Madrid: Inditex SA is responding to the malaise in the clothing retail sector by cutting spending on store openings and instead returning more cash to investors.
The Spanish owner of the Zara chain unveiled a policy Wednesday to pay out 60 per cent of profit in ordinary dividends, up from 50 per cent previously. Investors will also get bonus payments through 2021. That comes as earnings growth weakened to the slowest pace in five years.
While rivals such as Hennes & Mauritz AB struggle in a difficult clothing retail market, Inditex has been steadily reducing the number of new openings, helping to cut costs as it focus on prime locations and online sales. The retailer has revamped 90 per cent of its store space over the past six years in an attempt to become more efficient with the shops it already operates.
The biggest beneficiary of the retailer’s new dividend policy will be founder Amancio Ortega, who owns a controlling stake in the company. Ortega is the world’s sixth-richest man, with a fortune estimated at $66.9 billion, according to the Bloomberg Billionaires Index.
Inditex’s operating profit rose 1 per cent to €4.36 billion ($4.9 billion) in the 12 months through January. Analysts expected €4.41 billion. The company is cutting capital expenditure to about 1.4 billion euros this year from 1.5 billion euros last year.
One of Inditex’s main bets is the expansion of online sales to all global markets by next year. E-commerce revenue rose 27 per cent to €3.2 billion last year. The manufacturer’s flagship brand, Zara, will launch an online platform in Brazil this month.
The stock has risen 18 per cent this year after posting its first consecutive two-year decline.