Zara Owner Succumbs to Retail Woes as Profitability Ebbs
Zara Owner Reports Slowdown in Sales, Weaker Profitability
(Bloomberg) -- Inditex SA, the world’s largest clothing retailer, reported a slowdown in sales and its weakest profitability in a decade, showing that the owner of the Zara chain isn’t immune to the troubles afflicting rivals such as Hennes & Mauritz AB.
The company’s gross margin narrowed to 56.3 percent in the year through January amid adverse currency effects and as like-for-like revenue rose at the slowest pace in three years, Arteixo, Spain-based Inditex said Wednesday in a statement. The stock fell as much as 3.1 percent in early trading in Madrid.
Inditex’s profitability is vulnerable to erosion from a strong European currency as the bulk of its costs are in euros and most of its revenue comes from countries outside the single currency area. The retailer has also been spending more on remodeling stores and expanding its online business to head off competition from Amazon.com Inc. Poor weather conditions in Europe also weighed on demand.
“The colder weather compared to last year across Europe had a negative impact,” said Anne Critchlow, an analyst at Societe Generale SA in London. “Inditex will not be the only clothing retailer to have suffered.”
Investors turned sour on Inditex last year, with the stock clocking its worst annual performance since 2008. It’s currently hovering near a three-year low.
The company’s 81-year-old founder, Amancio Ortega, now ranks as the world’s sixth-richest person as his fortune declined along with Inditex’s stock, according to data compiled by Bloomberg. He was as high as second in August. At rival Hennes & Mauritz AB, Chairman Stefan Persson’s net worth has sunk to a six-year low, also amid a sustained rout in the retailer’s shares.
There were two bright spots in the Inditex report: Online sales rose 41 percent and reached about 2.5 billion euros ($3.1 billion), a tenth of the total. The company is raising its dividend 10 percent, which increases its payout ratio to 69 percent, according to Critchlow.
--With assistance from Macarena Munoz
To contact the reporter on this story: Thomas Mulier in Geneva at tmulier@bloomberg.net.
To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, John J. Edwards III, Marthe Fourcade
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