March 19, 2014 / 9:25 AM / 5 years ago

Inditex to invest more in 2014 as sales bounce back

MADRID (Reuters) - Inditex, the world’s biggest fashion retailer, will accelerate investment in 2014 to open more new stores after results last year were hit by falling currencies outside the euro zone and the cost of revamping flagship stores.

People walk inside a Zara store in central Madrid March 18, 2014. Inditex, the world's biggest fashion retailer, will accelerate investment in 2014 to open more new stores after results last year were hit by falling currencies outside the euro zone and the cost of revamping flagship stores. REUTERS/Andrea Comas

The owner of the Zara brand reported on Wednesday that core annual profit in the 12 months ending January 31 was flat at 3.9 billion euros ($5.4 billion), the first time growth has stalled since it went public in 2001, but meeting analyst expectations.

Inditex, owned by the world’s third wealthiest man, Amancio Ortega, made sales of 16.7 billion euros in 2013, a rise of 5 percent, or 8 percent in local currencies, exactly in line with the forecast in a Reuters poll.

The Spanish retailer, which runs brands such as mid-market Massimo Dutti and teen labels Bershka and Stradivarius in 6,340 stores in 87 markets, said sales rose 12 percent in local currencies in the period from February 1 to March 15.

“We are seeing recovery in southern Europe and Inditex is quite highly exposed to southern Europe. Spain, Portugal, Greece and Italy - all those countries are bouncing back,” said Anne Critchlow, retail analyst with Societe Generale.

Retail sales are expected to accelerate in the spring as warmer temperatures and improving household finances in the United States unleash pent-up demand after an unusually cold and snowy winter there weighed on sales. Inditex made 14 percent of sales in the Americas in 2013.

Sweden’s Hennes & Mauritz, the world’s second largest fashion retailer behind Inditex, said on Monday its sales rose 11 percent in February, albeit below a median forecast of 14 percent in a Reuters poll.

Inditex shares, which trade at 24.6 times expected 2014 earnings compared with 22.8 times for H&M and 13 times for Gap, have slipped 12 percent since late October on concern about the company’s exposure to tumbling emerging market currencies.

The stock jumped 3.5 percent to 107 euros in early trade on Wednesday, after results were released.


Inditex expects to lift capital expenditure in 2014 to 1.35 billion euros as it plans 450-500 gross store openings, compared with the 1.24 billion euros it spent in 2013 when it opened a net 331 new stores, adding 9 percent more retail space.

Inditex had initially guided for between 440 and 480 new stores in 2013 but later said it was aiming for 8-10 percent of net new selling space as it shifts strategy towards fewer but bigger store openings, closing smaller stores.

The company began expanding and introducing a new look into some of its Zara flagship stores from 2012 at places like New York’s Fifth Avenue and Paris’ Champs Elysee. It introduced the new look into about 100 Zara flagships last year.

The company said it had started online sales in Greece in March and would launch in Romania in April, followed by South Korea and Mexico later in the year, taking the total number of e-commerce markets to 27, compared with a planned 13 for H&M.

Inditex and H&M were late starters online, where sales are forecast by some analysts to eventually account for about a quarter of the fashion market, but Inditex is seen as more likely to benefit because of its higher-margin garments and centralized logistics.

Inditex’s gross margin slipped in 2013 to 59.3 percent from 59.8 percent in 2012, but was stable in its fourth quarter at 57.9 percent, compared with the fall to 60.8 percent from 61.6 percent H&M saw in the September-November quarter.

Inditex made 20.4 percent of sales in Asia in 2013, overtaking its home country Spain on 19.7 percent, where it has suffered from a double-dip recession and plummeting domestic spending, prompting the company to quietly expand its budget Lefties brand.

Spain sales have fallen an average 2.7 percent on a like-for-like basis for the last five years, compared with a 5.5 percent rise in global sales, estimated BernsteinResearch.

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The company said it was proposing a 2.42 euros per share dividend on 2013 earnings, up 10 percent.

Net profit for the year rose 1 percent to 2.4 billion euros, up 1 percent from a year earlier, meeting analyst forecasts.

($1 = 0.7188 Euros)

Writing by Emma Thomasson; Editing by Fiona Ortiz and Mark Potter

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