Zara Owner Reports Strong Start To The Year, Share Price Increases

Zara

Zara’s owner increased it’s dividend by 15% following the results.

Inditex, the Spanish multinational clothing retailer and best known as the owner of Zara, has reported a successful start to the financial year. The retail giant said that it would be slowing down the rate of store openings in order to focus more on the growing online trend.

The company will only open large flagship stores in key locations globally, for instance the new multi-storey Zara store which was just opened in Manhattan, SoHo district about a week ago, and will endeavour to increase its growth in new stores by 6 to 8 percent instead of the 8 to 10 per cent as previously reported.

Pablo Isla, the Chairman and CEO said in a conference call that Inditex did not distinguish between sales online and sales in store as they are closely linked together and that those who purchased online would come into a store to exchange the item for a different size:

“In many cases this is an online return but a store sale because the customer goes to the store to change the size… The business is integrated from every point of view.”

He also added that the average spend on those who shop online is larger than those that spend in store.

The adjustment in the overall business model has been received positively by analysts who are confident that the company will be able to increase its market share.

Inditex shares have increased by 2.5 per cent following the news.

Bernstien analyst, Jamie Merriman stated:

“We believe that Inditex has made the right choice to slow space growth. We believe that Inditex is clearly able to grow market share with the less capital intensive e-commerce approach.”

The clothing giant has been expanding rapidly over the past year and had opened 330 stores worldwide in 2015, among these was the opening of the Zara brand’s 7,000th store which was opened in Hawaii. Inditex have also expanded its online presence in Hong Kong and Australia to name a few in order to meet the online demand.

Zara items from their spring collection such as, its blouses, laced dresses and metallic footwear assisted in driving sales across the company by 15 per cent at a consistent exchange rate at the start of February – the start of their financial year.

Whereas, competitors such as H&M saw their sales rise by 7 per cent at the start of the year and cautioned investors that due to a warmer winter where stock was hard to sell and a strong dollar will be factors impacting their first quarter results.

Inditex’s 2015 financial results revealed a net profit of 2.88 billion euros, meeting analysts’ expectations, which was enhanced by the euro’s weakness against a backdrop of around 60 other currencies. It also announced an increase of the dividend to 0.6 euros per share which was an increase of 15.4 per cent from the previous year.

The company is also impressively the wealthiest stock in the clothing market and trades at 28.3 times forward P/E in comparison to H&M’s 21.7 figure.

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