• FY profit up 15% to EUR2.88bn
  • Analysts upbeat on performance
  • Company implements Recycle2 project
Inditexs annual sales and profit increased 15%

Inditex's annual sales and profit increased 15%

Analysts remain upbeat that Inditex, owner of the Zara, Pull & Bear, and Massimo Dutti brands, can deliver double-digit earnings growth in the medium term, after annual sales and profit increased 15%.

The Spanish fashion giant said net profit reached EUR2.88bn (US$3.16bn) for the 12 months to 31 January, compared to EUR2.5bn in the prior year period.

Net sales increased 15.4% to EUR20.9bn from EUR18.12bn last year, while like-for-like sales were up 8.5%, helped by growth in all of the group's geographic regions.

Gross margin, however, dropped 50 basis points to 57.8% from 58.3% a year ago. 

The company opened 330 stores in 56 markets during the year, lifting its global network to 7,013 stores in 88 markets.

Between 1 February and 7 March, Inditex saw store sales in constant currency, adjusted for seasonality on account of the leap year, rise by 15%.

Bernstein analyst Jamie Merriman said investors will be "encouraged" by the strong sales growth during the start of 2016, adding that he thought Inditex had made the right choice to slow space growth (6-8%, below its medium term guidance of 8-10%). "While this may cause some raised eyebrows among investors, given the strong sales performance, we believe that Inditex is clearly able to grow market share with the less capital intensive e-commerce approach."

Even with the slower space growth, he said, Inditex can maintain double-digit constant currency sales growth through the combination of like-for-like sales (through stores and e-commerce) and space growth.

"We continue to believe that Inditex has the strongest business model in apparel retail and will deliver double-digit earnings growth in the medium term," he added.

The retail giant also revealed it is implementing a garment recycling initiative as part of efforts to move towards a circular economy. Recycle2, which is already up and running in five countries (Spain, Denmark, the Netherlands, the UK and Sweden), facilitates the collection of used garments at work centres and specific stores in collaboration with organisations such as Cáritas and the Red Cross. 

To date, the project, which will continue to expand in 2016, has collected an average of 350kg of used garments per store per month.