Inditex, the company that owns Zara, reported on Wednesday that sales of the spring/summer collection accelerated to increase 16% in May as the retailer offsets increasing labour expenses and retains customers amid a crisis in the cost of living.

The largest fast-fashion retailer in the world announced a better-than-anticipated 54% increase in net profit of 1.2 billion euros ($1.24 billion) for the first quarter that ended in April, beating analysts’ average forecasts of 980 million euros in a Refinitiv poll.

In keeping with the 13.5% increase witnessed in the first six weeks of the fiscal year, in-store and online sales increased 13% to 7.6 billion euros in the first quarter.

The findings demonstrate that Inditex, whose market value last week surpassed 100 billion euros ($107 billion), has maintained its competitiveness while rising prices and reducing cost constraints, including a 20% increase in the average wage for shop workers in its home market of Spain.

The corporation stated that it will invest 1.6 billion euros to add roughly 3% to the gross retail area in 2023.

“We expect increased sales productivity in our stores going forward,” the company said in a statement.

In 2022, Inditex outpaced other stores, with its main rival H&M finding it difficult to compete for customers affected by the cost of living issue. Inditex also owns Pull&Bear and Massimo Dutti. On June 15, H&M will release its upcoming March-May sales market update.

“We recall from the global financial crisis that when consumers feel under pressure, as they do at present, it is ‘newness’ in fashion that sells best, as people prioritise spending on ‘must have’ items that will make the greatest difference to their wardrobes,” said Anne Critchlow, an analyst at Societe Generale.

At 0947 GMT, Inditex shares were up 5.85%, reaching their highest level since August 2017.

Inditex’s strategy includes keeping prices higher outside the Eurozone. Some clothing costs up to 91% more abroad than they do at home in nations like the United States, Mexico, or Saudi Arabia.

Less weather-related sales in southern Europe more than made up for lower demand in the U.S. due by a more challenging macro climate.

The closing of over 500 of Inditex’s profitable outlets in Russia in March 2022 as a result of Moscow’s invasion of Ukraine and subsequent Western sanctions had an impact on the company’s earnings in the first quarter. In October, it decided to sell the component to the UAE-based Daher Group.

The fact that Inditex’s gross margin hit a record high of 60.5% demonstrates that it has been able to pass on higher prices to customers while its competitors have had their margins eroded. In 2023, the company anticipates that its gross margin will remain constant.

According to Morningstar analyst Jelena Sokolova, the company may be able to maintain its high profitability, but significant gains in gross margin would be challenging. “It’s still the apparel industry, and it’s very competitive,” she remarked.

According to the corporation, Inditex has started to charge for online returns in more nations without having an effect on sales.

In the next two years, it wants to add 30 more stores to the country. Analysts predict that in a market where consumers are getting more picky, only the most competitive global fashion shops will increase their market share.

“In the U.S. we see significant opportunities for selective growth in the coming years …and in the case of China we consider that fashion appetite continues,” Chief Executive Officer Oscar Garcia Maceiras said in an investor call.

Because of its quick lead times and global diversification, Inditex was able to produce solid sales last month despite colder-than-normal weather in northern Europe, according to Alistair Wittet, portfolio manager at Comgest in Paris, whose fund owns Inditex shares. Wittet praised the fact that “there isn’t a single market that massively moves the needle.”

In order to reduce checkout lines, Inditex has also made investments in more self-scanning checkouts and is replacing hard anti-theft tags with chips sewed into clothing.

Zara’s resale programme, “Zara Pre-Owned,” which is currently only accessible in the UK, will be introduced in France, Germany, and Spain in the second half, according to Inditex, as fast-fashion businesses come under more scrutiny for encouraging a throwaway clothing culture.

(Adapted from MoneyControl.com)