Inditex posts weakest profits in five years
brett mathews | 13th March 2019
LA CORUNA – The world’s largest clothing retailer, Spanish-based Inditex, missed full-year earnings expectations this week as it posted its weakest profits for five years. Shares in the company, which has been undertaking a major store restructuring process, fell more than 5 per cent in the immediate aftermath of the results.
Inditex Group’s net sales rose by 3 per cent in FY18 (1 February 2018 – 31 January 2019) to an all-time high of €26.14bn, underpinned by growth in all of the Group’s geographic regions. Sales in local currencies grew 7 per cent.
Yet these figures were not enough to satisfy the markets. In a note, Morgan Stanley said: “Whilst most retailers would be very pleased to report 7 per cent sales growth (at constant currency rates last year), this is less than half the rate of growth reported by Inditex just a couple of years ago and we believe it is evidence that the group’s growth profile is slowing sharply.”
The Inditex Group’s store space increased by 5 per cent, with openings in 56 markets, as it continued to update its store network with a focus on prime locations and the latest technology to provide an integrated store and online fashion platform to customers.
Zara increased its presence to 202 markets, while Massimo Dutti and Uterqüe have just expended their online platforms to 106 new markets, boosting their reach to 184 and 148 markets, respectively.
Both Inditex and H&M have been struggling with flat sales in recent times and are restructuring in the wake of the threat of online as well as the growing market share being taken by Amazon.
What is notable here is that Inditex actually grew its sales at 7 per cent in constant currency rates – and yet the markets were still far from happy. This illustrates the huge pressure that is on large operators such as Inditex to demonstrate rapid growth to the markets. It also shows why a broader market shift to slower fashion provided by more sustainability-orientated business models will be such a difficult balancing act for businesses under such heavy market scrutiny as Inditex.
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