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CORRECTED-UPDATE 4-Asia growth drives year profit at Zara owner Inditex
March 21, 2012 / 6:51 AM / 6 years ago

CORRECTED-UPDATE 4-Asia growth drives year profit at Zara owner Inditex

* 2011 net profit up 12.5 percent at 1.9 bln euros

* Announces dividend hike of 12.5 pct to 1.80 euros

* Healthy sales growth despite snowy February

By Sonya Dowsett

MADRID, March 21 (Reuters) - The world’s leading clothes retailer, Inditex, announced upbeat early spring sales on Wednesday while reporting a 12 percent rise in annual profit driven by aggressive expansion into fast-growing Asia.

The owner of fast fashion chain Zara has outpaced rivals during the downturn in austerity-wracked Europe and has more than 5,500 stores across about 80 countries including new markets Azerbaijan, Australia and South Africa.

Asia is a focus of growth for the cash-rich retailer -- especially China which will account for a third of new store openings in 2012 and where Zara will launch an online store this winter.

Shares, which had risen to a record high on Tuesday in anticipation of a dividend pay-out, traded steady on Wednesday up 0.3 percent at 72 euros. Inditex said it would raise its dividend 12.5 percent to 1.80 euros.

“The level of organic growth is exemplary, it is driving into Asia, but the risk is always whether it can maintain this level of growth,” said Alejandro Varela, fund manager at Renta 4, with 400 million euros ($529 million)under management.

The retailer, whose other labels include upmarket Massimo Dutti and accessories brand Uterque, met expectations with a 12 percent rise in full-year net profit to 1.9 billion euros.

Inditex reported store sales in local currencies up 11 percent from Feb. 1 to March 14 when Zara was selling its spring range including floral print shirts, lemon tailored coats and studded ankle boots.

This meant like-for-like sales were up around 3 percent in February and early March during a difficult period when there was snow through much of Western Europe, said Societe Generale analyst Anne Critchlow.


Sales were up 10 percent during the year, 4 percent on a same-store basis, and rose across geographic zones, the company said, without breaking down sales by region.

The gross margin was 59.3 percent of sales during the year, similar to the previous year, the company said. Chairman and Chief Executive Officer Pablo Isla said he expected stable gross margins in 2012.

Just under three quarters of sales are from Europe. Asia and the rest of the world excluding Americas accounted for 18 percent of sales, up from 15 percent the previous year.

Home country Spain, suffering the highest unemployment in the European Union and probably already in recession, accounted for 25 percent of sales, down from 28 percent last year as more of the retailer’s business came from other parts of the world.

Spain sales grew in 2011 and should remain stable in 2012, Isla told analysts on a conference call.

Inditex, founded by Spain’s richest man Amancio Ortega, is trading at 23.3 times expected 2012 earnings, according to Reuters data, more expensive than rival H&M at 22.7 times and Gap of the United States at 14.5 times.

Investment bank Nomura said Inditex warranted its premium, given its consistently strong results, as it raised its target price on the stock to 72 euros per share from 66 euros.

Inditex’s production model is seen as having shielded it from some of the worst effects of the crisis by allowing it to adapt quickly to shifting consumer behaviour and changes in labour and material costs.

As well as making clothes in Asia, where labour costs are rising from previously low levels, Inditex retains manufacturing operations in Spain -- in its home region Galicia -- as well as in neighbouring Portugal and Morocco.

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