Zara owner Inditex and Swedish fashion retailer H&M reported a contrasting set of results.
Inditex, which also owns Pull & Bear and Bershka, reported a nearly 20% increase in profits to £7.6bn in 2022 compared to the year earlier.
Sales increased 17.5% to £28.8bn, boosted by a 23% uptick in high street shoppers, with the group benefiting from the post-pandemic bounce.
“The excellent results of 2022 show the strength of our business model and its ability to move towards the next level of development in which our fashion proposition, the experience of our customers, our commitment to sustainability and the talent of our teams will continue to be key,” said chief executive Oscar Garcia Maceiras.
Aarin Chiekrie, an equity analyst at Hargreaves Lansdown, said the positive results are a “testament to the success of the group’s optimisation strategy,” which prioritised closing small stores in favour of large ones in prime locations.
Contrastingly, H&M reported a smaller-than-expected increase in sales.
Net sales were up 12% in the first quarter to 28 February from the same period a year earlier to US$5.26bn, although profits fell as it was unable to fully pass on costs.
Inditex and H&M are the first and second largest fashion retailers globally by market cap.
H&M offers slightly cheaper products, meaning they cater to a slightly different audience than Inditex, which may have made price increases to protect margins difficult to push through.
“H&M is getting squeezed between the strong competition of quality brands offering reduced prices and the heavy discounters,” said Zainab Atiyyah, retail analyst at Third Bridge.
Atiyyah notes that H&M is caught somewhere in the middle, with Shein and Primark selling much cheaper products, attracting consumers trading down during a cost-of-living crisis.
In comparison, Zara is more expensive but simultaneously believed to be of greater quality among consumers.
“H&M will have to do more discounting in the short term due to its high inventory level, but the long-term strategy is to reduce promotion,” Attiyah added.