Zara owner Inditex profits up on international drive

Emmanuelle MICHEL

Spain's fashion retail giant Inditex (Amsterdam: IT6.AS - news) , owner of popular brand Zara, said Wednesday that its drive to expand internationally helped push up profits last year.

Inditex, one of the world's largest fashion retailers, said in a statement that its bottom-line profit rose by 10 percent to 3.16 billion euros ($3.4 billion) last year.

The company -- whose brands include Zara, Massimo Dutti, Pull&Bear, Bershka and Oysho -- therefore beat its main rival, Sweden's H&M, which booked net profit of around two billion euros in 2016.

But the Spanish group's profit growth was slower than in 2015 when its bottom line had risen by 15 percent as weaker currencies in China, Russia and Mexico reduced the value of sales in those markets when translated into euros.

"These are a positive set of results against a backdrop of strong prior-year performance," said Inditex chairman Pablo Isla.

Revenues expanded by 12 percent to 23.3 billion euros, "underpinned by growth in all of the geographic regions where the group is present," Inditex said.

Europe accounted for around 60 percent of its sales, Asia represented 24 percent and the Americas 15 percent.

By comparison, H&M's sales topped the 24-billion-euro mark in 2016.

Inditex said sales growth had continued apace in the new financial year, with store sales rising 13 per cent between February 1 and March 12 on constant-currency terms.

The company said that it opened 279 new stores in its business year, which runs from February to January, bringing the total number of stores worldwide to nearly 7,300 in 93 countries.

It entered five new markets ?- New Zealand, Vietnam, Paraguay, Nicaragua and Aruba ?- and continued to launch new online sales platforms in markets around the world.

- More new stores -

After starting online sales in Singapore and Malaysia this month, Inditex plans to add such services in Thailand and Vietnam in the next few weeks, and in India during the second half of the year.

The company does not provide sales figures for its online sales -- which it began relatively late, in 2010 -- but Isla said Internet sales had a lower profitability than the rest of its activity.

Inditex said it expects a similar rate of new store openings in 2017 as in past years and would continue its strategy of opening flagship stores in top shopping districts and absorbing its own small outlets into nearby big stores.

The company said it will open a 5,000 square-metre flagship Zara store in Mumbai, which will be its largest store in India. Inditex has 21 stores in that market.

It also plans to open newly refurbished stores in iconic locations in Paris and London next year.

Based in Arteixo, a small town in northwest of Spain, Inditex makes over half of its clothes in factories close to its main markets --- in Spain, Portugal, North Africa, Turkey and Eastern Europe.

This business model allows it to get clothes to stores much faster than its rivals, who prioritise low production costs and outsource manufacturing to China, and can react more quickly to shifting consumer tastes to avoid excess inventory.

Clothes made for Zara, for instance, can go from the design stage to store racks in a mere two weeks. By comparison the process takes H&M six months.

Shop assistants report back customer reactions, to their managers, who then provide feedback to designers.

Inditex created nearly 9,600 new jobs in 2016, boosting its worldwide headcount to close to 162,500.

It also said it would increase the dividend payout by 13 percent to 0.68 euros per share for 2016.

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