Zara fights off currency blows with record Q1 sales

Dive Brief:

Inditex Group on Wednesday said that first quarter net sales rose 2% to €5.7 billion ($6.74 billion in current exchanges), a new first quarter record. The period was marked by significant exchange rate movement with sales growth in local currencies of 7%, according to a company press release.
Same-store sales growth was positive in all geographies, the company said. Beyond the first quarter, sales in local-currency terms rose 9% between May 1 and June 11.
Gross margin improved by 68 basis points from the year-ago quarter to 58.9%. First quarter net profit reached €668 million in first quarter of fiscal 2018, from €654 million in the same period last year.

Dive Insight:

Inditex Group, in particular Zara's fast-fashion flagship, continues to out-do its rivals. While H&M struggles with bloated inventory and slow-moving e-commerce, Inditex in the first quarter managed to expand margins despite currency headwinds.

The company is following through on the strategy unveiled at start of 2018 —based on "four pillars of the retail industry" in an era transformed by technology-driven changes in human interaction, as outlined in a January op-ed written by CEO Pablo Isla for The Wall Street Journal. Key among them is "a sustainable and integrated online-offline store platform that places the customer at the heart of any decision," according to that piece.

Other pillars include respect for the contribution of workers, reflected in retailers’ and manufacturers’ treatment of them, and care of the environment though sustainable manufacturing and supply chains. Inditex touched on both in its press release Wednesday, noting that more of its brands are now joining the "Join Life" label that indicates stricter eco-standards.

The company seems attuned to its shifting brick-and-mortar needs. In the quarter, Inditex brands opened new stores in 36 markets while carrying out its strategy of tweaking the fleet of smaller-sized units, (including closing, expanding and refurbishing some), ending the period with 7,448 stores.

Most of the stores’ refurbishment and investments involve integrating technologies that further the company’s new integrated store-online model, including interactive fitting rooms and a RFID mirror system, according to a press release. The "ZaraAR" initiative continued in the quarter with augmented reality technology installed at 130 flagships globally. The strength of that integration drove "solid growth" in the quarter, Isla said in a statement.