Zara owner Inditex said its spring-summer 2023 collection flew off the shelves over the last six weeks but shares in the world's biggest fashion retailer fell after it flagged higher spending on technology and automation.
Inditex has extended its lead over Swedish rival H&M, in part thanks to a less price-sensitive customer base. As the cost of making garments increased, H&M took a profit hit while Inditex was able to pass on costs to shoppers. But higher expected capital expenditure for 2023, of 1.6 billion euros, surprised investors, sending Inditex shares down more than 5% by 1140 GMT.
Shrugging off the share price fall, CEO Oscar Maceiras told reporters: "Our focus is on the long-term market, and we are very confident in our ability to grow in the future"
Maceiras, who took the top job at Inditex in late 2021, said it had been a year of "great intensity" since Inditex founder Amancio Ortega handed the chairmanship to his daughter Marta Ortega.
Inditex's 2022 profit jumped by 27% as sales exceeded pre-pandemic levels.
In-store and online sales rose 18% to 32.6 billion euros ($34.99 billion) and were 15% higher than in 2019. Inditex announced a 29% dividend increase to 1.20 euros per share, slightly disappointing shareholders hoping for a more generous payout. It said a rapid pace of sales had continued in the first six weeks of the 2023 fiscal year, which started on Feb 1.
Excluding Russia, where Inditex stores have been closed since the Ukraine conflict started, sales between Feb. 1 and March 13 were up 17.5% from the same period a year earlier.
INVESTING FOR GROWTH
Maceiras defended the higher planned spending, telling analysts it is "the right thing" to keep investing for future growth.
Inditex will start phasing out hard tags in stores this year, replacing them with new anti-theft technology, and will invest in automation at logistics centres in Spain as part of a push to increase efficiency.
Store optimisation has left Inditex with "bigger, better and more beautiful stores in the best retail destinations globally," Maceiras said. Store sales in 2022 grew by 23% despite store space decreasing by 6%.
But major market China was "very challenging" because of COVID-19 restrictions, Maceiras said. Inditex closed stores in mainland China at double its average rate, shutting a fifth of its shops there in 2022.
Meanwhile Inditex plans to continue expanding in the United States, with at least 30 new projects planned from 2023 to 2025.
"The U.S. offers significant untapped potential for Inditex, given it has less than 100 stores in the country and just 0.5% market share (4% in Western Europe)," Morningstar analyst Jelena Sokolova said.
Inditex's Zara brand led the group with a 38.5% jump in profit before tax. Pre-tax profit fell at two of its other brands, Oysho and Massimo Dutti, by 12% and 10%, respectively. Massimo Dutti had a strong presence in Russia, Maceiras said.
H&M, the world's second biggest fashion retailer, on Wednesday reported a 12% increase in net sales for its December-February quarter, missing market expectations and sending its shares down 8%.