By Jeannette Neumann
A CORUNA, Spain--Zara's parent company reported annual results on Wednesday that were weak for the fashion behemoth but better than many competitors, distinguishing Inditex SA (ITX.MC) as a company that has been able to stand firm against the headwinds battering the retail industry.
Spanish company Inditex said its net profit was 3.4 billion euros ($4.16 billion) in the fiscal year ending Jan. 31, a 7% rise from the year-earlier period. Inditex said its board of directors plans to ask shareholders to approve a 10.3% annual increase in the dividend to EUR0.75 a share.
Sales in stores that have been open for a year or more rose 5%, a marked slowdown from the 10% growth reported the previous period. Inditex's 5% annual growth in like-for-like sales, as the metric is known, is the slowest since 2015, when the figure also rose by 5%.
What is sluggish growth for Inditex, though, is still better than many of its peers. Analysts expect Sweden's H&M Hennes & Mauritz AB (HM-B.SK), for instance, to report a decline in like-for-like sales later this month. Like-for-like sales at Zara's parent company continued to be weak in the first six weeks of the new reporting period, rising an estimated 4% from Feb. 1 to March 11.
"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," Societe Generale analyst Anne Critchlow wrote in a research note.
Despite the decline in Inditex's key profit metric--the company reported an annual gross margin of 56.3%, the lowest in a decade--analysts aren't worried about Zara's ability to continue expanding and boosting sales even as its competitors flail. Much of the financial travails at Inditex, whose eight brands include Massimo Dutti and Bershka, are linked to currency fluctuations.
Zara's parent company generates more than half its sales in more than five dozen non-euro currencies, but produces most of its products in Spain, so the weakening of those currencies against the euro has chipped away at revenue reported in euros.
Since Inditex went public in 2001, the Spanish company has seen 12 fiscal years of net negative effects from currency movements, dealing an average hit of 1.7% to sales growth, Ms. Critchlow wrote in a February research report.
Currency ups and downs are the price Inditex has to pay for its presence in more than 94 markets. Yet those fluctuations don't undermine what analysts and investors say has underpinned Inditex's expansion and ability to outpace competitors: a rapid-fire production and distribution system that turns around designs in weeks and refreshes its more than 7,475 stores around the world with new items twice a week.
Inditex's business model has also allowed it to respond to growing demand from online shoppers, and it provided details on internet sales for the first time on Wednesday, saying that online sales grew 41% in the year ending Jan. 31. Online sales made up 10% of total annual sales, Inditex said.
Write to Jeannette Neumann at email@example.com; @JENeumann