We inform you that on this website we use our own and third-party cookies to collect information about its use, improve our services and, where appropriate, display advertising by analyzing your browsing habits. You can expressly accept its use by pressing the "ACCEPT" button or configure and select the cookies you want to accept or reject in the settings. You can also get more information about our cookie policy here.

The global fashion business journal

Oct 7, 20247:54am

Inditex: all eyes on margin in its first year after its transformation

The company will present next Wednesday the results of fiscal year 2018, the first after completing the restructuring of its network of stores and in full transformation into becoming online operator.

Mar 11, 2019 — 10:01am
Pilar Riaño
Related topics
Save

Inditex: evaluation of the first year after transformation focused on the margin

 

 

Inditex is one more year under the microscope, and with it, the entire sector. With the fashion retail model under scrutiny, the Spanish group presents next Wednesday the results of fiscal year 2018, the first after completing the restructuring of its network of stores and reaffirming its transformation into an online operator. To improve 2017 sales and profits, it is enough to repeat the performance of the fourth quarter of that year. However, all eyes are on another indicator: the margin.

 

Now that the number two of fashion distribution in the world, H&M, is weakened and analysts raised doubts about the future of the sector, in March of last year Inditex gave a blow to the annual presentation of results. On one hand, the company put on the table the value of its online sales (a data kept as a state secret until then) and, on the other, admitted that it had been five years since 2012, restructuring its network of physical stores. The physical loses more and more weight at the expense of the online, which is assuming a total transformation of the business.

 

The results of the fiscal year 2017 were not as good as those of previous years, but Inditex passed the the presentation test. Nevertheless, months later the alarms went off again: after a harsh report by Morgan Stanley (“gradual” and “inevitable fall” were some of the statements that it included), the stock market punished Inditex. Given this, the group took a second blow: in September, the company announced that in 2020 it would sell online to all the countries in the world, whether it had a physical store. In practice, its model changes to approach that of an online operator.

 

 

 

 

 

Thus, the 2018 results have special relevance with respect to those of previous years, since they correspond to the first year of Inditex’s new direction. The first three quarters of 2018 have not been especially bright for the group, but the truth is that it is enough to repeat the fourth quarter of 2017 to improve the performance of 2018.

 

The Spanish group flagged during the beginning of the fiscal year 2018 and ended the period between February and April with a growth of 1.53% and a rise of 2.14% in its net profit. In the first half, the company presided by Pablo Isla recovered its rate. The group enlarged its business by 3% during the first six months of fiscal year 2018, reaching 12.02 billion euros. Its net profit, on the other hand, was raised in the same proportion, 3%, standing at 1.4 billion euros.

 

The first nine months of the fiscal year (between February and October) were finished, again, with a bittersweet taste: the company raised 4% its net profit and 3% its volume of business, but the results did not convince the stock market, which enforced a tough correction to the Spanish company’s shares.

 

If Inditex had sales of 7.37 billion in the fourth quarter and a net result of 1.02 billion euros (exactly the same figure as in the equivalent period of 2017), the company would close 2018 with an increase of 1.8% in sales and of 2.88% in net profit.

 

 

 

 

 

If, on the contrary, it maintained the pace of the fourth quarter of 2017, that is, increasing its sales by 6.78% and its net result by 7.88%, it would conclude the 2018 fiscal year with an increase of 3.84% in its sales and of 5.2% in its net profit.

 

Thus, Inditex must overcome the performance of the fourth quarter of 2017 if it wants to improve the growth of that year, something which is complicated taking into account the harshness of the months of November, December and January in the sector, due to the temperatures and a social climate that does not help sales.

 

Inditex closed 2017 with a growth of 8.69%, low compared to the increases of 11.54% and 15.36% in 2016 and 2015. The net result of the group, meanwhile, rose by 6.68%, also far from the increases of 9.81% and 14.95% of the two previous years.

 

 

 

 

 

Margin under recovery

Perhaps, based on the evolution of Inditex, the new reality of the sector focuses on companies with more moderate growth, but the truth is that its margin must be strengthened. After several weakening years, the Spanish group began to reverse the trend in 2018.

 

Inditex was able to do that by escaping the system of discounts and promotions that its competitors use so much. Inditex avoided “the promotional activity widely seen in the sector”, focusing “on execution”, that is, control of expenditure and inventory, explained Pablo Isla, president of Inditex, in the presentation of results for the third quarter.

 

In the third quarter of 2018, from August to October, the company’s gross margin amounted to 60.5% of the group’s revenue. This is the highest percentage in a quarter since the third quarter of 2014, when it stood at 61.2%, and the first time it exceeds 60% since the same period in 2015.

 

In 2016, the gross margin of Inditex in the third quarter of the year (which always shows a higher profitability in comparison with the rest) was of 59.7%, and in the same period of 2017, of 59.4%.

 

Pending the results of 2018, in the fourth quarter of 2017 the gross margin stood at 53.5%, compared to 54.8% in the same period of 2016 and 55.6% in the same period of 2015.

Advertising
Participation rules

info@themds.com

 

Validation policy for comments: 

 
MDS does not perform prior verification for the publication of comments. However, to prevent anonymous comments from affecting the rights of third parties without the ability to reply, all comments require a valid email address, which won’t be visible or shared.
 
Enter your name and email address to be able to comment on this news: once you click on the link you will find within your verification email, your comment will be published.

0 comments — Be the first to comment
...