup areas, as well as a “behind-the-scenes” view from camera equipment and staff. Inditex says the live stream will soon be available in other markets.

Inditex also started the fourth quarter with growth. From November 1 to December 11, group sales increased by 14% compared with the same period last year. Inditex expects its gross margin in fiscal 2023 to increase by 0.75% year on year and its total store area to grow by about 3%.

Source: Thepaper.cn, China Service Circle