Industria de Diseno Textil Inditex Exec Insights: Global Online, Gross Margin

On Wednesday, Industria de Diseno Textil Inditex SA ADR (OTC:IDEXY) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what executives shared.

Global Online

Anne Critchlow – Societe Generale: I’d like to ask a question on online. Could you give an update on the performance of the non-Zara format phone line and how you’re going to expand those globally? Also say whether if the website in China will be in a local language?

Pablo Isla Alvarez de Tejera – Chairman and CEO: Yes, first of all, we’re having our online business – you were asking about the performance of the non-Zara format, but we would say that we are also quite happy with the evolution of our online activity regarding also the other formats. You know that online for us is very relevant from two different point of view. Of course, first of all, it has to do with the level of online sales, but at the same time online is being a wonderful platform for us to communicate our approach, to our customers, to share our (look books). I will take advantage of your question to tell you, for example, in the coming days it will be available as new application in the case of Zara for smartphone, some for (indiscernible) that I’m sure you are going to like very much. So, for us online activity has to do, of course, with online sales but at the same time it has to do with – as we always say, with a way to communicate our product sale to our customers. They look books. I don’t know you’ve seen, for example, the last one in the Zara webpage or in other webpage of the different brands. So globally, what we can say is that we are happy with the evolution of our online activity in the different markets and with the different brands. Regarding any detail about our online launch in China, we prefer to wait a little bit more to be more specific about the details. What we can confirm you is that we are planning to launch our online sales in the month of September, so at the very beginning of the next winter season.

Anne Critchlow – Societe Generale: Do you think you’ll be making the websites more interactive so that customers can leave comments or maybe some sort of social networking angle at any point?

Pablo Isla Alvarez de Tejera – Chairman and CEO: Well, as you know, this world, online world is a world that is evolving permanently and this is something that will be also our case, but for us the most the (relevant thing) is always to show our collections, to show the new arrivals to our stores, so to our webpage permanently in the best possible way and to have this customer experience that we are also having inside the stores. We think that this approach, this multi-channel approach is very strong, very positive, and as we have talked in previous meetings or conference calls, you must also have remind that because of our business model, our online activity is totally scalable. So, it has a lot to do with what we are used to do with this twice per week deliveries to all our stores in the world. So for us, it’s been a very natural way of doing things.

Gross Margin

Richard Edwards – Citigroup: It was a quick question on the gross margin. I’m wondered if you could give us some sense of the contribution from reduced markdown in the quarter.

Pablo Isla Alvarez de Tejera – Chairman and CEO: Well, on gross margin, you know that we don’t like to elaborate very much on a quarterly basis. We prefer to look at the gross margin on a full year basis or at least on a seasons basis. So, as you can see, we are having a strong sales growth, and of course when you have very positive like-for-like sales growth, it also has a positive impact regarding the gross margin. But I would like to elaborate much more because, as you know, we always prefer at least to wait until the end of the season to be more specific. But you also must have remind that, as we always say, the gross margin is a combination of many different things. So we’ll try not to isolate one particular aspect regarding the gross margin and even more when we are talking about the first quarter result of the year. But it has a lot to do with the very good evolution of like-for-like sales growth during the season.

Richard Edwards – Citigroup: I don’t like asking about online sales, just following on from Anne’s question, can you give me some sense of how significant online sales are there within the group sales mix?

Pablo Isla Alvarez de Tejera – Chairman and CEO: I’m sorry to disappoint you, but we prefer not to be very specific about figures. We’ll continue to be very focused on the execution. We are just, for example, you know that in the U.S. and Japan we began in the last autumn/winter season, the season where we are beginning in China. Two months ago we began our operations in Poland, for the branch, we adjust at the very beginning implementing our online business in different European countries. We think it is too early to talk about figures and we prefer to continue focused on the execution.