Zara UK has experienced a decline in excess of one third during the last year, hence the cut in dividend payout to its Spanish parent company.
The annual accounts for the year ended 31 January showed that the pre-tax profits had declined by 34.5% to £33.9m as an increase in costs exceeded its growth in sales. The annual dividend which was paid to Inditex declined from £30m the previous year, to £22m.
The accounts stated that the plan was to boost profitability by an increase in sales, controlled costs and margin increases.
Although total sales increased by 3.4% to £457.8m, the gross margin dropped to 57.4%, while the cost of sales increased by 10% to £207.6m. Distribution and sales expenses rose by 7.2%, due to the refurbishment of three stores in Manchester and London, as well as at 10 smaller stores.
Zara stated that there was no link between the decline in profit and the reduction in dividend as the results were a snapshot. The company remains happy with the performance of the UK business since January.
Fashion retailers experienced heavy competition during last year, resulting in a squeeze on profit levels. This resulted in price cuts at New Look, French Connection and Debenhams.
House of Fraser has seen an increase in like-for-like sales during the first half of 2014.