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PARIS — Inditex SA is staying on offense.
This story first appeared in the March 20, 2014 issue of WWD. Subscribe Today.
Even as Europe’s largest clothing retailer said net profits and sales growth slowed in 2013, the company plans to maintain an aggressive store opening program this year in the U.S., Asia and Europe.
“We believe that Inditex is in an excellent position to take advantage of global growth opportunities. We have a strong potential to continue expanding profitably in the coming years,” said Pablo Isla, chief executive officer, during a conference call with analysts.
Inditex plans to open 450 to 500 stores in 2014 and to absorb 80 to 100 smaller units into neighboring stores, in line with its forecast of 8 to 10 percent growth in store space in 2014, Isla said. Key openings will include Zara flagships in Hong Kong, Madrid, Zurich and Miami.
“We see great potential to continue expanding profitably in Europe. In Asia, our priority is to leverage the strong presence we have established over recent years,” said the executive, noting that the number of stores in China should rise to 500 this year from around 450 in 2013.
“We see a strong long-term potential for Inditex in Asian markets. We also see strong growth opportunities in the Americas with a number of attractive growth markets,” he added, noting that in addition to the Miami unit, further openings are planned in Los Angeles this year and at 222 Broadway in New York in 2015.
Last year, Inditex opened 331 stores across 61 markets, bringing its total store count to 6,340 as of Jan. 31. Key openings included new flagships for Zara in Istanbul, Pull & Bear in Berlin and Massimo Dutti in Paris.
So far in 2014, it has launched online sales for Zara in Greece, to be followed by Romania, South Korea and Mexico later this year, taking the number of online Inditex markets to 27.
Heavy investment in enlarging and refurbishing Zara flagships from Shanghai to New York and continued expansion via physical stores and online contributed to Inditex’s slower growth last year. The parent of fast-fashion brands that also include Massimo Dutti and Pull & Bear said net profits rose 1 percent in the 2013 fiscal year to 2.38 billion euros, or $3.17 billion. Net sales were up 5 percent to 16.72 billion euros, or $22.25 billion, during the period from Feb. 1, 2013, to Jan. 31, 2014.
This compared with a 22 percent jump in net profits and a 16 percent rise in net sales during fiscal 2012. Dollar figures are converted at average exchange for the period to which they refer.
Isla branded the performance “satisfactory.” Store sales in local currencies were up 12 percent from Feb. 1 to Saturday.
The slowdown in net sales growth last year reflected not only Inditex’s store optimization plan, which Isla said was “now largely completed,” but also high comps and the impact of the strong euro.
“Refurbishments are not a negative factor. They have an impact on the P&L, but it’s very, very positive for the company, all this effort we are making regarding refurbishments,” Isla said.
The group, based in Arteixo, Spain, said sales in constant currency terms were up 8 percent in the year, while like-for-like sales rose 3 percent. The gross margin, a key indicator of profitability, was down 50 basis points to 59.3 percent, a variation that Inditex qualifies as remaining broadly stable.
Isla said the retailer expects a similar currency impact in 2014, with the effect concentrated in the first half of the year, and for the gross margin to remain stable. “In general terms, we will maintain stable prices in the different geographies,” he added.
In a separate press conference, held at the company’s logistics center in Meco, near Madrid, Isla said Inditex did not plan to launch any new formats, “but rather than new formats, we are always considering new product lines to be incorporated within our brands.”
He noted that sales for low-cost label Lefties, with 100 stores in Spain and Portugal, have remained stable in recent years, but didn’t discount the possibility of some changes there.
Overall, Inditex plans to invest 1.34 billion euros, or $1.86 billion at current exchange, in 2014, up from 1.24 billion euros, or $1.73 billion, the previous year.
The company recently completed a 750,000-square-foot extension to its headquarters and has introduced new features to its distribution centers in Spain, such as an automated hanging garment storage and retrieval system in Zaragoza.
At its annual general meeting in July, Inditex’s board is to propose a final dividend of 2.42 euros a share, or $3.37 at current exchange, an increase of 10 percent from the previous year.
Bernstein Research said the results were broadly in line with expectations, and it was encouraged by the early sales performance for 2014.
“We continue to believe that Inditex has the strongest business model in apparel retail, will deliver double-digit earnings growth in the medium term and can hold its multiple,” it said in a research note, rating the stock “outperform.”
Shares of Inditex gained 4.9 percent Tuesday to 108.10 euros.