PARIS — Opting out of the season’s price-slashing frenzy, Inditex said it prefers to focus on margins and keeping a tight rein on inventories as it continues to push its sprawling global network further into the digital sphere.
“We have opted very clearly for quality over this third quarter,” said Ignacio Fernández, chief financial officer of the Spanish fast-fashion giant and Zara owner, in a conference call with analysts Wednesday to discuss nine-month results.
While rivals have been drumming up business by offering discounts and promotions, Inditex executives indicated they are instead betting the company’s growth strategy on swift delivery through high-tech sales and logistics systems.
“We operate a unique global sales platform that fully integrates the stores and online and offers huge growth potential,” said Pablo Isla, chairman and chief executive officer of the retailer. The executive said he saw the potential for more business with both new and existing consumers, while citing same-day delivery in cities and next-day delivery as the “global standard.” The company aims to offer online sales to all markets in the world by 2020.
Analysts noted sales fell below expectations but pointed to profit figures and maintained company guidance as reassuring.
“Inditex has clearly been trading sales for profits although Q3 was a little soft due to an exceptionally warm September, we think its trading performance is solid in the context of a challenging environment,” Richard Chamberlain, analyst with RBC Europe, said in a research note.
“Topline weakness is disappointing, but reiterating guidance may offset some concerns,” noted analysts at UBS in a note. Third-quarter sales growth of 1.9 percent fell below the UBS estimate of 6.5 percent, but gross margin of 60.5 percent beat the UBS projection for 59.6 percent, the analysts added.
Investors took note of the slower-than-expected pace of sales growth, and shares traded lower, down 4.9 percent to 25.05 euros in late afternoon trading.
Like-for-like sales growth was 3 percent in the third quarter ending in November, with a 5 percent rise, in October and November, according to Fernández. The company maintained its guidance of between 4 percent and 5 percent sales growth for the second half of this year.
The Zara owner did not provide any further breakdowns of third-quarter figures, but nine-month net profit was 2.4 billion euros, up 4 percent, while sales grew 3 percent in the February to October period to 18.4 billion euros.
All regions posted growth, according to the company, which did not provide regional figures and declined to delve into geographic performances despite prodding from analysts. Instead, executives offered insight into the various brands, which include labels Pull&Bear, Massimo Dutti and Bershka.
Zara continues to represent two-thirds of group sales while the younger brands make up the rest, offered Fernández.
“The younger concepts grouped together have performed satisfactorily,” he said. Stradivarius and Pull&Bear performed strongly, he added.
In addition to expanding its store networks into new markets, Inditex is investing in state-of-the-art logistics systems to fuel growth. The company has opened stores in 51 markets over the first nine months of the year as well as upgraded its web site and completed the integration of Zara’s stock-management system in markets where its stores are integrated with the online platform.
Inditex is finishing construction of its new logistics facility in the Netherlands, scheduled for operation starting in May next year, executives said.
“It’s very important to us, this idea of centralized inventory position,” noted Isla. He explained that three logistics centers in Spain were geared to different types of products, rather than focused on specific geographic regions. The Madrid facility handles children’s items, for example, while women’s products are handled in Zaragoza and men’s clothing is handled at a site in the company’s home base in La Coruña, he explained.
Asked if there was a risk that margins could decrease with the rise of online business, Isla contended that business online or in stores is “very similar.”
“In terms of profitability, in terms of margins, there isn’t any significant difference between store like-for-likes and online like-for-likes, it’s not dilutive and it continues to be the case,” he said.
The company has been sprucing up its store networks in recent months, opening a new Zara flagship in Milan, and plans to open a refurbished Zara flagship on Boulevard Haussmann in Paris Thursday, which will have an automated online order pick-up point.
“We continue to reinforce significantly the differentiation of our key global flagships with very visible stores,” noted Isla.