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Inditex SA, Europe’s largest clothing retailer, is charging full-steam ahead, expanding its physical stores as well as its online presence worldwide.
This story first appeared in the March 14, 2013 issue of WWD. Subscribe Today.
In tandem with reporting a 22 percent jump in 2012 net profits, the parent of the Zara chain said it would open between 440 and 480 new locations this year.
“There is room for growth in most geographies,” Inditex chief executive officer Pablo Isla said during a conference call with analysts, noting that “China will be the most relevant country because of its size.”
The fast-fashion giant registered net profits of 2.36 billion euros, or $2.96 billion. Net sales rose 16 percent to 15.95 billion euros, or $20.48 billion, in the year ended Jan. 31.
Dollar figures are converted at average exchange rates for the period to which they refer.
Inditex shows no signs of slowing. Sales in local currencies increased 12 percent between Feb. 1 and March 11 of this year, Inditex said, noting it adjusted the figure to account for an extra trading day in February 2012 due to the leap year.
Inditex’s results are the fruit of its strategy to offset weak consumer spending in austerity-hit Europe by thrusting into new markets. Isla was very specific about his strategy to spin a web of retail businesses over a mix of regions, instead of concentrating more on one or the other.
Founded by the world’s third-richest man, Amancio Ortega, who Forbes estimates is worth $57 billion, the group, which owns brands such as Zara and Massimo Dutti, opened 482 stores in 64 markets in 2012 — including debut launches in Armenia, Bosnia and Herzegovina, Ecuador, Georgia and Macedonia. Inditex now operates a total of 6,009 stores worldwide.
Milestones in Europe included a Zara flagship on the Champs-Elysées in Paris and a new Zara store on London’s Oxford Street, “of which we are especially proud,” Isla said.
In total, retail space grew 11.4 percent to 34.4 million square feet.
In 2012, Inditex devoted 1.4 billion euros, or $1.82 billion, in ordinary investments in renovating and upgrading stores, expanding its eco-efficiency program as well as modernizing its eight distribution centers.
Last year’s innovations included “Bershka’s launch of the first store in the world exclusively lit by LED technology,” the company stated.
“The investment plan guarantees the future of our company,” said Isla.
He stated that 2013 “will be a strong year of expansion.”
“Space growth will be in line with our long-term targets of 8 to 10 percent, [while] capital expenditure for the year will be around 1.25 billion euros [or $1.63 billion],” said Isla.
The group’s online store network grew to 23 markets, including new Zara online launches in China in December and in Canada last week, while Massimo Dutti and Zara Home online shops made their debut in the United States.
Russia, where 75 stores opened doors in 2012, will see Zara online go live in the second half of 2013.
“Zara has 2 million visits per day on its Web pages, the other brands combined an additional 1 million visits. It’s an incredible tool to communicate with our customers,” said Isla.
He noted that although “online penetration is much lower in Russia compared to the United States,” it is a significant project given “the number of people that are visiting our Web pages, with part of them buying online, but most of them continuing to our [physical] stores.”
Europe outside of Spain has remained the most important region, accounting for 45 percent of sales, while recession-battered Spain is down to 21 percent from 25 percent the previous year.
“It’s a very difficult situation here, a bad moment,” said Isla of Spain. “There are a few slightly optimistic indications but nobody, nowhere, can afford to relax.”
During the same period, Asia’s share grew to 20 percent from 18 percent, while the Americas jumped to 14 percent from 12 percent.
Zara, which accounts for two-thirds of the group’s sales, performed most strongly, beating analysts’ expectations with total sales growth of 18 percent, while Massimo Dutti’s performance remained lower than expected.
Analysts expressed concern about the decline in the gross margin in the fourth quarter, which stood at 59.8 percent versus 59.3 percent in the previous year, hence lower than expected.
“You cannot grade the gross margin by quarter, because we operate by seasons,” said Marcos Lopez, Inditex’s capital markets director. “It had a very strong performance in the first half and was stable in the second half — in the context of 16 percent sales growth and our expansion for 2013. This is as far as we can go. It’s 45 basis points higher than last year.”
“Also keep in mind the demanding comparable,” added Isla, noting that he expects the gross margin to remain stable in 2013. “Stable for us means plus or minus 50 basis points.”
At its annual general meeting in July, Inditex’s board of directors is to propose a final dividend of 2.2 euros a share by November 2013, an increase of 22 percent from the previous year.
Inditex created 10,802 jobs in 2012, closing the year with 120,314 employees. Its shares closed down 2.6 percent at 105.65 euros, or $137.64, due to the slight slowdown in the fourth quarter and higher expectations in the group’s performance.
According to Bernstein Research, “Inditex will deliver double-digit earnings growth in the medium term and can hold its multiple.…We would view any weakness today as a buying opportunity for the stock.”