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Zara stock rises on strong spring season sales, plans to invest 900M euros on logistics

Published 03/13/2024, 06:19 AM
Updated 03/13/2024, 06:22 AM
© Reuters.  Zara stock rises on strong spring season sales, plans to invest 900M euros on logistics

Inditex (BME:ITX) (IDEXF), the parent company of Zara, saw its shares pop more than 5% in Spain after the company reported strong sales growth in the spring season.

In particular, the world’s largest fashion retailer posted an 11% increase in sales at constant currencies during the first half of its spring season, driven by a demand for its upmarket fashion lines.

For the fiscal year ending in January 2024, the company's sales rose to a new high of €36 billion ($39 billion), marking a 10% growth. This performance aligns with market forecasts but indicates a deceleration from the previous year's 13.5% sales growth in the same period, attributed to a slowdown in the rate of price hikes.

The firm announced a net profit surge of 30% year-over-year, reaching €5.4 billion. This growth matches the predictions of analysts surveyed by LSEG, supported by a stable gross margin of 57.8%.

With an eye on enhancing its logistics infrastructure, Inditex has earmarked an annual investment of €900 million through 2025. The investment strategy includes the development of new logistics centers in Zaragoza, Spain, and the Netherlands, the company’s CEO Oscar Garcia said during the conference call.

Furthermore, Inditex said it will increase its dividend payout by 28% to €1.54 per share, surpassing the expectations of financial analysts.

Bernstein analysts commended Zara’s financial performance but voiced caution about the company’s rising costs.

“Whilst the strength of the business was clearly shown, one area of concern that could spook investors is the increased investment,” analysts said, referring to the ordinary capital expenditures (CAPEX) rising from €1.6 billion to €1.8 billion.

In addition, analysts noted “an exceptional investment programme of €900m p/a to expand logistics over FY24 and FY25.”

“We think that Inditex has a good track record of managing investments and ROCE, and has the support of a strong topline and margin business. However, increased investments are not typically received well,” they wrote.

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