Zara owner Inditex sidesteps European gloom

Madrid: Zara owner Inditex, the world's largest clothing retailer, posted a sharp rise in full-year sales and profit as its drive to expand outside austerity-hit Europe continued to pay off.

Inditex, famed for the fast-fashion business model that lets it quickly respond to shifting customer demands with affordable versions of catwalk trends, said net profit rose 22 percent to 2.4 billion euros as, unlike many competitors, it offset woes in Europe through expansion abroad.

Profit was at the lower end of some analysts' expectations, however, due to a sharp fall in the gross margin, a ratio that compares top-line profit to revenue and shares fell 2.9 percent to 105.4 euros per share by 1555 IST.

Analysts said negative currency effects and a higher proportion of discounted sales may have dragged down the gross margin in the fourth quarter, but the company, whose brands include fast-fashion stores Zara, teen label Bershka and higher-cost offering Massimo Dutti, did not give details.

"The drivers are still there, this model isn't broken, we're simply slowing down against tougher comparatives," said retail analyst Anne Critchlow, from Societe Generale in London.

Advertisement

Sales rose 16 percent to 15.9 billion euros, with Asia's share growing to 20 percent from 18 percent and the Americas expanding to 14 percent from 12 percent.

European sales outside Spain continued to account for 45 percent of Inditex revenue.

Advertisement

The retailer, founded by the world's third-wealthiest man Amancio Ortega, opened new stores in 64 markets, entering Georgia, Bosnia and Ecuador for the first time.

Home market gloom

Advertisement

Inditex sales in its home market, Spain, dropped to 21 percent of total revenue, down from 25 percent a year earlier. Spain is in a deep economic recession and retail sales have fallen steadily for 2-1/2 years.

The company said like-for-like sales, which strip out new store openings, rose 7 percent in the first half of the financial year and the pace slowed to 6 percent in the second.

Advertisement

By the end of January, Inditex had more than 6,000 stores across 86 countries and said it expected to launch flagship brand Zara online in Russia over the Autumn-Winter season.

Inditex, which has seen its shares triple in value in the past five years and outperform European peers by more than a third over the last 12 months, said it would propose a 22 percent rise in its dividend to 2.2 euros per share.

Advertisement

Europe-focused retailer Esprit last month reported steeper-than-expected losses for the six months ended December as the region's economic gloom hurt sales.

© Thomson Reuters 2013