Inditex has achieved the fourth best margin in a quarter in its entire history as a listed company. With 60.6% of turnover at the end of the first three months of fiscal year 2024, the company begins to squeeze its path and slows down the evolution of its margin. Its rivals, the Swedish Gap and the American H&M, on the other hand, are making the correction of their business profitable, adding more than four points of margin in the same period.
The gross margin achieved by Inditex in the first quarter, which the group ended with a growth of 7.1% and an increase of 11% in its net result, is only surpassed by that recorded by the company in a third quarter, the period in which, historically, it registers higher margins, as it is the one in which outerwear was introduced.
In the third quarter of 2023, the company posted a margin of 61.7%, compared to 60.9% in the third quarter of 2021 and 60.8% in the same period of 2019. At the opposite extreme, since 2011, the The quarter with the lowest margin corresponds to the fourth quarter of 2019, with 50.4%.
The margin achieved by Inditex in the first quarter is only surpassed by that registered by the company in a third quarter
The group’s gross margin grew by 7.3% in the first quarter, to 4,940 million euros. The company, which attributes the evolution of the margin to the execution of the business modelnow expects a stable evolution of the gross margin for the year as a whole.
With tight cost control and avoiding the impact of the increase in the cost of transportation and raw materials, Inditex has managed to continue increasing the margin in the quarter while the growth rate of its sales has contracted. Although its model allows the volume of purchases to be adjusted to the evolution of sales, the tension on the margin is at its highest.
Evolution of H&M and Gap
It is, however, the complete opposite of what happens to the other two international giants of the fashion retail industry, H&M and Gap. Both companies have increased their gross margin by four points or more compared to the same period in 2023. The first quarter of H&M’s fiscal year does not coincide with that of Gap and Inditex.
“In the first quarter we have continued to take steps in the right direction, with a gross margin of 51.5%, with a substantial improvement in the operating result, a 7% reduction in inventory and a strong and constant cash flow” , said Daniel Ervér, CEO of H&M, in the presentation of first quarter results. “With continuous cost control, improved collection accuracy and close cooperation with our suppliers, we are better equipped today,” he added.
H&M’s gross margin in the first quarter of 2024 has been the best for the first three months of the year since 2017, when it stood at 52.1%. In the first quarter of 2023, the Swedish group’s gross margin was 47.2% and twelve months earlier, 49.3%.
The improvement in the gross margin has been motivated, as explained by the company itself, by an improvement in the supply chain, the efficiency program implemented and the normalization of the external factors that determine purchasing costs.
H&M’s gross margin in the first quarter of 2024 has been the best for the first three months of the year since 2017
Gap has recorded a similar evolution. Like H&M, the American company is in the midst of developing a relaunch plan that involves a thorough review of costs.
Gap, with much poorer margins than Inditex, closed the first quarter with a gross margin of 41.2%more than four points more than in the first quarter of 2023. This is Gap’s best first quarter since 2013.
In the quarterly results presentation, the company noted that the improvement in gross margin is a consequence of better expense management and “rigorous discipline in inventory,” which has been reduced by 15% compared to twelve months earlier. The company also highlights the lower prices of raw materials as factors for improvement.
