Inditex Shares Jump as Retailer Raises Inventory Levels

By Scott Kanowsky

Investing.com -- Madrid-listed shares in Industria de Diseño Textil SA (BME:ITX) rose in early European trading on Wednesday after the Spanish retailer announced that it has increased its inventory of items to offset potential supply chain constraints in the second half of 2022.

The Zara parent said the value of inventory inflows as of July 31 was €3.67 billion, 43% higher than the same day last year.

It did not explain what supply chain problems it expects to encounter, saying only that the move will help keep products available to meet strong demand for its fall and winter collection. Store and online sales in constant currency for these offerings have jumped by 11% compared to the record period in 2021.

"The Autumn/Winter inventory is considered to be of high quality and is consistent with the strong sales trends in previous quarters and the sales performance going into the 2H2022," Inditex said in a statement. "The flexibility and responsiveness of the business in conjunction with in-season proximity sourcing allows a rapid reaction to fashion trends and allows us to enjoy a unique market position."

Inditex's interim core earnings surged by 30% to €4 billion in the first half. Sales also grew to €14.8 billion, up by 24.5% versus the same six-month period in 2021 thanks to rising in-store foot traffic and solid online demand in the second quarter.

Meanwhile, the group set aside funds to make up for expected full-year expenses from the closure of business operations in Russia and Ukraine following the Kremlin's invasion of its western neighbor. The company had previously booked an extraordinary charge of €216 million in the first quarter.

Analysts at Jefferies said Inditex's sales performance shows no sign of slowing momentum in the third quarter, but flagged that demand in Europe may be weakening as soaring inflation forces consumers to potentially look to rein in spending on discretionary items.