Madrid The war in Ukraine sent the share price of the Spanish textile giant Inditex plummeting again. In terms of stores, Russia is the second largest market after Spain for the Zara parent company and accounts for around 8.5 percent of operating profit (EBIT). The group temporarily closed more than 500 stores in Russia and 85 in Ukraine on March 5. Other textile manufacturers had already forestalled him.
Inditex wants to reopen the stores as soon as possible, said new CEO Óscar García Maceiras. The shops in Russia are leased, the employees are currently receiving their salaries. The Russian government had threatened companies leaving the country with nationalizing their business.
For the founder Armancio Ortega, who is used to success, this is a serious setback. Until recently, Inditex was considered one of the greatest success stories in the Spanish economy. For years, sales, profits and share price rose steadily and made Ortega a billionaire and the richest man in Spain. But investors have been turning away from the group since last November – the share lost around a quarter of its value. The reason was initially the surprising announcement by the Galician group in November that it would replace both the CEO and the head of the board of directors.
In addition to Zara, Inditex’s brands include Massimo Dutti, Pull&Bear, Zara Home and Bershka. The Spaniards’ fiscal year runs until the end of January. In the past year, the group achieved sales of 27.7 billion euros, only around 600 million euros less than in 2019 before the corona pandemic.
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Compared to the previous year, when many shops had to be closed due to Corona, sales increased by 36 percent. Earnings before interest and taxes (EBIT) almost tripled to 4.3 billion euros. However, analysts had calculated even more here. The surplus rose similarly to 3.2 billion euros.
Inditex increases the dividend sharply
In the first few weeks of the current financial year – specifically from February 1 to March 13 – currency-adjusted sales increased by a third compared to the same period last year and were thus even a good fifth higher than in the same period of 2019. Russia and Ukraine would have contributed five percentage points to this growth, it said.
The stock barely reacted to the numbers. In terms of sales, the USA is now the second most important market for Inditex. The group only has 100 stores there, but a very strong online business. Isla emphasized that the USA continues to be an important growth market for the group.
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In order to help the battered share price back on its feet, the group is increasing the dividend by a third to 93 cents per share. This includes a special dividend of 30 cents, which will be paid out in two steps. Inditex announced another special dividend of 40 cents for the current financial year.
In addition to the growth in sales and profits, the group’s gross margin also rose to 57.1 percent. This is the highest value in six years. This much-publicized metric began declining a few years ago, raising doubts among analysts about Inditex’s ability to sustain its business model against fast-growing online competition.
But during the pandemic, the Spaniards’ online sales increased again and currently account for 25.5 percent of all sales. By 2024, the proportion is set to increase to 30 percent.
Success manager Pablo Isla leaves the group
Isla presented the Inditex figures for the last time this Wednesday. The 38-year-old daughter of the founder, Marta Ortega, will replace him on April 1st. Isla took over the post of CEO at Inditex in 2005 and was also chairman of the board from 2011 to 2019. This double function is still common in some Spanish companies. The success story of Inditex is therefore closely linked to the management of Isla. He was responsible for the worldwide expansion of the Spanish textile manufacturer, which opened the first Zara store in 1975.
Unlike Isla, Ortega will not have an executive function as the new head of the board of directors, but rather take on the controlling role of a German supervisory board head. In the future, responsibility for day-to-day business will lie solely with the CEO. Since last November, this has been Óscar García Maceiras, who had just joined Inditex as chief consultant in March.
Both now have to prove themselves in a difficult time and first convince investors that they can continue Isla’s successful course. Not only the important Russian business is idle for the time being. Rising inflation and delivery bottlenecks are also causing difficulties. In Spain, where inflation was 7.6 percent in February, Inditex is raising prices by 2 percent. Nevertheless, García Maceiras assured: “Our policy is that of stable prices, and we will keep them. Another thing are markets where there is high inflation.” The group is making “selective adjustments” there.
With agency material
More: H&M creates jump in sales – withdrawal from Russia clouds outlook.