Owner of Zara Inditex announced robust holiday season trade, with sales up 14% in the six weeks ending December 11 and an improved profit expectation for the year, which contributed to the company’s shares reaching a record high on Wednesday.

The largest clothes retailer in the world announced a net profit for the nine months ending at the end of October of 4.1 billion euros ($4.42 billion), an increase of 32.5% over the same time last year. A year ago, sales increased by 19%; this year, they grew by 11%, both in-store and online.

In order to fulfil online purchases faster than competitors, the business that owns Zara and other brands is decreasing the number of its stores and investing in bigger, more appealing ones. It is also enhancing its logistics.

After previously guiding to a constant gross margin, Inditex now projects a 75 basis point increase in its profit margin in 2023 as a result of these adjustments.

“They’re in a very good place and they continue to gain strong market share,” said Alistair Wittet, portfolio manager at Comgest in Paris, which holds Inditex shares.

Wittet added that Inditex is able to sell more clothing at full price, bringing profitability back to levels not seen since 2015. The increase in gross margin also helps.

By 0900 GMT, shares of Inditex had increased 1.6%.

Zara has been trying to draw in more discriminating customers by offering more expensive apparel, a move Swedish rival H&M is attempting to imitate. This is because fast-growing budget fashion store Shein is gaining market share at the lower end of the spectrum.

However, the August–October sales rise did drop down to 7% in the third quarter from a 16% increase in the second quarter. According to Patricia Cifuentes, a senior analyst at Spanish fund management Bestinver, the unusually warm weather may have had an impact on sales in a number of locations.

Inditex added that sales would be negatively impacted by currency effects this year by 4%, up from the 3.5% initially projected due to a stronger euro.

Zara intends to expand its presence in the United States, its second-largest market, even if it is closing stores worldwide. Additionally, the company is investing in new security and checkout systems to reduce in-store payment times by half.

“The company is enhancing its ability to deliver online orders very quickly and its capacity to put in stores what consumers want most,” said José Ramon Iturriaga, fund manager at Abante Advisors, which holds Inditex shares.

Analysts were informed by CEO Oscar Garcia Maceiras that the company was doing well in the US market and that Inditex still saw “significant opportunities” for expansion.

The announcement of Inditex’s results came the day after Zara was forced to halt a campaign that had sparked demands for a boycott after some people compared the image of white-wrapped sculptures to bodies in shrouds in Gaza.

Inditex announced that it has started a weekly five-hour “livestream experience” on the Chinese social networking site Douyin, where it shows users footage of catwalks, in an effort to increase sales in the country. According to Inditex, more markets will soon be able to access the broadcast.

(Adapted from Reuters.com)