Wardrobe Malfunctions

Inditex and Adidas disappoint

Image source: Yakovenko Nataliia, Victoria Shapiro - Shutterstock

What's going on?

Inditex – the world’s largest clothing retailer – reported worse-than-expected annual results on Wednesday, slashing 5% off its stock price.

What does this mean?

Zara owner Inditex booked lower sales and profit than analysts expected, thanks in part to a strong euro. The retailer makes more than half its sales outside the eurozone, and this foreign cash translates into fewer euros back in Spain. Inditex also suffered from unshifting profit margins, with investors concerned this presages slowing sales growth. Still, at least Inditex’s dislike for discounting meant its margin didn’t shrink – more than can be said for rival ASOS recently.

Adidas, meanwhile, reported annual results on Wednesday that jogged past expectations. But the sportswear company’s weaker-than-expected sales growth forecast for 2019 led to investors selling its stock too.

Why should I care?

For markets: You get a dividend, and I get a dividend…

Inditex cheered investors up slightly by announcing a 17% dividend increase – including bonus payments spread out over the next three years. The retailer was previously paying out 50% of its profit to investors; that’s now 60%. But Inditex’s founder, the richest person in Europe, still owns 59% of the company: he’s paying himself handsomely too (tweet this). It seems popularity on Wall Street is worth some bad looks on Main Street (or, indeed, la Gran Vía).

The bigger picture: What’s demand without supply?

The cornerstone of Inditex’s business is its super-fast supply chain. At the start of each season, the retailer only books about half of its production capacity, allowing it greater flexibility to adapt to flash trends. And Inditex keeps a significant amount of that manufacturing in Spain – paying its workers more, but getting snappy turnaround times in return. Adidas, meanwhile, blamed supply chain issues for its slower sales growth outlook. Having doubled its North American sales over the last three years, the three-stripe thriller’s factories are struggling to keep up.

Originally posted as part of the Finimize daily email.

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