Zara owner Inditex profit growth slows, stores expand

MADRID: Spanish textile titan Inditex, owner of global fashion brand Zara, reported slower profit growth in 2013 as it poured money into new stores, with up to 500 more to open this year.
Created 40 years ago in the northwestern Galicia region by the son of a railwayman, Amancio Ortega, the group boasted a worldwide empire of 6,340 stores in 87 markets at the end of its 2013 business year, which runs to January 31.
Though Ortega, Spain’s richest man and still Inditex’s biggest shareholder, retired as chairman and chief executive in 2011, handing over to Pablo Isla, the group’s philosophy of expanding with new stores and online sales has not wavered.
In 2013, Inditex’s sales rose by 4.9 percent from the previous year to 16.72 billion euros ($23 billion), the group said in a statement.
Asia accounted for 20.4 percent of the company’s sales, overtaking its domestic market Spain at 19.7 percent, where consumer spending has plunged due to a double-dip recession that has left one in four people out of work.
But despite stressing “strict control of operating expenses,” Inditex said business costs rose as it coped with a net 331 new store openings and higher sales in the year.
Net profits edged up by 0.6 percent from the previous year to 2.38 billion euros in 2013, it said.
That result represented a marked slowdown from the previous year, when sales soared 16 percent and net profit by 22 percent.
“The 2013 results are satisfying, in a year characterised by strong investment and job creation,” Isla told a news conference at the company’s logistics center in the town of Meco near Madrid.
Inditex created over 2,000 direct and indirect jobs in Spain last year, he added, welcome news in a country grappling with a jobless rate of just over 26 percent, the second-highest rate in the EU after Greece.
The new business year began with a sales spurt, however, Inditex added, with sales in local currency terms for the February 1-to-March 15 period rising 12 percent from a year earlier.
Investors welcomed the news, with Inditex shares closing up 4.85 percent at 108.10 euros, making it the biggest gainer on the Madrid stock market’s benchmark Ibex 35 index of most traded shares.
“The complicated global economic situation forced (Inditex) to renovate and restructure its commercial space, which affected the evolution of its sales,” Spanish bank Bankinter said in a research note.
“We believe furthermore that the company may have reached a mature phase and therefore it will be hard to see a repeat of double-digit growth in profit numbers,” it added.
Inditex, which besides Zara owns a string of retail brands including Pull & Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home and Uterque, said it had raised investments to 1.24 billion euros in 2013 from 1.09 billion euros the year before, “driven by retail space growth in the year.”
In addition to opening new stores, Inditex refurbished about 100 Zara stores last year.
The group said it expected to invest another 1.35 billion euros in 2014, mostly in new retail space.
Inditex planned 450-500 new openings and the absorption of 80-100 small units into neighboring stores in the year ahead, it said.
“We are going to be ambitious when it comes to opening new stores, with renovations. We are going to continue to invest in all our logistics centers,” said Isla.
The group said it began online sales in Greece in March and planned to launch them in Romania in April, and South Korea and Mexico later in the year, taking the total number of online markets to 27.