Inditex Builds for the Future: Fashion Giant Continues to Invest in New Stores

Inditex Builds for the Future
Fashion Giant Continues to Invest in New Stores
CHRISTOPHER BJORK
Updated March 19, 2014 12:04 p.m. ET

Pablo Isla at the new distribution hub in Cabanillas del Campo, Wednesday. Reuters
Zara parent Inditex’s CEO said the retailer will continue investing heavily. Shown, a distribution center near Madrid. Reuters
CABANILLAS DEL CAMPO—On dusty Spanish scrubland just outside Madrid, the world’s largest fashion retailer is laying bricks to support growth for the next decade.Here, Inditex SA, ITX.MC -1.16% owner of the “fast fashion” chain Zara, is spending €150 million ($209 million) on a new logistics hub capable of distributing close to half a million garments daily to stores in 87 countries on five continents. Made up of four gray warehouses, it will begin operating within months, bringing to 10 the number of Inditex distribution centers in Spain.
Higher spending on distribution capacity, new stores and a makeover of older Zara stores curbed Inditex’s profits in the fourth quarter of last year, Chairman and Chief Executive Pablo Isla said during a news conference Wednesday. Net profit fell to €703 million in that period from €708 million a year earlier, while sales rose 4.7%, to €4.8 billion. Profit margins and sales outside the euro zone were also dented by the strengthening of the euro against other currencies.
“It’s been a year of heavy investment and job creation, which we will continue in 2014,” Mr. Isla said.
The Spanish retailer relies on these distribution hubs to distribute garments world-wide. They are a key element in a sophisticated production chain that allows the company to take new designs from the drawing board to the consumer in as little as two weeks, the fastest in the industry.
Inditex is spending €500 million on a logistics upgrade, including the Cabanillas hub, betting that fast fashion has a long runway ahead in coming years as European consumers recover from the longest slump since World War II. The investment should allow Inditex to keep opening an average of more than a store a day for years.
The Cabanillas hub will receive clothes from suppliers, sort them and send them out to stores around the world twice a week. Inditex had 6,340 stores world-wide as of Jan. 31, up from 6,009 a year earlier and more than twice as many as it had in 2007. The company plans to open as many as 500 new stores this year while closing roughly 100 smaller ones.
The retailer is investing increasingly in larger stores. This year it plans to open new flagship stores in Los Angeles, Miami and Hong Kong and one in New York’s financial district, Mr. Isla said. It is expanding its online store presence, which by next year will reach 27 countries, with openings planned in South Korea and Mexico.
Inditex’s sales have grown 12% in the past six weeks measured in constant currencies. This has reassured investors, who in previous months had bid down Inditex’s shares amid concerns of slowing expansion. Inditex’s shares were the best performer in Spain Wednesday, rising 4.9% to €108.10.
Sales in Spain rose 3% in the second half of last year, reversing a similar-size drop during the previous six months and paralleling the country’s emergence from a two-year recession, Mr. Isla said.
The company said it plans to raise its 2013 dividend by 10% to €2.42 a share, more than expected by analysts. That translates into a record payday for Inditex’s founder, Amancio Ortega, the billionaire who controls more than half of the company’s shares. He will take home almost €900 million.
For the full year, Inditex reported net profit of €2.38 billion, up from €2.36 billion a year earlier. Annual sales rose 4.9% to €16.72 billion.