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Fortune
Prarthana Prakash, AFP

Zara parent Inditex sees retail profits surge to €2.8 billion as its new collection lures more shoppers

Shoppers in a Zara store in Kyiv, Ukraine. (Credit: Yurii Stefanyak—Global Images Ukraine/Getty Images)

Zara owner Inditex, the world's biggest fashion retailer, posted a record net profit for the first half of the year on Wednesday, despite slower sales growth.

The Spanish group said its profit rose 10 percent to €2.8 billion ($3.1 billion) in the first six months of its financial year, which ends July 31.

"The design and quality of our fashion proposition and the experience we offer our customers are, together with the efficiency and increasing sustainability of our operations, the keys to the solidity of these results," Inditex chief executive Oscar Garcia Maceiras said in a statement.

Inditex, which also owns Pull&Bear, Bershka, Massimo Dutti, and Stradivarius, said its spring and summer collections were "very well received" by customers.

Sales increased by 7.2 percent to €18.1 billion, a slower pace than in the first six months of 2023, when they grew by 13.5 percent.

Analysts, however, had expected the slowdown after four years of record earnings. The group's net profit was close to expectations from analysts surveyed by financial data firm FactSet.

The Spanish company has had a good year so far. In March, Inditex’s shares surged to a record high, attributed to the optimism surrounding its spring sales and strong performance in 2023 that helped it one-up its Swedish rival, H&M. 

Retail giants have generally struggled with softer results compared to the pandemic period as consumers tighten their purse strings amid economic volatility. That trend has also impacted the world's biggest luxury brands. But some of the customers that high-end brands are losing might be flocking to the likes of Zara, boosting their results.

"Inditex may have benefited from gaining share with more affluent consumers, who have been priced out of more expensive brands through their price increases and the cost of living crisis," said Jelena Sokolova, senior equity analyst at Morningstar.

Separately, traditional fashion retailers have endured tough competition from low-cost shopping platforms such as Chinese-founded rival Shein or Ireland's Primark. 

But Inditex is set on expansion under CEO Oscar Garcia Maceiras, appointed in 2021. Inditex's results show that Europe continues to be its biggest market. It is continuing to grow the presence of its brands in Asia and the U.S., where Zara plans to open 10 new locations.

The retail behemoth plans to start live streaming shopping services in the U.S. and the U.K., having already launched the popular format in China. Last year, it launched its secondhand retail platform in several European markets. 

"Inditex continues gaining share from peers, and is doing so profitably, having managed to pass on inflationary pressures in 2022 in form of price increases while differentiating itself from the low-cost area of the market, where competition is intensifying with newcomers like Shein and Temu," Sokolova said.

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