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Zara owner Inditex sees first annual profit fall in five years

Inditex, the owner of Zara, has revealed its first fall in annual profits in five years as the world’s biggest fashion retailer invested in stores while foreign exchange rates moved against it.

Pre-tax profits for the year to 15 March slipped 2.5% to €3.05bn despite a 4.9% rise in sales to €16.72bn as consumer spending bounced back in southern European markets.

However, shares in the Spanish retail group rose 4.8% to €108 after the company revealed a step up in underlying sales growth to about 4% in the final quarter of the year to 15 March, according to analysts. That compared to about 3% in the previous three months.

The company said sales in Spain, which account for a fifth of the group total, rose 3% in the second half of last year and the chief executive, Pablo Isla, said he expected the positive trend to continue in 2014 after several years of difficulties in the company’s home market.

“We are seeing recovery in southern Europe and Inditex is quite highly exposed to southern Europe. Spain, Portugal, Greece and Italy – all those countries are bouncing back,” said Anne Critchlow, retail analyst with Société Générale.

Inditex, which owns the Pull Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Lefties and Urterque brands as well as Zara, also revealed plans to increase investment in refurbishments and new stores from €1.2bn last year to €1.35bn, allowing it add up to 500 new stores this year compared to 330 in 2013.

“We have big expectations for Zara in 2014,” Isla told analysts, adding that the store revamp programme had been largely completed and pointing to flagship openings in Madrid, Hong Kong, Miami and Zurich.

The company also said it had started online sales in Greece in March and would launch in Romania in April, followed by South Korea and Mexico later in the year, taking the total number of e-commerce markets to 27, compared with a planned 13 for HM. “Online came very, very naturally to us… we believe the growth opportunity is huge,” Isla said.

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