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Inditex Looks to Online Growth, But Overall Sales Could be Slowing

Fast-fashion firm Inditex reported fiscal year 2018 results that noted both online sales growth of 27 percent and plans for new online launches this month and in May, but the year’s like-for-like sales grew 4 percent and its guidance for fiscal year 2019 is only up 4 percent to 6 percent.

In a Nutshell: On the surface, Inditex said net income rose 2 percent and net sales grew 3 percent, or 7 percent on a constant currency basis. But digging a little deeper raises questions about growth prospects in fiscal year 2019.

The company said like-for-like sales rose 4 percent, or 4 percent in the first half and 3 percent in the second, according to an investor presentation. That’s below the 5 percent growth rate in fiscal year 2017. For fiscal year 2019, the company only guided up at 4 percent to 6 percent. And gross margins for 2018 were essentially flat at 56.7 percent compared with 56.3 percent for the prior year.

In future reports, Inditex said its Zara Home results will be integrated into Zara for its earnings reports. It noted the change due to “increasing synergies” between the two concepts, and of plans to leverage the operational and brand management of its store and online platform.

The company in its investor presentation said deliveries are distributed to all stores worldwide twice a week. It expects full global online integration in 2020 of its central inventory, online stockrooms and store network platform. That is expected to allow for same day delivery in metropolitan areas, and next day in all other locations as its global standard.

Sales: Net sales for the fiscal year 2018 ended Jan. 31 rose 3 percent to 26.15 billion euros, or $29.57 billion, at current exchange. Sales were up 7 percent on a constant currency basis. Like-for-like sales rose 4 percent. Fiscal year online sales grew 27 percent to 3.2 billion euros, or $3.62 billion.

The company said its global online sales were on track. In March 2018, online launches were completed for Zara in Australia and New Zealand. November saw launches in 106 additional markets. The Zara collections are now in a total of 202 markets. Inditex is planning to launch online sales for Zara in Brazil later this month, and in May it will add Dubai, Egypt, Indonesia, Israel, Lebanon, Morocco, Saudi Arabia, Serbia and United Arab Emirates.

Inditex said for first six weeks of fiscal year 2019, from Feb. 1 to March 9, sales at stores and online in constant currencies rose 7 percent.

Earnings: Net income rose 2 percent to 3.45 billion euros, or $3.90 billion, while gross profit was up 4 percent to 14.82 billion euros, or $16.76 billion.

In fiscal year 2019, the company plans to open 300 stores and close 250 stores. At the end of fiscal year 2018, the company operated 7,490 stores.

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