Zara owner Inditex invests in tech to speed up future sales

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.

Inditex's profits jumped by 27% in 2022 as sales exceeded pre-pandemic levels in the first full year since Marta Ortega, daughter of founder Amancio Ortega, took over as company chair.

In-store and online sales rose 18% to 32.6 billion euros ($34.99 billion) from 2021 and were 15% higher than in 2019, before the pandemic hit. The rapid pace of sales continued in the first six weeks of Inditex's 2023 fiscal year, which started on Feb 1.

Sales jumped by 13.5% between Feb. 1 and March 13, from the same period a year earlier. Excluding Russia, where Inditex stores have been closed since the Ukraine conflict started, sales in that period were up 17.5% in constant currency terms.

AlphaValue analyst Jie Zhang said: "We continue to believe Inditex will continue to outperform the market."

Inditex announced a 29% dividend increase to 1.20 euros per share, slightly disappointing shareholders hoping for a more generous payout.

INVESTMENTS FOR FUTURE GROWTH

Sweden's H&M, the world's second biggest fashion retailer, on Wednesday reported a 12% increase in net sales for its December-February period, missing market expectations.

Inditex also delivered a surprise, but by hiking capital expenditure to 1.6 billion euros from 1.1 billion euros previously.

The shares, which had gained 15% since the start of this year, were down 5.6% by 1105 GMT, set for their worst day in a year.

"It is the right thing to keep on investing for this future growth," Chief Executive Oscar Maceiras told analysts on a call.

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.

"While this year's capex looks elevated, Inditex pointed to investing behind efficiencies and gaining further competitive advantage," UBS analysts said.

Store optimisation has left Inditex with "bigger, better and more beautiful stores in the best retail destinations globally," Maceiras said. Sales in stores grew by 23% in 2022, even though store space decreased by 6%.

But major market China was "very challenging" last year becaues 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, where it sees "very strong" growth opportunities.

Inditex's Zara brand led the group with a 38.5% jump in profit before tax from the previous year. 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.

($1 = 0.9316 euros)