Inditex said the groups performance during the second quarter lays the foundation for a return to normal trading conditions

Inditex said the group's performance during the second quarter lays the foundation for a return to normal trading conditions

Inditex, the owner of the Zara and Bershka brands, says it has reached a turning point in its recovery from the impact of the Covid-19 pandemic after booking a second quarter net profit.

The Spanish clothing giant today (16 September) reported net profit of EUR214m (US$278m) for the second quarter ended 31 July. While the figure is down some 74% from EUR816m in the prior-year period, it compares to a net loss of EUR409m reported for the first quarter.

Inditex said the group's performance in the period lays the foundation for a return to normal trading conditions.

Net sales were down 31.9% to EUR4.7bn from EUR6.9bn last year. This compares to a 44.3% decline in the first quarter. 

Today, 98% of Inditex's store are open, with restrictions still in place in some specific markets.

For the first half, the group reported a net loss of EUR195m, against a net profit of EUR1.5bn in the prior-year period. Inditex noted its 2020 results include the provision of EUR308m for the completion of its store optimisation programme, and tha without the provision, net income would have been EUR39m.

Net sales in the six-month period fell to EUR8bn, compared to EUR12.8b last year, while online sales jumped 74%.

The flexibility of its business model meant inventory was down 19% at the end of the first half, with the closing inventory considered to be of high quality.

"Due to our unique business model, the strategic initiatives in place and the measures taken, we are seeing a rapid recovery in operations going into 2H2020. 98% of stores are now open. Store sales have been recovering progressively. Online sales continue growing at a remarkable pace," the group said.

Gross margin for the six-month period was 56.2%, compared with 56.8% last year.

Inditex's executive chairman, Pablo Isla, hailed the group's online sales growth, which he said "demonstrates the critical importance of our integrated store and online platform strategy. 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."

Looking ahead, Inditex noted the third quarter continues to see a progressive return to normality, with online sales growing sharply and store sales recovering gradually.

Store and online sales in local currencies between 1 August and 6 September 2020 were down 11% against a tough comparable of 8% growth during the same period of 2019.

Strong signs of recovery thanks to digital capabilities

Chloe Collins, senior retail analyst at data and analytics company GlobalData, notes that despite being a star performer in the global apparel market in recent years, like other fashion players Inditex has been massively impacted by the Covid-19 pandemic.

However, as stores have started to reopen worldwide, sales are steadily improving, with the second quarter experiencing a decline of 31.9% in contrast to 44.3% in the prior three-month period.

"With 98% of its locations now open again, sales in the last month (1 August – 6 September) have been particularly promising, only down 11% on the year, thanks to the group's digitalisation efforts, inspiring product ranges and affordable price points which cater to financially conscious shoppers.

"Its domestic market, Spain, has been the hardest hit during H1, accounting for 14.7% of sales versus 15.6% in H1 FY2019/20, as a result of its high prevalence of coronavirus cases. However, the rest of Europe is showing potential for quick recovery, likely thanks to its advanced online market, with 48.9% of sales now coming from the region, up from 44.4% last year.

"Inditex's digital investments over the last few years have paid off, with online sales impressively growing by 74% during the period. With seven new local websites launching during H1, followed by a further nine planned to go live by the end of September, Inditex is in a strong position to benefit from the continuing consumer shift to online shopping, as concerns around visiting physical stores remain and more lockdowns are put in place.

"However, its main brand Zara has become renowned for its outlandish model images online, and would benefit from choosing shots which allow browsers to better see the garment and its fit, to drive up conversion.''