This document discusses the financial performance of Inditex, the parent company of Zara. In 2017, Inditex's sales increased 10% to $22 billion but its gross profit margin declined slightly to 59.4% from the prior year. While currency movements affected margins, analysts believe long-term challenges to Inditex's business model may also be a factor. Inditex has advantages over competitors through its ability to quickly deliver new fashion trends to stores and online through a centralized inventory and integrated global platform. However, competition in the fast fashion space and currency fluctuations continue to put pressure on Inditex's margins.

1. Measuring and Evaluating
Financial Performance
A Case Study Presented by:
Frank Cunha III
ACCT 560: Accounting for Business Managers
Frank Cunha III, AIA
Executive MBA Program
Montclair State University

2. • Reflect what a company earns
from its sales
• Determined from information
from the income statement
• Helps investors gauge how
well management utilizes
company resources to produce
their products
Gross Profit and Gross Margin

3. • In 2017, Sales climbed 10%
to $22B strengthened by
run-up to holiday season
• Gross Profit Margin for its
fiscal 3Q 2017 fell 0.3% from
59.4% a year ago
• Full year GPM continued to
fall from 59.8% peak in 2013
Financial Overview

4. Competition and Currency Movements
• Analysts have questioned whether the margin's slide at Inditex is
due to short-term factors such as currency movements or reflects
long-term challenges to its business model
• Inditex generates more than half its sales in more than 60
currencies outside the Euro-Zone, while making most of its
products in Spain
• Weakening of those currencies in comparison to the Euro has
chipped away at revenue reported in Euros

5. Gross Margin Drop

6. Fashion Wars: Zara Vs H&M

7. Inditex Advantage
Customer Driven
• Latest fashions at affordable prices
• Customer interaction:
Constant feedback allows
modification of collections
• Prominent stores in prime locations
• Global online sales
Tokyo Flagship

8. Inditex Advantage
Differentiated
Business Model
• Central inventory position
• Global fully integrated
Store & Online platform
• Orders to stores and
online customers in
2 to 48 hours

9. Inditex Still a Strong Bet for Spain

10. Sources:
1. New York Times. Zara Shows Shrinking Profit Margins Despite Sales Increase. Parent
Inditex’s margin continues decline, though currency may be a factor Neumann, Jeannette. Wall
Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]14 Dec 2017: B.3.
2. Business News: Inditex Feels Profit Pressures But Still Skirts Industry Woes, Neumann,
Jeannette. Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]14 Dec 2017: B.3.
3. What are the differences between gross profit and gross margin?
Investopedia https://www.investopedia.com/ask/answers/101314/what-are-differences-between-
gross-profit-and-gross-margin.asp#ixzz51Yn6J8wg
4. H&M's Fast-Fashion Fail Is Actually a Problem for Zara There's a raft of pretenders to Inditex's
supply chain mastery. By Andrea Felsted https://www.bloomberg.com/news/articles/2017-12-15/h-
m-s-fast-fashion-fail-is-actually-a-problem-for-zara
5. Inditex Annual Reports https://www.inditex.com/investors/investor-relations/annual-reports