Inditex Swings to Profit as Fast Fashion Bounces Back

Mimosa Spencer
·4 mins read

PARIS Has fast fashion turned the corner? Bouncing back from a loss at the start of the year, Zara owner Inditex reported 241 million euros in net profit in the second quarter, forging a path toward recovery while much of the global apparel industry continues to struggle.

“We have seen a rapid recovery in operations over the course of the year,” said Inditex executive chairman Pablo Isla, speaking to analysts in an online presentation. The executive drove home his argument for a digitally focused strategy, even as stores continue to reopen.

Isla noted that 98 percent of the retailer’s stores have reopened following temporary shutdowns aimed at stemming the spread of the coronavirus and in-store sales are recovering “progressively.”

“The second quarter has marked a turning point in performance in 2020,” he said.

The Spanish fast-fashion retailer, which also owns labels Massimo Dutti, Bershka and Stradivarius, marked an improvement in sales, which were down 31 percent in the second quarter versus 44 percent in the first quarter, amounting to 8 billion euros for the first half of the year. Between Aug. 1 and Sept. 6, they were down 11 percent in constant currencies. Online sales — a key focus for the company, which has been rolling out e-commerce around the world and continues to invest in this area — continued to grow robustly, up 74 percent for the first half.

Overall sales were better than expected, even if first-half sales in Spain were a bit disappointing, noted Richard Chamberlain of RBC Europe.

For the first half, earnings before interest, tax, depreciation and amortization came to 1.48 billion euros, and the gross margin was 56.2 percent, slightly lower than 56.8 percent the same period last year.

Analysts at Berenberg noted profit figures were a “significant beat,” compared to expectations, and flagged positive comments from executives about inventory as likely supporting shares.

Inditex shares closed up 8.08 percent or up 1.93 euros to 25.81 euros.

“We think Inditex has benefited from its integrated business model, with a single inventory position,” said Richard Chamberlain of RBC Europe.

Isla said the company will continue to focus on reducing inventory, an effort that he traced back to the autumn 2018 season, and that will continue to be a priority.

“Thanks to these fully-integrated approach…we are able to run our business with even less inventory,” said Isla, predicting that when there is sales growth, inventory will grow at a lower level than sales.

“I am particularly pleased with our online sales growth, which demonstrates the critical importance of our integrated store and online platform strategy,” Isla noted, touting “outstanding” online sales in all markets. Inditex aims to roll out online sales platforms in all markets by the end of the year.

“This is a cornerstone of our unique business model with three key pillars: flexibility, digital integration and sustainability. Day by day, this combination is proving its solidness,” noted the executive.

Inditex has sprinted ahead of rivals on the digital front, outfitting stores with state-of-the-art tracking systems and offering fast delivery in urban areas. It plans to invest nearly 3 billion euros over the next two years in beefing up its digital platforms and integrating store and online stock, as it culls smaller stores and focuses on larger, spruced-up flagships. It has enlarged a store in central Paris, reorganizing it around a central staircase and is opening a new Wangfujing store in Beijing next month that will be the largest stores in Asia and one of the most technologically advanced in the whole group.

It is also plans to expand its Zara home offer.

The retailer said it recently hit the one-million-order mark in a single day for the first time and noted that since the beginning of the year, its brands reached nearly three billion online visits and now count 190 million followers on social networks.

Swedish rival Hennes & Mauritz AB reported improved business Tuesday, beating expectations with a forecast of returning to profitable territory in the coming months.

Sign up for WWD's Newsletter. For the latest news, follow us on Twitter, Facebook, and Instagram.