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Case Analysis

Parent

: Inditex (Industria de Diseo Textil)

Line of Business :

Clothing (Retail)

Founder

: Amancio Ortega

Headquarters

: 15142 Arteixo, La Corua,Spain

Freshness

High product turnover

Speed / quickness

Pricing

Pricing
Market-based
Different market sizes

Variations in per capita


spending
Share in expenditures

Variations in per capita


spending
Per capita income
Income

Competitor
Analysis

PRICE +

FASHION -

FASHION +

PRICE -

Production

40% In-House
60% Outsourced

Outsourced

In-House

Outsourced

Production
Lead Times

Low

High

High

High

Net Margin

10.46%

9.60%

7.05%

-0.06%

1.25

1.96

0.74

1.82

ROA

13.05%

18.78%

5.25%

0.11%

ROE

22.88%

24.85%

11.93%

-0.27%

Asset Turnover

Advantages

Disadvantages

Vertical Integration

High Costs of Labor

High Merchandise Inventory


Turnover

High complexity of cross-border


intermediaries

Solid Information System

Capacity problems with expansion

Quick Response (Cycle Time


Reduction)

Centralized distribution center


(needs timely shipments per
region)

Up-to-date fashion items

Low advertising costs (lack of


communication)

Financial
Statement
Analysis

Back

Vertical Analysis
2001

2000

1999

1998

Net Operating Revenues

100.00%

100.00%

100.00%

100.00%

Cost Of Goods Sold

48.10%

48.83%

48.57%

49.54%

Gross Margin

51.90%

51.17%

51.43%

50.46%

Operating Expenses

30.23%

31.22%

31.26%

30.30%

Operating Profits

21.68%

19.94%

20.17%

20.16%

Non-Operating Expenses

6.44%

5.84%

5.08%

5.99%

Pre-tax Income

15.23%

14.10%

14.37%

14.18%

Income Tax

4.61%

4.09%

4.24%

4.71%

Minority Interest

14.77%

0.10%

0.07%

0.01%

Net Income

10.47%

9.91%

10.06%

9.48%

INCOME STATEMENT ITEMS

Time Series Analysis


2-year Trend Analysis (2001 & 2000)

Back

(Amounts in Million )

2001

2000

Increase
(Decrease)

% Change

Net Operating Revenues

3249.8

2614.7

635.1

24.29%

Cost of Goods Sold

1563.1

1277

286.1

22.40%

Gross Margin

1686.7

1337.7

349

26.09%

Operating Expenses

982.3

816.2

166.1

20.35%

Operating Profits

704.4

521.5

182.9

35.07%

Non-Operating Expenses

209.3

152.7

56.6

37.07%

Pre-tax income

498.1

368.8

129.3

35.06%

Income tax

149.9

106.9

43

40.22%

4.8

2.7

2.1

77.78%

340.4

259.2

81.2

31.33%

INCOME STATEMENT ITEMS

Minority Interest
Net Income

Time Series Analysis


2-year Trend Analysis (2001 & 2000)

Back

(Amounts in Million )

BALANCE SHEET ITEMS

2001

2000

Increase
(decrease)

% change

Inventories

353.8

245.1

108.7

44.35%

Accounts Receivable

184.2

145.2

39

26.86%

Cash & Cash Equivalents

315.7

210

105.7

50.33%

Plant, Property & Equipment

1336.8

1339.5

-2.7

-0.20%

Other Non-current Assets

414.5

167.8

246.7

147.02%

Accounts Payable

426.3

323

103.3

31.98%

Other Current Liabilities

407.9

347.3

60.6

17.45%

Non-current Liabilities

284.5

1437.7

-1153.2

-80.21%

Time Series Analysis


4-year Trend Analysis
INCOME STATEMENT ITEMS

Back

(Amounts in Million )

