Madrid (AFP) – Zara owner Inditex posted Wednesday another record annual profit, but investor worries that sweeping US tariffs could hurt its growth prospects caused shares in the world’s biggest fashion retailer to slide. The Spanish group, which owns other top brands including Massimo Dutti, Pull & Bear, and Bershka, posted a net profit of 5.87 billion euros ($6.39 billion) in the fiscal year which ended on January 31. The figure was up 9.0 percent from 5.38 billion euros in 2023 and marked the company’s third consecutive annual profit.
Inditex pointed to “very satisfactory” sales, which rose 7.5 percent to hit 38.6 billion euros in 2024, and its “rigorous” cost control policy for the profit rise. The company is “optimistic” about its growth opportunities “despite a particularly complex and demanding environment,” chief executive Oscar Garcia Maceiras told a press conference. However, sales growth showed signs of waning in the first quarter, rising just 4.0 percent between February 1 and March 10, compared to 11-percent growth in the same period a year ago. This was the lowest pace of sales growth for the period since 2016, UBS analysts said in a research note.
The slowdown comes as Inditex is facing stiffer competition from low-priced Asian online retailers such as Shein, as well as the threat of higher tariffs in the United States, the company’s second-largest market after Spain. These tariffs “represent a challenge for Inditex, both in its strategy of expansion in the United States and in the management of its global supply chain” since its clothes are partially made in China, said Alfred Vernis, professor at Spain’s ESADE business school and a former Inditex executive.
Shares in Inditex fell by 8.2 percent in early afternoon trade on the Spanish stock exchange to 44.66 euros per share. While Inditex “has been a clear outperformer in clothing retail,” the data suggests “growth is slowing,” Deutsche Bank said in a research note. “The potential risks of US tariffs are also weighing on Inditex sentiment,” it added.
Maceiras said Inditex was “well positioned” in the trade war and stressed its “great flexibility to adapt to circumstances.” He mentioned, “We have enormous diversification in terms of manufacturing origins,” adding that Inditex did not rule out producing some of its clothing in the United States if “opportunities” arose.
With fast-growing budget fashion retailer Shein taking share at the cheaper end of the market, Inditex’s main brand Zara has moved to attract more discerning shoppers and offered more expensive clothing. Inditex is also improving its logistics to deliver online orders faster than rivals and investing in larger, more modern stores while it shuts smaller shops.
“Compared to its rivals such as H&M and Uniqlo, Inditex benefits from better cost control, higher margins, and a stronger financial cushion, which guarantees long-term growth and stability in the dynamic fashion market,” said Vernis. The company’s fundamentals remain “solid,” and it should be able to “strengthen its leading position” in the budget fashion segment despite the trade tensions, he added. Inditex’s main rival in the fast-fashion industry, Sweden’s H&M, in January posted lower sales for 2024 due to supply problems and greater competition from Chinese online companies.
© 2024 AFP
