Inditex Sales Surge in Q2 as Zara Prepares Mega Opening in Paris

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LONDON — Zara is ready to roll into Paris and open one of its largest stores at La Défense, an emblem of parent Inditex’s rapid bounceback from COVID-19 closures and its bullish vision for fiscal 2021 and beyond.

On Wednesday, Inditex said revenue, profits and cash in the second quarter hit “historic highs,” outstripping pre-pandemic numbers, while demand continues to build.

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The Inditex results contrasted with those of H&M Group, where growth was slower and sales remained well below 2019 levels in the third quarter ended Aug. 31 as COVID-19 restrictions continue to take their toll.

Inditex said 99 percent of its stores are now open, and that projects such as digital retail integration, fashion rollouts and Zara store openings in places such as Paris; the City of London, and Chengdu were on track.

“Our operating performance has gone from strength to strength, and we witnessed historic highs in the second quarter,” said Pablo Isla, the executive chairman of Inditex, during a call with analysts.

He said the Inditex Open Platform, an integrated stock management system that links the retail stores with their respective websites and helps customers to purchase or return items quickly and efficiently, was 95 percent complete.

Isla said further integration of the platform was progressing, and that operating a streamlined, single inventory system had been of “great help” during the pandemic.

Looking ahead, Inditex said there’s a Zara app in development that will generate a QR code allowing shoppers to identify themselves in Zara’s stores, pay digitally, and order, collect and return merchandise in-store and online.

Markets worldwide, including Spain, the U.K., France, the U.S. and Mexico, are currently participating in the first phase of that project.

Isla added that by the end of fiscal 2021, some 25 percent of all Inditex sales will have taken place online. Some analysts estimate that number could reach 35 to 40 percent in the next five years, pitting Zara and its sister brands against online fast fashion players such as Asos and Boohoo.

Sales in the second quarter ended July 31 were up 51 percent to 6.99 billion euros compared with the corresponding period last year, and rose 7 percent versus 2019 on a constant currency basis. Second-quarter 2021 net profit reached 850 million euros, outperforming the previous high set in the corresponding period in 2019.

Inditex said that momentum has been building through the current quarter, with store and online sales up 9 percent between Aug. 1 and Sept. 9 compared with 2019. Compared with 2020, sales in that monthlong period rose 22 percent on a constant currency basis.

Inditex said new store openings worldwide and “all brand concepts,” including Stradivarius, Oysho and Pull & Bear were recovering in the wake of the pandemic, and fueling growth this year.

In the first six months to July 31, net sales reached 11.9 billion euros, 49 percent higher than in the same period last year. Sales in constant currencies grew 53 percent.

Online sales in constant currency increased 36 percent compared with the corresponding period last year, and 137 percent versus 2019.

Growth of retail square footage in the first half was “in line” with management’s expectations. At the end of the six-month period, Inditex said it had 6,654 stores, having opened 92 new units in 27 markets worldwide.

The company has also been culling and reorganizing its retail estate portfolio, and has shut or rehoused 800 stores depending on demand. At La Défense, for example, Inditex plans to enlarge and re-locate Pull&Bear, and open a Bershka, in two former Zara sites.

The new Zara flagship, which is set to open in early October, will include Zara Home. Spanning nearly 54,000 square feet, it will be located in Westfield Les 4 Temps Mall, and will be one of the largest stores in the Inditex portfolio.

Other Zara stores are set to open later this year in the City of London; Corso Buenos Aires in Milan; Chengdu Taikoo Li in China, and Cape Town Waterfront in South Africa.

Bottom-line growth is also surging: In the first half, EBITDA increased 109 percent to 3.1 billion euros, while EBIT reached 1.7 billion euros. That compares with an EBIT loss of 198 million in the first half of 2020.

Net income in the first half was 1.3 billion euros, compared with a loss of 195 million euros in the first six months of last year.

Inditex said net cash had increased by 24 percent to 8 billion euros — an historic high — in the first six months, due to “operating performance and efficient working capital management.”

Execution of the 2020-22 capital expenditure plan, with 1 billion euros earmarked for digitization, and 1.7 billion euros for the integrated store and online platform, is moving at a good pace, the company confirmed.

Harry Barnick, senior analyst at Third Bridge, a global research firm, said Inditex is emerging as “an early winner” in the post-COVID-19 retail world.

He argued that the company benefited from relatively modest stock levels as it was able to downsize orders with suppliers during the pandemic, and avoid heavy discounting.

Barnick added that Inditex group’s “advanced and competitive online channel,” was also a driver of success, and will give it an edge in the coming months.

Jefferies said the second-quarter results prove that “fashion is fashionable again” and that Inditex’s impressive EBIT growth versus 2019 “confirms the group’s ability to capitalize on a recovering demand for fashion and workwear. It is of little surprise that the company’s tone on its fall 2021 prospects is visibly upbeat.”

Looking ahead, Zara Man is set to launch a line of sportswear that will be available online and in selected stores from Sept. 30. The collection is called Zara Athleticz and is based on simplicity, comfort and functionality.

Inditex is also planning to integrate its high-end, fashion-forward brand Uterqüe into Massimo Dutti over the course of next year. The company said Uterqüe’s full-product range will be available online, and within select Massimo Dutti stores.

The goal, Inditex said, is to optimize Massimo Dutti’s “longstanding presence in markets such as the U.S., Canada, Mexico and Turkey,” and give Uterqüe exposure in markets where it had no stand-alone stores, such as the U.K.

H&M Group, which also reported results on Wednesday, has been having a harder time shrugging off the impact of the pandemic.

The owner of brands including H&M, Cos and Arket said Wednesday that sales in reported terms grew 9 percent to 55.59 billion Swedish kronor, or $6.47 billion at current exchange, which was below analysts’ forecasts.

The firm said sales in local currencies were back at pre-pandemic levels in all markets except Asia and Oceania, and cited a “strong recovery” and “more full-price sales and good cost control.”

The company added that as restrictions have been eased, “sales in-store have picked up in many markets while online sales have continued to increase.”

Nevertheless, lockdowns and restrictions continued to dent the business. Compared with the same period in 2019, in reported terms, H&M’s third-quarter sales were down 11.2 percent.

The results followed stronger than anticipated gains for the second quarter, when H&M’s sales climbed 75 percent in local currencies compared with the same period last year, when restrictions were at their height in many markets.

H&M plans to reveal more detailed figures for the first nine months of its fiscal year on Sept. 30.

On Wednesday, shares in Inditex closed down 1.7 percent at 29.68 euros, while H&M shares fell 3.1 percent to 169.56 Swedish kronor, or $19.75.

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