Inditex, the Spanish owner of Zara, reported resilient sales for its latest quarter and strong trading in August, although its profit margin came in below market expectations as higher costs weighed on the business.
The fast fashion group said currency adjusted sales increased 9 percent in August, suggesting that unusually hot weather across Europe did not significantly discourage shoppers.
Inditex recorded sales of €11 billion, or about $12.8 billion, during the second quarter covering May through July. The performance remained solid despite elevated energy prices, weak consumer confidence and the impact of the intensifying Iran war.
However, the company reported a second quarter gross profit margin of 56.7 percent, slightly below analysts’ expectations. Chief Financial Officer Andres Sanchez Iglesias said disruptions in the Middle East had pushed up transportation and input costs during the first half of the year.
The conflict has also affected Inditex’s sales in the Middle East, although the company said conditions improved compared with the first quarter. Inditex has approximately 480 stores in the region, most of them operated by franchise partners.
Inditex shares have performed strongly in recent months, reaching a record €59.1 last month. The rise pushed the company’s market value above that of luxury group Hermes.
At the same time, filings related to Shein’s planned Hong Kong listing showed slower sales growth at the ultra low cost fashion platform. The development could indicate that competitive pressure on European fast fashion companies is beginning to ease.
Inditex, which has a market value of about €176 billion, is expanding its lower priced Lefties brand into Britain and plans to enter Germany next year. The strategy is aimed at attracting more price conscious shoppers, including customers who have been discouraged by Zara’s move toward higher priced products.
Alongside Zara and Zara Home, Inditex owns brands including Massimo Dutti, Bershka, Stradivarius, Pull & Bear and Oysho.
The company said on Wednesday that Bershka, Stradivarius and Pull & Bear had each generated well above €1 billion in sales by the half year point. The performance highlights the faster growth of some of Inditex’s smaller and younger brands compared with Zara.
Despite strong sales momentum, the latest figures show that rising costs remain a challenge for Inditex. Investors will be watching whether the company can maintain its strong customer demand while protecting profitability in the months ahead.