2001

2000

1999

1998

Net Operating Revenues

201.26%

161.93%

126.04%

100.00%

Cost of Goods Sold

195.41%

159.64%

123.57%

100.00%

Gross Margin

207.01%

164.18%

128.46%

100.00%

Operating Expenses

200.80%

166.84%

130.05%

100.00%

Operating Profits

216.34%

160.17%

126.07%

100.00%

Non-Operating Expenses

216.44%

157.91%

122.13%

100.00%

Pre-tax income

206.30%

161.12%

127.74%

100.00%

Income tax

196.98%

140.47%

113.27%

100.00%

Minority Interest

24.00%

13.50%

7.50%

100.00%

Net Income

222.48%

169.41%

133.79%

100.00%

Back

Inditexs Financial Ratios


2001

2000

1999

Evaluation

Sales Growth Rate

24.29%

28.48%

26.04%

Good

Cost Of Sales Growth

22.40%

29.20%

23.57%

Good

Gross Profit Growth Rate

26.09%

27.80%

28.46%

Good

Net Profit Margin

10.47%

9.91%

10.06%

Ok

Inventory Growth Rate

44.35%

30.03%

19.53%

Poor

Current Ratio

1.02

0.90

0.87

Ok

Quick Ratio

0.60

0.53

0.53

Ok

Working Capital

19.5

-70

-69.8

Ok

Inventory Turnover

5.22

5.89

5.71

Good

Accounts Receivable Turnover

19.73

19.60

20.70

Good

Average Age Of Inventory

69.92

61.97

63.92

Poor

Average Age Of Receivables

18.50

18.62

17.63

Ok

Asset Turnover

1.25

1.24

1.15

Ok

Return On Assets

13.07%

12.30%

11.54%

Ok

Return On Equity

22.90%

22.10%

22.90%

Good

Financial Statement
Analysis

Outlook
Marketing Strategy
Geographical Penetration
Advertising

Marketing Strategy
Cheap, addictive and unsustainable
Quality scandals
Low price plus expanding too fast leads to quality
decline

Geographical Penetration
Consumers tastes and preferences
Research and development
Supply chain strategy

Advertising
Higher costs
Direct competition
Improvement of current system

Recommendations

Zara must first invest in building Regional


distribution centers or manufacturing
facilities in areas near its stores outside
Europe
Zara should also take into account of the
mode of market entry it should employ.

Zara should try to employ an e-commerce


approach to its products and employ a
product feedback to keep track of its
consumers and assess their preferences for
use in the companys research and
development department.

Case Analysis

Time Series Analysis


2-year Trend Analysis (1999 & 1998)

(Amounts in Million )

BALANCE SHEET ITEMS

1999

1998

Increase
(Decrease)

% Change

Inventories

188.5

157.7

30.8

19.53%

Accounts Receivable

121.6

75

46.6

62.13%

Cash & Cash Equivalents

171.8

158.8

13

8.19%

Plant, Property & Equipment

1127.4

880.4

247

28.06%

Other Non-current Assets

163.6

54.4

109.2

200.74%

Accounts Payable

276.1

215.6

60.5

28.06%

Other Current Liabilities

275.6

229.1

46.5

20.30%

Non-current Liabilities

1221.3

881.6

339.7

38.53%

Time Series Analysis


2-year Trend Analysis (2000 & 1999)

(Amounts in Million )

BALANCE SHEET ITEMS

2000

1999

Increase
(Decrease)

% Change

Inventories

245.1

188.5

56.6

30.03%

Accounts Receivable

145.2

121.6

23.6

19.41%

210

171.8

38.2

22.24%

Plant, Property & Equipment

1339.5

1127.4

212.1

18.81%

Other Non-current Assets

167.8

163.6

4.2

2.57%

323

276.1

46.9

16.99%

Other Current Liabilities

347.3

275.6

71.7

26.02%

Non-current Liabilities

1437.7

1221.3

216.4

17.72%

Cash & Cash Equivalents

Accounts Payable

Amounts in Million
Income Statement Items

2001

2000

1999

1998

Net Operating Revenues

3249.8

2614.7

2035.1

1614.7

Cost Of Goods Sold

1563.1

1277

988.4

799.9

Gross Margin

1686.7

1337.7

1046.7

814.8

Operating Expenses

982.3

816.2

636.2

489.2

Operating Profits

704.4

521.5

410.5

325.6

Non-Operating Expenses

209.3

152.7

118.1

96.7

Pre-tax Income

498.1

368.8

292.4

228.9

Income Tax

149.9

106.9

86.2

76.1

4.8

2.7

1.5

-0.2

340.4

259.2

204.7

153

Minority Interest
Net Income

Amounts in Million
Balance sheet items

2001

2000

1999

1998

Inventories

353.8

245.1

188.5

157.7

Accounts Receivable

184.2

145.2

121.6

75

Cash & Cash Equivalents

315.7

210

171.8

158.8

Plant, Property & Equipment

1336.8

1339.5

1127.4

880.4

Other Non-current Assets

414.5

167.8

163.6

54.4

Accounts Payable

426.3

323

276.1

215.6

Other Current Liabilities

407.9

347.3

275.6

229.1

Non-current Liabilities

284.5

1437.7

1221.3

881.6