Inditex shares dropped 5 per cent on the Madrid Stock Exchange on Wednesday, after the owner of Zara revealed slower growth in FY18 than in previous years, due to a stronger euro, flat margins, less frequent discounting and a store optimisation strategy that focuses on larger stores in prime locations and online growth at the expense of smaller stores.
While the retail giant reported a 7 per cent sales increase at constant currency rates year on year to 26.1 billion euros, this was less than half the rate of growth the company reported a few years ago, Morgan Stanley said in a note, according to Reuters.
“[W]e believe it is evidence that the group’s growth profile is slowing sharply,” Morgan Stanley said.
Like-for-like sales grew 4 per cent in FY18, compared to 5 per cent in FY17, and online sales grew 27 per cent to 3.2 billion euros, or 12 per cent of net sales. This is on the low end for an apparel company, where online penetration tends to be higher.
Inditex opened 370 stores in the year, and closed 355, which was nearly twice as many as the 200 stores it said it was planning to close last year. This may have had an impact on sales growth in FY18, an investor told Reuters, but could prove to be the right strategy long term.
The group increased gross new space in prime locations by 8 per cent and is continuing to roll out its omnichannel store format, which integrates bricks-and-mortar and online channels. The group said it sees strong opportunities for growth in this space going forward.
Inditex said global online sales are on track. Zara launched online in Australia and New Zealand last March and entered an additional 106 markets online in November, bringing the total number of markets it sells online in to 202.
The company reported profits of 3.44 billion euros in FY18, up 2 per cent on the previous year, and sales of 26.15 euros, missing a consensus estimate for net profit of 3.49 billion euros and sales of 26.45 billion euros, according to Refinitiv I/B/E/S data reported by Reuters.
In its first five weeks of FY19, the group lifted store and online sales 7 per cent at constant currency rates. The company said it expects like-for-like sales to grow between 4 and 6 per cent this fiscal year, and gross space in prime locations to grow between 5 and 6 per cent.
The fashion giant expects to open around 300 stores and close around 250 in FY19. As at 31 January 2019, Inditex had 7490 stores worldwide across the Zara, Pull & Bear, Massimo Dutti, Bershka, Stradivarius, Oysho and Uterque brands.