Release Date: September 11, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sales growth of 7.2% in the first half of 2024, with constant currency sales increasing by 10.2%.
- Net income increased by 10.1% to EUR2.8 billion, indicating strong profitability.
- EBITDA grew by 8.1% to EUR5 billion, reflecting efficient cost management and operational leverage.
- Strong cash flow generation, with funds from operations before corporate income tax increasing by 9% to EUR4.4 billion.
- Continued global expansion with new store openings in 34 different markets, including significant projects in the United States, India, and Peru.
Negative Points
- Sales in Asia were almost stable in constant currency, indicating challenges in that region.
- Expected a minus 3% currency impact on sales for the full-year 2024, which could affect overall revenue.
- Operating expenses increased, although they were managed below sales growth, indicating ongoing cost pressures.
- Depreciation and amortization trends were flat, with no clear guidance on future changes, adding uncertainty to financial projections.
- Sustainability initiatives may incur additional costs, with no clear indication of how these will be managed or offset.
Q & A Highlights
Q: Can you provide some color on your performance in the Chinese market and whether Zara can continue to outperform in that environment?
A: (Oscar Garcia Maceiras Gonzalez, CEO) China remains a core market for us. Our fashion proposition is well received, and we are optimizing our physical footprint with significant projects like the refurbishment of our flagship store in Shanghai East Nanjing Road. We are also enhancing our online presence, with our stream service through Douyin receiving positive feedback. (Marcos Lopez Garcia, Director - Capital Markets) Sales in Asia were stable in constant currency, which is remarkable given the current context.
Q: What is driving the increase in sales productivity in stores, and what further opportunities do you see?
A: (Marcos Lopez Garcia, Director - Capital Markets) Our fully integrated store and online platform is key. Specific initiatives like optimization, RFID, self-checkouts, and technology integration have significantly increased productivity. Our stores today are very different from 5-10 years ago, and these initiatives create significant differentiation and sustainable productivity.
Q: What is the outlook for store count and space growth?
A: (Marcos Lopez Garcia, Director - Capital Markets) We are reducing the number of stores but increasing store size, resulting in around 2% net space growth. This trend is expected to continue, with fewer stores but more net space.
Q: Can you explain the trend in depreciation and amortization (D&A) and how it might evolve?
A: (Marcos Lopez Garcia, Director - Capital Markets) D&A growth was almost flat in the first half, influenced by higher interest costs and rent renegotiations. The right-of-use asset decreased 3% year-on-year. There are many moving parts, so we cannot provide specific guidance.
Q: How are sustainability initiatives impacting costs, and what is happening with rental costs?
A: (Marcos Lopez Garcia, Director - Capital Markets) We are disciplined in cost management and sustainability. While we renegotiate rents, we do not transfer sustainability costs to other parties as it is not sustainable long-term. Efficiency is achieved through organizational measures and technology.
Q: Can you break down the 10% sales growth in H1 into price, product mix, and volume changes?
A: (Marcos Lopez Garcia, Director - Capital Markets) The growth is volume-driven with no significant price increases, except in inflationary markets. The growth is due to strong store and online platforms, space growth, and the execution of our business model.
Q: What are you seeing in external sourcing factors, and why is your gross margin guidance unchanged?
A: (Marcos Lopez Garcia, Director - Capital Markets) We are not seeing significant changes in external sourcing. The gross margin evolves naturally from our execution, and we maintain guidance for a broadly stable gross margin, plus or minus 50 basis points.
Q: What is driving the strong performance of Stradivarius and Bershka?
A: (Marcos Lopez Garcia, Director - Capital Markets) All concepts are performing well, but younger concepts like Stradivarius and Bershka are executing very well. The consistency across different concepts is due to our shared business model and focus on different market segments.
Q: Can you provide an update on the logistics investment plan?
A: (Oscar Garcia Maceiras Gonzalez, CEO) The logistics investment plan is on track. The new distribution center for Zara in Zaragoza II will begin test operations in May-June 2025. This plan supports our business growth and enhances our capabilities to meet customer demands.
Q: How is the performance in Spain?
A: (Oscar Garcia Maceiras Gonzalez, CEO) We are very happy with our performance in Spain. Sales grew 13% in 2023, and we continue to optimize our store presence. Recent flagship store openings in Valladolid and Lisbon Rossio are examples of our successful optimization program.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
