Hot Streak Continues As Profits Climb

• Half-year sales grew by 16.6% to €16.9bn, ignoring exchange rate impacts
• Operating profit rose 30.2% to €3.2bn
• Net cash position of €10.5bn, up 14.1%

Inditex’s Profits Climb

“Zara’s parent company, Inditex (BME:ITX), continued its hot streak in the first half of the year. Inditex owns other fashion brands like Pull&Bear, Bershka and Stradivarius – which have all seen an uptick in sales as consumers flocked to scoop up the latest Autumn/Winter collections. Sales growth continues to outpace higher operating costs.

It’s a testament to the success of the group’s optimisation strategy, which prioritises closing smaller stores to focus on bigger ones in prime locations. That tactic’s set to continue, with floor space expected to grow 3% this year despite a much lower number of open stores. It’s bold moves like that which are helping the group to maintain its impressive margins.

But it’s worth remembering that operating expenses are also rising at double-digit rates, so any poorly received fashion lines will quickly hurt the bottom line. A continued focus on cost management will be key. That’s driving the group to install self-checkout areas across the group’s brands. Short term, this might be costly.

But long term, it will pay for itself by easing pressure on queue times and staffing costs, while also enhancing the shopping experience and keeping customers happy. Who said money can’t buy happiness?”

Article by Aarin Chiekrie, equity analyst at Hargreaves Lansdown