Pablo Isla leaves Inditex with a profit growth of 193%

Ensures that the results demonstrate the company's great ability to adapt to any circumstance

Pablo Isla, president of Inditex, says goodbye with an impeccable job. According to the 2021 data that has just been made public, he will leave the company with sales of 27,716 million euros, after a year-on-year growth of 36%, and an increase in net profit of 193%, up to 3,243 million euros. These amounts far exceed those achieved in 2020, the pandemic year, and are close to those of 2019, the best of all the company's years (sales of 28,286 million and profits of 3,639). 

Since his arrival at the company in 2005, sales and profits have multiplied by four.

In a statement issued to analysts, the president of Inditex , Pablo Isla , considers that “after two years of the pandemic, these results demonstrate the great capacity to adapt to any circumstance that characterizes all the people who make up this company through the commitment and talent.

For his part, the CEO of Inditex, Óscar García Maceiras , highlights that “the leadership shown by the company in the digital transformation of recent years places us in an unbeatable position for the future to offer the best experience in our proposal of quality and sustainable fashion» .

In an implicit message to the analysis houses, always aware of the margins, it is highlighted that the multinational has maintained «a robust gross margin on sales of 57.1%, higher by 123 basis points than in 2020 and that, therefore, It is the highest in the last six years. And highlighting its ability to create wealth, it reports that Inditex's total tax contribution stood at 6,093 million euros, of which 2,423 were own taxes and 3,670 collected. In Spain alone, the group contributed a total of 1,501 million euros (708 direct and 721 collected).

In the report sent to the CNMV, Inditex acknowledges that it is going from alert to alert. He thus explains that the final part of the year was significantly affected by the decrease in store traffic due to the spread of the Omicron variant, restrictions in most markets and confinements in Austria, the Netherlands, Germany, Japan, China and the Philippines. That sudden drop in store sales generated a “one-time” impact of €400 million in the fourth quarter, and the impact on gross margin due to higher discounts was approximately €210 million. And he specifies: “it was difficult to compensate for the incremental expenses associated with the Christmas campaign and the additional expenses due to increased online activity, so the impact on operating expenses was approximately 190 million euros.”

Shareholders Award 

Pablo Isla, who will step down as chairman on April 1, has chosen to reward shareholders. Despite the instability caused by the war in Ukraine, he will propose to the shareholders' meeting the distribution of a dividend of 0.93 euros per share (33% more than in 2020, when he opted for prudence and made an impasse on his usual dividend payment policy). 

Regarding the war in Ukraine , the company recalls that on March 5 it decided to suspend its activity in Russia with the closure of its 502 stores. It reiterates that the closure is temporary and motivated by the impossibility of guaranteeing operations. And it offers two data: store and online sales between February 1 and March 13 grew by 33% compared to a year earlier, but, in addition, it did so by 21% compared to the pre-covid highs of 2019. “Sales from the Russian Federation and Ukraine accounted for approximately 5 percentage points of total turnover growth,” a fact that was unknown until this morning. 

Continuing in the chapter on investments, the company highlights those made to guarantee its future growth. They include the 80 million that will be dedicated to increasing the capacity of the Europe Platform (Zaragoza), which will mean an increase in the workforce of 250 people to reach 2,000; and, above all, the 238 million destined to build a 170,000-square-meter building in Arteixo (five floors and two parking lots), which will be the base of the commercial and design teams of Zara, the firm with the greatest weight within the group .

In front of the market, Pablo Isla, who will return to Madrid after this 16-year stage in Galicia, leaves his commitment to sustainability tied. He assures the company that its transformation has continued to accelerate. In terms of product “it has exceeded the goal set for the year by seven points and 47% of its garments carry the join life label». Renewable energy sources represent 91% of total consumption (the goal was 90% for the year), so, says the president in his last appearance, in 2022 the commitment that they are 100% renewable can be completed. %. It will be one of the objectives that will be carried out by Marta Ortega, non-executive president from April 1, and Óscar García Marceiras. Both have other “concrete and measurable” commitments in their portfolio of orders. Inditex has to be a neutral company in terms of greenhouse gas emissions in 2040 and in 2025 it will exclusively source cotton, polyester, linen and viscose from more sustainable sources.

