Inditex says 5% of its stores were closed in Q3

Inditex says 5% of its stores were closed in Q3

Inditex, the owner of the Zara and Bershka brands, says it remains confident in its long-term strategy after its third-quarter showed a strong recovery in operations and earnings of EUR866m (US$1.05bn).

In the three months ended 31 October, earnings were down 26% from EUR1.2bn in the same period last year, and in constant currency dropped 13%. This, however, was despite 5% of the group's stores remaining closed during the quarter and 88% following restrictions.

Inditex says store sales have recovered strongly, and space growth for the year is on track. Online sales in constant currency sustained remarkable growth of 76% in the period. Net sales were down 14% to EUR6.05bn.

In the nine-month period, earnings were EUR671m compared to EUR2.7bn a year earlier. This included a provision for the completion of a store optimisation programme announced in June.

Net sales were at EUR14.1bn from EUR19.8bn a year earlier, while online sale jumped 75% and visits grew 44%.

Inditex lowered its operating expenses by 17% in the period thanks to "very efficient management" across all departments. And as a result of the operating performance and the active management of the supply chain, inventory decreased 11%.

In November, 21% of the group's stores remained closed, with a significant impact on store sales. A majority of these stores started to reopen in the first week of December. Currently, 8% of the stores are temporarily closed and an additional 10% are closed on weekends. Additionally, a significant number of stores have relevant restrictions in terms of space, capacity and opening hours.

Online sales in the fourth quarter, however, continue to grow at a similar rate seen in the first nine months of this year.

"We are following events closely and we remain confident in our long-term strategy," the company said in its trading update. Its full-year results are expected to be published on 10 March 2021.

Pippa Stephens, retail analyst at GlobalData, says Inditex's clothing specialism continues to make it highly susceptible to the impacts of the Covid-19 pandemic.

"While the worst of its troubles were concentrated towards the beginning of the outbreak, as consumers had little need for new apparel as they stayed at home, its performance during Q3 shows impressive resilience, with sales falling a comparatively modest 13.5% during the period. This is despite subsequent waves of the virus and several national lockdowns across Europe over the past few months, where Inditex has a wide presence (64% of its revenue in H1 FY2020/21 came from Europe).

"As consumer appetite for fashion starts to recover, Inditex has successfully maintained its desirability with a promising reaction to its AW20 collections and long queues observed outside stores. Its core brand Zara has increased its mix of loungewear, enabling it to capitalise on consumers' shifted lifestyles, while its homewares fascia will have retained appeal, as shoppers looked to improve their living spaces as they spent more time indoors. Massimo Dutti is likely to have been Inditex's worst performer as formalwear has fallen out of favour with shoppers due to a lack of events and increased working from home. The group has also reduced its inventory by 11% over the last nine months, highlighting the efficiency of its supply chain, with many apparel players, like M&S and Gap, currently struggling with excess stock due to a weaker demand for their products."