The UK subsidiary of Spanish fashion giant Inditex has plunged into loss after investing heavily in developing the business.
The retailer made a pre-tax loss of £20m in the year to January 31 compared with a £4.5m profit the previous year, accounts filed at Companies House showed.
Zara UK, which includes the eponymous fascia as well as Pull and Bear, Massimo Dutti, Bershka and Zara Home, said its main objective was to support the group’s expansion while “keeping expenses under tight control, in order to increase profitability as a result of the continuing increase in sales”.
During the period it opened seven stores including a flagship at Westfield London.
Sales jumped 16% to £275.1m in the year, primarily because of store openings. Gross margin fell to 51.5% compared with 58.3% the previous year - mostly due to currency fluctuations.
The retailer said of the outlook: “The clothing sector is enduring a roller coaster ride due to the combined effects of low consumer confidence and very unstable and extreme weather.” Despite this, the retailer said it has delivered “good” like-for-like sales growth.
Inditex’s biggest brand Zara has now established a key position on the UK high street and the other fascias are beginning to carve out niches. Bernstein senior analyst Luca Solca said: “All of its concepts are beginning to gain traction.
Bershka seems particularly promising and Massimo Dutti has potential for growth.”
In the past month Inditex has opened new Oxford Street flagships for Massimo Dutti and its young fashion offer Pull and Bear.
Solca added: “The UK business is growing so the loss could be investment to sustain that growth.”
He said Zara in particular is well placed to emerge relatively unscathed from the downturn because of its fast fashion business model and compelling price points.
Zara will launch its first UK etail offer next year.