Inditex always speaks in the plural and ensures that the strategy followed up to now will be maintained. In its outlook analysis, the firm ensures that “it continues to see great growth opportunities”, “it has a stable pricing policy and in those markets with a temporary impact of significant inflation or exchange rate depreciation, the necessary adjustments will be made to protect the margins”. “Based on these selective actions, we expect price actions to contribute to spring/summer campaign sales in the mid-single digits, and with no negative impact on volume, as shown by the sales figure for the start of the first quarter of 2022”.

Pablo Isla leaves 9,359 million euros in cash available for investments or other possible expenses, an amount never reached until now. On January 31, 2021 there were, in round numbers, 2,000 million less.

The best executive in the world gives way for family succession

Pablo Isla Álvarez de Tejera (Madrid, January 22, 1964) arrived at Inditex in 2005, when he was appointed CEO after his signing through the talent hunting firm Korn Ferry. From the first moment he showed himself as he was: a shy, resolute man, capable of facing problems, analyzing them and giving them solutions. His mental structure is that of a state attorney: orderly and with a lot of work capacity. With that profile, which later helped him to be chosen by the Harvard Business Review for two consecutive years as the best executive in the world , he convinced Amancio Ortega , founder and largest shareholder of the company, who in 2011 decided that Isla would take over. of the presidency.

In these sixteen years, the balance of its management is overwhelming: the company has multiplied its turnover and profit figures, as well as its stock price.

The executive has faced the growth of Inditex in these three decades with several maxims. The first, that investment in technology is key to reducing manufacturing times and optimizing distribution. But also that the online channel and the physical stores must work in an integrated way, in such a way that customers can buy at any time and by any means and the order arrives at the time and place where they want. To achieve this goal, the deployment of RFID technology has been key. Isla, who has always been more into letters than science, popularized this radiofrequency identification system that allows knowing where each garment is from the warehouse to the store, and which has been key to taking Inditex's already efficient logistics to another level.

Sustainability objectives have also been decisive in its strategy, and will continue to be so in the new stage that will open in April: coverage of 100% of its energy consumption with renewable sources (which will be achieved this year) and that more than half of the garments sold have the join life label (which certifies more sustainable production processes and raw materials).

Isla has accelerated the processes so that in 2040 the company's net emissions are zero. Regarding water, the company has committed to reducing its consumption by 25% throughout the supply chain. There is more: promotion of research, advances in the recyclability of textiles and the elimination of single-use plastics for the customer in 2023.

The hit of the pandemic

Isla's stage at the helm of Inditex has not been without challenges. When the world experienced the outbreak of the covid health crisis two years ago, the textile industry suffered one of the hardest blows since 1963, the year of its constitution. It had to close practically all its stores in the world. Isla opted to advance processes in everything related to the development of the online channel . What had to be done was to sell supported by logistics and the work capacity of the teams. They did not fail.

Neither did he. He went to the office practically every day, he arrived before anyone else and left at respectable hours. He was—although he never admitted it—concerned about the situation and, above all, busy. His pulse did not shake when he decided to allocate part of the 2019 profit to shield the company against the pandemic , and he left the distribution of dividends pending.

Now, in the midst of another crisis, the one caused by the war, Isla leaves Galicia and returns to Madrid with her family. Will she continue working?, they will almost certainly ask him in his appearance this Wednesday. She will probably answer yes. He doesn't look tired physically or mentally. On the contrary, he feels good about himself for having closed a very demanding stage.

Although he is preparing a new house in Madrid, he assures that he leaves great friends in Galicia and that he will return often. Maybe I'll go back to eat in Aranga, walk around Santa Cruz or enjoy a beach in Ferrol.

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