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Case Analysis

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Parent :

Line of Business :

Founder :

Headquarters :

Inditex (Industria de Diseo Textil)

Clothing (Retail)

Amancio Ortega

15142 Arteixo, La Corua,Spain

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Freshness

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High product turnover

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Speed / quickness

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Pricing

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Pricing

Market-based

Different market sizesVariations in per capita

spending

Variations in per capitaspending

Per capita income

Share in expenditures

Income

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CompetitorAnalysis

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PRICE +

PRICE -

FASHION - FASHION +

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Production 40% In-House60% Outsourced

Outsourced In-House Outsourced

Production

Lead TimesLow High High High

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Net Margin 10.46% 9.60% 7.05% -0.06%

Asset Turnover 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%

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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 ofcommunication)

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Financial

Statement

Analysis

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Vertical Analysis

INCOME STATEMENT ITEMS 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%

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Time Series Analysis

INCOME STATEMENT ITEMS 2001 2000Increase

(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%

Minority Interest 4.8 2.7 2.1 77.78%

Net Income 340.4 259.2 81.2 31.33%

(Amounts in Million )2-year Trend Analysis (2001 & 2000)

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Time Series Analysis

BALANCE SHEET ITEMS 2001 2000Increase

(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%

(Amounts in Million )2-year Trend Analysis (2001 & 2000)

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Time Series Analysis

INCOME STATEMENT ITEMS 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%

(Amounts in Million )4-year Trend Analysis

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Inditexs Financial Ratios2001 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 Rate44.35% 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 GoodAverage 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

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Financial StatementAnalysis

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OutlookMarketing Strategy

Geographical Penetration

Advertising

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Marketing Strategy

Cheap, addictive and unsustainable

Quality scandals

Low price plus expanding too fast leads to quality

decline

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Geographical Penetration

Consumers tastes and preferences

Supply chain strategy

Research and development

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Advertising

Higher costs

Improvement of current system

Direct competition

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Recommendations

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Zara must first invest in building Regionaldistribution centers or manufacturingfacilities in areas near its stores outside

Europe

Zara should also take into account of themode of market entry it should employ.

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Zara should try to employ an e-commerceapproach to its products and employ aproduct feedback to keep track of its

consumers and assess their preferences foruse in the companys research anddevelopment department.

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Case Analysis

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Time Series Analysis

BALANCE SHEET ITEMS 1999 1998Increase

(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 Assets163.6 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%

(Amounts in Million )2-year Trend Analysis (1999 & 1998)

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Time Series Analysis

BALANCE SHEET ITEMS 2000 1999Increase

(Decrease)% Change

Inventories 245.1 188.5 56.6 30.03%

Accounts Receivable 145.2 121.6 23.6 19.41%

Cash & Cash Equivalents 210 171.8 38.2 22.24%

Plant, Property & Equipment 1339.5 1127.4 212.1 18.81%

Other Non-current Assets167.8 163.6 4.2 2.57%

Accounts Payable 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%

(Amounts in Million )2-year Trend Analysis (2000 & 1999)

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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

Minority Interest 4.8 2.7 1.5 -0.2

Net Income 340.4 259.2 204.7 153

Amounts in Million

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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

Amounts in Million