Inditex Net Profits Rise 12% in Year

Zara parent said it planned to continue expanding this year with both physical and online stores, including a Zara e-commerce site in China.

Inditex chairman and chief executive officer Pablo Isla.

Spain’s Inditex SA, owner of the Zara retail chain, beat analysts’ expectations with a 12 percent rise in net profits in fiscal 2011, and said it planned to continue expanding this year with both physical and online stores, including a Zara e-commerce site in China.

This story first appeared in the March 22, 2012 issue of WWD.  Subscribe Today.

Europe’s largest clothing retailer registered net profits of 1.93 billion euros, or $2.68 billion, between Feb. 1, 2011, and Jan. 31. Its sales increased 10 percent to 13.79 billion euros, or $19.15 billion. The gross margin stood at 59.3 percent of sales, unchanged from the previous year.

RELATED STORY: Zara to Launch Flagship Prototype in Manhattan >>

Dollar figures are converted at average exchange rates for the period to which they refer.

“The results for 2011 show the global reach of our business model,” Inditex chairman and chief executive officer Pablo Isla said in a conference call with analysts. “We have achieved very relevant growth in sales, with positive sales growth in all geographic areas.”

He added that he expected the gross margin to remain stable in 2012, which in the company’s definition allows for a variation of plus or minus 50 basis points.

Inditex, which is based in Arteixo, Spain, said net sales in local currencies rose 11 percent in 2011, while like-for-like store sales increased 4 percent. Between Feb. 1 and March 14, store sales in local currencies, adjusted for the leap year effect, were up 11 percent.

The company decreased its reliance on the domestic market, where consumption has stalled due to the impact of austerity measures. Spain accounted for 25 percent of total sales in 2011 versus 28 percent in the prior-year period, while Asia and the rest of the world represented 18 percent, up from 15 percent previously.

“If you analyze our performance in Spain in the last few years, we have been able to maintain a stable level of sales in the Spanish market in a situation in which global consumption was going down, and this is the same that we are expecting for this year,” said Isla.

During a news conference in Madrid later in the day, he added that the company will spend 100 million euros, or $132 million, on renovating its Spanish headquarters.

During the press conference, Isla grew visibly tense when a journalist asked him to comment on allegations that Inditex uses child labor, namely in India. Calling it “an offensive question,” Isla said: “Inditex’s code of conduct prohibits child labor. There is no incidence of it within our company, I can guarantee that.”

Zara was investigated by Brazilian federal prosecutors last year on allegations of slave labor practices and conditions at sewing sweatshops run by an Inditex supplier there. Inditex said at the time it had asked the outsourcer to take immediate measures to correct the situation, deeming it a grave violation of its code of conduct.

The group said it opened 483 units in 49 countries last year, bringing the total to 5,527 doors in 82 countries. It launched online stores for all its concepts and opened the first Zara stores in Australia, Taiwan, Azerbaijan, South Africa and Peru.

Total space rose 9.7 percent to more than 30.1 million square feet, and capital markets director Marcos Lopez said this pace should be maintained.

“When you have a global presence, you have plenty of opportunities to continue opening stores in a significant way, so when we think about the next three years, for example, we continue seeing this 8 to 10 percent space growth,” he said. “In China, we see strong growth opportunities in the coming years.”

Inditex now has a total of 275 stores in China and plans to open an additional 150 by the end of fiscal 2012, in addition to a Zara online store, Isla said. The group will add between 480 and 520 stores worldwide this year, including its most recent Zara flagship on Fifth Avenue in New York, unveiled last week.

Isla declined to comment specifically about the performance of online sales, except to say the results were positive and not dilutive to global sales. “It’s an incredible tool of communication with our customers,” he noted, adding that Zara attracts more than one million hits per day.

Inditex created 9,374 new jobs in 2011 and closed the year with 109,512 employees. Its shares closed up 0.64 percent at 72.20 euros, or $95.47.