On Wednesday, Zara owner Inditex announced a significant increase in its net income for 2023, soaring by 30% to reach 5.4 billion euros ($5.9 billion). This remarkable growth comes as the fast-fashion giant strategically targeted upmarket shoppers and maintained competitive pricing, distinguishing itself from rivals like H&M.
Inditex’s profit for the fiscal year ending in January met analyst expectations, as indicated by an LSEG poll. Throughout 2023, the company further widened its lead over H&M, leveraging its ability to swiftly deliver fashion trends from nearby suppliers and capture a larger share of the upmarket clientele. This strategic positioning has shielded Inditex from the rapid expansion of Chinese-founded competitor Shein.
The company experienced a robust increase in both in-store and online sales, achieving a record-breaking 35.9 billion euros between February 2023 and January 2024. While Inditex’s performance aligned with analyst expectations, its sales growth rate was slightly slower compared to the previous year, reflecting a moderation in the pace of price increases year-on-year.
Zara, the flagship brand of Inditex, initiated price adjustments earlier than H&M in response to escalating inflation and shifted towards offering more exclusive pieces tailored to the high-fashion market. Meanwhile, other brands under the company’s umbrella expanded their offerings in the budget range.
However, data from retail intelligence company EDITED revealed that over the past two years, Zara has increased its average prices seasonally at a slower pace compared to H&M and other competitors. According to Krista Corrigan, a Retail Analyst at EDITED, the average price of apparel in Zara’s Spring 2024 collection in the U.S. market is 11% higher than two years ago, whereas H&M and Mango have seen increases of over 20%.
Investors anticipate continued outperformance from Inditex compared to its arch-rival H&M. The company’s share price trades at 21.8 times expected earnings for the next twelve months, whereas H&M’s price-to-earnings ratio stands at 16.1.
José Ramon Iturriaga, fund manager at Abante Advisors, which holds Inditex shares, expressed confidence in the company’s ability to navigate challenges, stating, “Inditex achieved the most difficult thing, which was being able to grow while passing on inflation in 2023. It did it because it has a better value proposition than competitors like H&M. I don’t think this year will be any more difficult for Inditex.”