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Inditex profits disappoint as stronger euro affects Zara sales

Reuters 2019-03-13 14:32:32

LA CORUNA, Spain (Reuters) - Zara owner Inditex, the world’s biggest clothing retailer, reported annual earnings slightly below analysts’ expectations on Wednesday, hurt by a strong euro and sending its shares lower.

A mans hold a Zara shopping bag outside a Zara store, an Inditex brand, in central Madrid, Spain, December 13, 2017. REUTERS/Susana Vera/Files

The retailer lifted its dividend by 17 percent and said its sales in shops and online rose 7 percent from Feb. 1 to March 9, the start of its new financial year, as shoppers bought items from the spring/summer collections like belted linen blazers and floral A-line dresses from Zara.

Inditex shares tumbled more than 5 percent in early trade, though, as investors digested the disappointing full-year results.

A strong euro can drag on profits as the group generates more than half of its sales in other currencies and then books those sales in euros when reporting results.

Inditex, controlled by founder Amancio Ortega, reported profits of 3.44 billion euros ($3.88 billion) for the financial year ended Jan. 31, up 2 percent on the previous year, on sales of 26.15 billion euros. That missed a consensus estimate for net profit of 3.49 billion euros and sales of 26.45 billion euros, Refinitiv I/B/E/S data shows.

Fourth quarter operating profit of 1.29 billion euros was a 3 percent miss on its expectations, said investment bank UBS.

Inditex shares fell 5.2 percent to 24.9 euros.

The retailer, which also owns upmarket chain Massimo Dutti and underwear store Oysho, said its overall online sales grew by more than a quarter in the year ended Jan. 31 to generate 12 percent of total sales.

That is in line with competitors like Sweden’s H&M but lags average online penetration rates in developed countries like the United States, for example, where online sales make up 27 percent of total apparel sales.

Inditex estimated total like-for-like sales would grow by 4 percent to 6 percent in the current financial year, ending Jan. 31, 2020, after rising 4 percent in the financial year just ended.

The cash-rich company proposed a total dividend of 0.88 euros for the year that ended, up 17 percent from a year earlier.

The jump in dividend means Inditex is paying out 80 percent of its earnings, versus 69 percent last year, said Anne Critchlow, an analyst at Societe Generale.

“That’s a big step-up in payout ratio,” she said. Inditex had a net cash position of 6.7 billion euros as at Jan. 19.

Inditex launched Zara online sales in 106 new markets in November. ($1 = 0.8862 euros)