Zara Owner Inditex Reports Record Profit on Christmas Sales

Clara Hernanz Lizarraga, Bloomberg News

Shoppers carry Zara branded bags on Passeig de Gracia in Barcelona, Spain, on Friday, Dec. 16, 2022. Consumer prices across Spain eased for a fourth month in a row in November to 6.7% as gasoline and energy prices continued to fall. Photographer: Angel Garcia/Bloomberg , Bloomberg

(Bloomberg) -- Inditex SA surprised investors with a plan to significantly increase spending on new stores and e-commerce despite closing more than 1,000 shops over the last three years and amid a wider market slowdown in online growth.

Shares in the operator of the Zara and Bershka chains fell as much as 3.6% Tuesday after the retailer said it planned to invest €1.6 billion in stores and warehouse expansion. The new capex plan come safter Inditex’s operating profit, up 29% in the year through January, missed expectations.

Clothing retailers face tough comparisons in 2023 given last year’s sales boom, which was helped by pent-up demand after pandemic restrictions were lifted. Online revenue rose 4% in the year through January as shoppers shifted back to visiting brick-and-mortar stores.

Hennes & Mauritz AB said Wednesday sales rose 3% in local currencies in the three months through February, short of analysts’ estimates.

Among Inditex’s challenges are reversing declines in profit at the Massimo Dutti officewear and Oysho lingerie chains.

The Spanish retailer has been weeding out its weakest stores and now it’s reaping the benefits of a more efficient brick-and-mortar platform, which is reporting higher sales with fewer shops.

That helped boost net cash to €10 billion ($10.7 billion), which will help fund the investments planned for this year. Projects include expansion in major US cities, a new Zara on the Champs-Elysees in Paris and expanding a platform to sell second-hand clothes in France and Germany.

In addition to Inditex’s store-efficiency program, the company stopped operations in 514 stores in Russia and 82 shops in Ukraine last year due to the war.

The company plans to expand its store network for the first time in four years, with plans to introduce the Oysho chain to the UK and the Stradivarius womenswear brand to Germany. In the US, Inditex is also targeting stores in big cities including New York, Los Angeles, Miami, Boston and Las Vegas.

Inditex is also introducing a new technology to replace security tags on products.

The company is boosting its annual dividend payment to €1.20 a share.

--With assistance from Rafaela Lindeberg.

(Updates with investment plans in third paragraph)