Zara owner Inditex outshines rival H&M as sales top pre-pandemic levels

Firm expects online sales to account for more than a quarter of full-year revenue

Inditex, the world's biggest clothing retailer, has confirmed its bounce back from the pandemic by chalking up higher sales, profits and cash generation than it recorded before the spread of Covid-19.

Between May and July, the company’s revenue hit €6.99 billion, 1.4 per cent higher than the record high for the equivalent period in 2019 – helped by a recovery in consumer demand and the expansion of online sales.

Its results on Wednesday contrast with rival H&M, which reported overall sales that remained below 2019 despite a recovery from last year and a return to pre-pandemic levels in Europe and the Americas.

Inditex said net profit for the three months climbed to a record €850 million, while cash reserves rose to €8 billion compared with €6.49 billion in July 2020 and €6.73 billion two years earlier.

“Sales are ahead of where they were in real terms two years ago and I don’t think many retailers have reached that position at this point,” said Anne Critchlow, an analyst at Société Générale, who added that for three months to the end of August H&M’s total sales in local currencies were 3 per cent below their level two years before.

Margins grow

By contrast, Inditex said in a trading update that its sales in local currencies between August 1st and September 9th were 22 per cent higher than the corresponding period in 2020 and 9 per cent higher than the equivalent period in 2019.

Pablo Isla, executive chairman, said 99 per cent of the retailer's stores were now open. Gross margin for the first half of the year was 57.9 per cent, with the company predicting 57.5 per cent for the full year, compared with 55.8 per cent last year.

The group added that online sales in local currencies for the six months to the end of July were up 36 per cent on the same period in 2020 and 137 per cent on the equivalent period of 2019.

It expects online sales to account for more than a quarter of full-year revenue. In 2019, online represented just 14 per cent of total sales.

Inditex, best known for its Zara brand, had been hard hit by the onset of the pandemic. At times, 95 per cent of its stores were closed. In March last year it wrote off €287 million in inventories and a month later reported its first loss as a public company – of €409 million. The fourth quarter last year also disappointed as infection rates rose once more and many stores shut again.

Online sales

But throughout the crisis, the group stepped up online sales, using its tracking technology to source many online orders from its stores, even when they were closed to customers.

Inditex uses an integrated stock system for its physical and online stores, which helped it to reduce the inventories it held in July by 4 per cent compared with two years before – despite the increase in sales.

“The two big drivers of Inditex’s cost efficiencies are the single inventory programme [for stores and online] and the store optimisation programme: fewer, bigger stores that are likely to sell through stock more efficiently,” said Ms Critchlow. “This is not something they have just pulled out of the hat but two programmes that they have been invested in for a decade now.”

Inditex said that this year it had opened or expanded flagship Zara stores in locations such as Barcelona, Cairo and Guangzhou and was planning others in London, Paris and Cape Town.

It plans to integrate its Uterqüe range within its upmarket Massimo Dutti brand over the next year. At the end of July, Inditex had 6,654 stores across the world.

– Copyright The Financial Times Limited 2021

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