Inditex profits take a hit as sales soar

  • Spanish apparel conglomerate Inditex on Wednesday reported a fiscal year 2018 net sales increase of 3% (7% in local currencies) “to an all-time high” of 26.1 billion euro, or $29.6 billion. Online sales revenue rose 27% to 3.2 billion euro, accounting for 14% of sales in markets with stores, according to a company press release.
  • Same-store sales rose 4% in the year, with positive comparable sales across all regions and brands, both online and in stores, the company also said.
  • Net profit rose 2% to 3.4 billion euro, 12% in local currencies, which the company called a new record, “while EBITDA and EBIT reached all-time highs, supported by strong margins,” the company also said. Gross profit rose 4% to 14.8 billion euro, “supporting a 39 basis point increase in gross margin to 56.7%.”

Dive Insight:

The Zara parent stoked sales to a new peak last year. But profits took a hit, missing analyst forecasts, as rival fast-fashion retailer H&M drove down prices to clear inventory, which may have forced its own markdowns, and as Inditex embarked on an ambitious plan to cover the globe with its e-commerce operations.

CEO Pablo Isla in a statement on Wednesday said the company’s “investments in both logistics and stores in order to leverage the integrated platform, as well as our continued focus on prime locations, has enabled Inditex to offer customers a consistent and appealing proposition globally, across all our brands and channels.”

In September, Isla announced that all of the company’s brands will be globally available online by 2020, including in areas without any stores. That was a vote of confidence in its own logistics, which revolutionized apparel retail with a speedy supply chain that delivers on-trend apparel to stores. Fast fashion has been a challenge even to luxury designers. Zara, its siblings and its rivals have been known to quickly develop knock off styles just as the real deal has barely left the runway. At this point, all apparel retailers have sped up operations in response, and many luxury brands have experimented with shoppable runway collections.

It may be that Inditex is now feeling a loss of that advantage, and the higher costs of e-commerce could also be taking a toll.