Zara owner Inditex plans autumn price hikes as profit surges

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MADRID (Reuters) - Fashion brand Zara's owner Inditex (BME:ITX) said on Wednesday it plans to hike prices again this autumn, as one of the world's top clothes retailers tries to offset soaring costs despite worries demand will wane due to the cost of living crisis.

Following spring and summer price rises, the company will raise prices again in the second half of the year, CFO Ignacio Fernandez said, as Inditex reported a 41% jump in profit for the six months to July and sales which rose by around a quarter.

"The level of newness, quality and design of our collections is driving our sales, but obviously we are always thinking about a stable pricing policy," Fernandez said, pointing to a further mid-single digit average price increase.

In the first set of results since its founder's daughter, Marta Ortega, took over as new non-executive chairman, the company reported revenue of 14.84 billion euros ($14.82 billion) up from 11.9 billion euros a year earlier and a net profit of 1.79 billion euros, up from 1.27 billion euros last year.

CEO Oscar Garcia Maceiras said sales were rising in the most recent weeks and he has strong confidence in the company's long term potential growth despite investors' concerns about waning demand for fashion amid the rising cost of living.

Analysts at Credit Suisse said Inditex had benefited from favourable trends, weather and pricing and there was no guarantee shoppers wouldn't baulk at further price hikes.

MARGINS SWELL

Inditex had decided to increase its prices early in the year to cope with inflation at a time when shoppers worldwide were buying more clothes for holidays, events and the return to the office after the lifting of COVID restrictions.

The annual growth rate of sales slowed for the company since the end of the first half to 11% in constant currency terms from Aug. 1 and Sept. 11, down from 15.9% in the second quarter.

Nevertheless, the results were higher than analysts forecasts and Inditex shares were up 4% in early trading, giving the business a market valuation of near 72 billion euros.

Inditex has raised its prices more than rivals according to research by analysts at UBS, and is ready to hike again even as Associated British Foods (OTC:ASBFY) said last week it would not increase prices at its rival Primark fashion brand "beyond those already actioned and planned", to protect sales.

"The lower consumer confidence is likely to see clothing sales decline in the second half of the year and into 2023 although price increases in the cost of clothing will help revenues," Deutsche Bank (ETR:DBKGn) analyst Adam Cochrane said.

Inditex has broadly maintained its strategy of producing at least half of its garments close to its headquarters in Spain, a policy which has benefited the company during the supply chain crisis.

Analysts are expecting negative earnings momentum and weaker sales for Inditex's biggest rival, Sweden's H&M (ST:HMb).

Inditex said its gross margin reached 57.9% during the first half of the year, the highest in seven years.

It has temporarily sped up its inventory to avoid supply chain snags and its sales are growing fastest in the Americas where the United States became the company's largest market after Spain.

($1 = 1.0012 euros)