Inditex, the world’s largest fashion retailer and owner of the Zara brand, has just reported declining sales and the lowest profitability in a decade.
According to Bloomberg, this information shows that Zara is not immune to the problems the Swedish brand Hennes & Mauritz is facing. Zara’s gross margin dropped to 56.3% in the business year to January due to the adverse impact of currency rates. Similar sales rose 5% in the second half of the year, its slowest pace in three years.
Inditex’s profitability is vulnerable because the euro strengthens. Most of Inditex’s costs are in euros and most of its profits come from countries outside the region using the European common currency, according to bank Societe Generale.
Inditex is also spending more on repairing stores and expanding its online business to compete with Amazon. In addition, weather conditions in Europe also impact sales.
“Colder than last year weather across Europe has also had a negative impact, and Inditex is not the only clothing retailer to suffer,” said Anne Critchlow, an analyst at Societe Generale.
Online sales grew 41% and made up a tenth of all sales. The company is paying 10% dividend, increasing the rate paid to shareholders to 69%. Its 81-year-old founder, billionaire Amancio Ortega, walked down the world’s sixth-richest podium because of his fortune plunging. In August 2017, he used to be the second richest man in the world.
* Source: Youth