Inditex: profits rise despite unfavourable currency effects
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Inditex: profits rise despite unfavourable currency effects

Spanish fast fashion king Inditex saw profits rise despite unfavourable currency effects in 2016. The company, best known for popular brands like Zara and Massimo Dutti, announced a 10% rise in full year net earnings for 2016. However, currency effects and lower prices hit Inditex’s margins, pushing them down to a 7-year low.

However, Inditex, which is particularly sensitive to currency effects simply due to the size of its global footprint and the many regions in which it operates, was able to compensate for this headwind by capitalizing on strong global demands for its products. The company saw a 12% rise in net sales for the full year, with same-store sales increasing 10% year-on-year, from 8.5% in 2015.

This sales growth has continued into 2017. According to the company, store sales are up 13% between February 1 and March 12 alone. Pablo Isla, Inditex’s executive chairman, thinks this is set to continue. He said: “2017 will be another year of strong expansion for Inditex,” adding that the company expects to open 450 – 500 stores this year, whilst closing 150 – 200 of its currently existing smaller outlets.

Some analysts also think that the company is about to see a payoff from its multiyear refurbishment project, which has seen 75% of its store space undergo “optimization” efforts. Regarding Inditex’s store network, Anne Critchlow, retail analyst at Société Générale, added:

“Over the past four years, Inditex has invested massively in its store network, closing smaller and secondary stores and focusing on larger flagship sites that are more productive. Most of that hard work has now been done.”

The company opened 279 outlets in 2016, and now has 7,292 globally. It entered five new markets, and upped its ecommerce offering. Inditex now sells online in 43 countries.

Disclosure
Dominion holds Inditex in its Global Trends Luxury Fund. 


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