Zara’s parent company, Inditex, is set to report strong first-quarter earnings next week, defying challenges posed by rising costs and supply chain issues. The company has managed to raise prices without negatively impacting sales, showcasing a faster recovery compared to its competitors.

Inditex is well-positioned to gain market share due to its competitive prices and ability to quickly release new fashion lines, according to RBC analyst Richard Chamberlain. The company tends to outperform rivals during economic downturns as consumers look to replenish their wardrobes after long periods at home.

Zara has consistently raised its starting prices since January, with monthly increases of 10% or more compared to the previous year, based on UBS research. In April, starting prices rose by an average of 18.5%. In contrast, European apparel brands like H&M and Zalando witnessed an average price increase of 4.2% in April amid Euro zone inflation reaching a record high of 7.4%.

Analysts predict that Inditex’s net profit will surge by 93% to 812 million euros ($866 million) in the first quarter, with sales projected to increase by 27% to 6.2 billion euros. The company’s performance last year was heavily impacted by store closures during the pandemic.

Inditex faced additional challenges when it suspended operations in Russia following Moscow’s invasion of Ukraine and Western sanctions. This led to the closure of online operations and 502 stores in Russia, accounting for 5% of sales growth during that period. However, UBS foresees that Inditex will continue to raise prices and boost sales in the second quarter due to the ongoing recovery in the UK, Europe, and the US, as well as the easing of Russian sales and any further COVID-related restrictions in China.

In a similar vein, Swedish competitor H&M has announced plans to increase prices this year, although the hikes will be smaller in comparison to its rivals.

Useful links:
Inditex Official Website
H&M Official Website