Zara Era Of High Growth Ended In 2018 Failed To Open Shop

In the face of the slowdown of global economic growth and the unfavorable situation of consumer demand for clothing in the age of science and technology, over the past 8 years, the era of rapid growth of fast fashion industry led by Zara has come to an end.

The annual results of the world's largest apparel retailer, Inditex SA (ITX.MC), India and di Textile Group, show that sales and profit growth have reached a five year low. The stock price crashed 6.1% in early trading on Wednesday, the biggest decline in 2019 and narrowing the increase to 10.3% this year.

In the 2018 fiscal year ended January 31, 2019, the net sales of Inditex SA Indo textile group increased 3.2% to 26 billion 145 million euros, less than the 26 billion 450 million euros expected by the market, and the growth rate after the exchange rate effect was 7%, the lowest growth since 2014.

The group pointed out that "the growth of all regional markets, brand concepts and sales channels" promoted comparable sales (82% of total sales) by 4% annually, while the 2017 fiscal year increased by 5%. In addition, the growth rate of 3% in the second half of fiscal year slowed down compared with 4% in the first half of the year, and failed to achieve the goal of 4%-6%.

The abnormal weather enveloped Europe is one of the reasons for weakening consumer demand for Zara coats, Massimo Dutti leather boots and Bershka sweaters. The group's policy of concentrating discounts at the end of the season also cracked down on customers' desire to buy.

Apart from the growth of casual wear brand Pull&Bear and underwear brand Oysho respectively 11.2% and 7% in the year, the other five brands only had low single digit growth.

The group combined Zara and Zara Home in the fourth quarter to account for nearly 70% of the group's sales of Zara business, which increased by 2.2% to 18 billion 21 million euros compared with the same period last year.

Morgan Stanley Morgan Stanley analyst Geoff Ruddell pointed out that although most retailers meet the fixed sales growth rate of 7%, this is only half of the Inditex SA India Textile Group's growth rate two years ago. "We believe this is the evidence for the rapid growth of the group's growth."

At this time last year, Inditex SA Indo textile group said it would open 300-400 new stores in the 2018 fiscal year and close 200 stores. Eventually, the number of new stores was 370, but the number of outlets was as high as 355. This shows that management is speeding up the optimization of the physical network and expanding the online business.

Alistair Wittet, the European portfolio manager of ComgestSA, the thirteenth largest shareholder of the group, believes that the speed of closing the Inditex SA Indo Textile Group is faster than market expectations, which will naturally drag growth in the short term, but in the long run is the right strategy.

In 2018, the group's online sales of 3 billion 200 million euros accounted for 12% of the group's total sales, representing a two percentage point increase in the 2017 fiscal year, but still less than 14.7% of the main competitors and the parent company Hennes& Mauritz AB (HMb.ST) of H&M.

Last year, online sales grew by 27% over the same period last year, far less than 41% in the 2017 fiscal year.

On the other hand, the group put forward its strategy of covering all the global online markets before 2020, and Zara added 106 online markets in two months. At present, online services cover 202 countries and regions, but fail to bring higher growth to the group's online business.

The gross profit margin of Inditex SA Indo textile group was 56.7% year-on-year, up 40 basis points.

The growth rate of EBIT was only 1%, from 4 billion 314 million euros to 4 billion 351 million euros, and the EBIT profit margin dropped by 30 basis points to 16.7%.

Pablo Isla, the group's chief executive, said that although the euro's weakness had hurt its performance, profit margins remained "healthy", but he expects profit margins to remain flat this year.

Net profit rose 2.2% to 3 billion 444 million euros, slightly lower than the market expected 3 billion 490 million euros.

The annual dividend increased by 17% to 0.88 euros per share, and the dividend payout rate increased from 69% in fiscal 2017 to 80%.

Soci e t e G e n rale SA SA analyst Anne Critchlow thinks dividend is the biggest highlight of this earnings report.

As of January 31st, the Inditex SA Indo Textile Group has 7490 stores in the world, a net increase of 15 stores over the same period last year. The Spanish market has the largest number of stores, followed by China and Russia.

In the 2019 fiscal year, there are 300 new stores, ending 250 smaller or poorer branches.

Management revealed today that it will open up cowboy guerrilla corner in some European stores and follow the example of Levi s s and Nike Nike to provide personalized service.

In the first five weeks of the fiscal year ending March 9th, the fixed exchange rate of Inditex SA Indo textile group was 7%.

Management expects annual comparable sales growth to be 4%-6%.