Investors punish Inditex for its spending plans

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Inditex, which owns Zara stores, said sales of its spring-summer 2023 collection soared in the past six weeks, but its shares fell on Wednesday after the Spanish textile chain signaled higher spending on technology and automation.

Inditex (BME:ITX) has extended its lead over its Swedish competitor H&M (ST:HMb), partly due to a less price-sensitive customer base. By increasing the cost of making the garments, H&M has seen its profits reduced, while Inditex has been able to pass on the costs to buyers.

But the increase in capital investment planned for 2023, of 1.600 billion euros, surprised investors, sending Inditex shares down more than 5% at 1140 GMT. Stocks were also penalized by earnings figures that were slightly below what industry analysts expected.

Óscar Maceiras, CEO of Inditex, told reporters: “We interpret the evolution of the markets in the long term and we are very confident in our ability to grow in the future.”

Maceiras, who took over as Inditex’s top job in late 2021, said it had been a year of “great intensity” since Inditex founder Amancio Ortega handed over the presidency to his daughter Marta Ortega.

Inditex’s profits soared 27% in 2022, as sales exceeded pre-COVID-19 levels.

In-store and online sales at the world’s largest fashion retailer rose 18 percent to 32.600 billion euros ($34.990 billion) from 2021 and were 15 percent higher than in 2019.

Inditex announced a dividend increase of 29% to 1.20 euros per share, slightly disappointing some shareholders who expected a more generous payout.

The pace of sales continued in the first six weeks of Inditex’s current fiscal year, which will end on January 31, 2024.

Excluding Russia, where Inditex stores have been closed since the war began in Ukraine just a year ago, sales between February 1 and March 13 increased by 17.5% compared to the same period a year earlier.


Maceiras defended the expected higher spending, telling analysts it is “the right thing to do” to keep investing for future growth.

One of the areas of investment is technology: Inditex said it would start eliminating hard alarms in stores this year, replacing them with new anti-theft technology, and invest in automating logistics centers in Spain as part of a push to increase efficiency.

The optimization of stores has left Inditex with “bigger, better and nicer stores in the best shopping destinations in the world,” Maceiras said. Sales in stores grew by 23% in 2022, despite the fact that the commercial area was reduced by 6%.

But the main market, China, was “very challenging” last year because of COVID-19 restrictions, Maceiras said.

Inditex closed stores in mainland China at twice its average pace, closing a fifth of its stores in the country by 2022.

Meanwhile, Inditex plans to continue its expansion in the United States, with at least 30 new projects planned between 2023 and 2025.

“The United States offers significant untapped potential for Inditex, given that it has fewer than 100 stores in the country and barely 0.5% market share (4% in Western Europe),” said Morningstar analyst Jelena Sokolova.

Inditex’s Zara brand led the group with a 38.5% increase in profit before tax compared to the previous year. Pre-tax profit fell at two other of its brands, Oysho and Massimo Dutti, by 12% and 10%, respectively. Massimo Dutti had a strong presence in Russia, Maceiras said.

Sweden’s H&M, the world’s second-largest fashion chain, posted a 12 percent increase in net sales in the December-February period on Wednesday, below market expectations and sending its shares down 8 percent.

(1 US dollar = 0.9316 euros)

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