Zara owner reports slowdown in sales, weaker profitability

GENEVA: Inditex SA, the world’s largest clothing retailer, reported a slowdown in sales and its weakest profitability in a decade, showing that the Zara operator isn’t immune to the troubles ailing Swedish rival Hennes & Mauritz AB.

The gross margin narrowed to 56.3% in the year through January amid adverse currency effects, Arteixo, Spain-based Inditex said yesterday in a statement. Like-forlike revenue gained 5% in the second half, the slowest pace in three years.

Inditex’s profitability is vulnerable to erosion from a strong European currency as the bulk of its costs are in euros and most of its revenue comes from non-euro countries, according to Societe Generale SA. Inditex has also been spending more on remodeling stores and expanding its online business to head off competition from Amazon.com Inc. Poor weather conditions in Europe are also weighing on retail.

“The colder weather compared to last year across Europe had a negative impact, and Inditex will not be the only clothing retailer to have suffered,” said Anne Critchlow, an analyst at Societe Generale.

Online sales rose 41% and reached a tenth of the total, Inditex also said. The company is raising its dividend by 10%, which increases its payout ratio to 69%, according to Critchlow.

Inditex’s 81-year-old founder, Amancio Ortega, has dropped down to become the world’s sixth-richest person as his fortune has declined, according to data compiled by Bloomberg. — Bloomberg