Saturday, March 2

Zara Owner Inditex Improves Profitability Despite Sturdy Euro

One of the world’s largest fashion retailers Inditex, that also owns the very famous fashion brand Zara has announced on Wednesday about the improvements in its profitability for the beginning three months of the current financial year. Without being affected by all the negative currency effects, the retailer managed to increase profits.

However, inadequate sales growth in the first quarter of the year discouraged the investors, along with negative currency effects and unseasonably cold weather in Europe. Because of these events, the quarterly growth rate was a mere 2 per cent, lower than rates booked during the financial crisis.

But further, it has also been reported that the sales of the company were very strong in the first six weeks of the second quarter. The sales were raised by 9% in local currencies as customers got their hands on the attractive summer collections from Zara that included striped maxi skirts and linen dresses.

A sound Euro has a non-desirable effect on the profitability of Inditex. This is because most of the amount created by the owners of upmarket chain Massimo Dutti and underwear store Oysho through the sales of their products are in form of non-euro currencies. But the costs incurred by the company are in form of Euros. Inditex’s centralized sourcing and distribution model also shows a huge part of its costs are in Euros.

The gross margin rose to 58.9 per cent of sales despite the Euro getting stronger from around 16 per cent a year ago. Along with this, Inditex launched new stores in around 36 markets and also introduced e-commerce sales in New Zealand and Australia during the time period. In total, the number of stores has decreased because the company shut down smaller stores to focus on big destination-style stores. At present, the company has 7,448 stores all around the globe.