By
Dan Khomenko
May 24th, 2022
Currently, Inditex has outlets in about 213 countries globally and only a low market share in many of them. Consequently, the company notes it has strong growth potential in many countries where it has an office.
Fast fashion company Inditex has posted a net profit of $2.7 billion for the six months to July 31. The Zara owner posted its records on Wednesday, exceeding expectations with its 40% profit jump.
Inditex sales rose 13.5% to 16.9 billion euros and a gross margin of 58.2%. Consequently, the company profit exceeded forecasts by LSEG, which put its net profit for the six months at 2.38 billion dollars. It also extended its lead over Swedish rival H&M.
Interestingly, Inditex saw its share price fall by 1.5% as investors looked to cash in on their profits in the past year. Bernstein analyst William Woods said:
“Given the recent performance, many investors just question how long the strength can go on for.”
Inditex Well-Positioned to Handle Inflation
In response to rising inflation in 2022, Inditex quickly raised its prices. It has also been able to keep most of its cost in Euros. These, coupled with a diverse pricing strategy outside its home market, are believed to have helped the company post record margins.
With inflation easing, several analysts believe Inditex is in a better position than its peers. They argue that Inditex’s strong financial position will allow it to compete by offering stable prices and cutting them next year to continue growing globally.
Despite this, the fast fashion company expects currencies to have a -3.5% impact on sales this year.
Solid Growth Potential
Currently, Inditex has outlets in about 213 countries globally and only a low market share in many of them. Consequently, the company notes it has strong growth potential in many countries where it has an office.
Last year, Inditex reduced its stores to 5,745 from 5,801 in the second quarter to cut costs. It also switched to a soft-alarm system to reduce checkout times by up to 50%, according to Reuters. It is not surprising that the company increased sales despite spending less on space.
Meanwhile, its flagship brand Zara is looking to establish itself as a luxury brand instead of a fast fashion outfit. Last week, it launched a campaign featuring celebrated fashion photographer Steven Meisel and supermodel Linda Evangelista. Zara also plans to add more stores in the United States, its second-biggest market after Spain.
