Fast-fashion titans H&M Group and Zara owner Inditex saw an upswing in sales in fourth- and third-quarter earnings reports, respectively, fueled by digital growth.
The two fast-fashion chains both cited strong recovery in sales once stores began reopening after the first wave of coronavirus, or Covid-19, outbreak, noting that positive momentum continued until the period between Oct. 19-22 when a second wave of coronavirus infections drove additional restrictions and new temporary store closures.
Despite what the two chains touted about how sales have steadily improved until the second wave struck, it would appear that the battle shows Inditex having the edge.
The two follow different business models, with H&M focused on selling more full-price items and containing costs to hit its quarterly profit goal. It’s also had issues with too much inventory. Inditex in turn has been focused on inventory control and has pivoted to proximity sourcing and a single-inventory position to fulfill online orders.
It wasn’t until October that H&M announced plans to shutter 250 stores next year, hinting at a greater focus on digital. In contrast, its Spanish fast-fashion competitor made the tough decision to close up to 1,200 stores back in June. And in a presentation on its current earnings report, Inditex touted how “outstanding growth in online sales continues,” noting it was “fully confident” in its unique business model and strategy that combines store and online integration, digitization and sustainability. The Spanish giant also noted its prowess in managing the supply chain.
Net Sales: For the fourth quarter ended Nov. 30, net sales fell 10 percent in local currencies to 52.54 billion Swedish krona ($6.26 billion).
The company said it started the year “strongly and with positive momentum until the first wave of Covid-19 had an impact.” Foot traffic dropped in the second quarter amid temporary store closures and social distancing mandates. The third quarter recovery continued for much of the fourth quarter. Between Sept. 1 and Oct. 21, sales fell 3 percent in local currencies, but were down 22 percent between Oct. 22 and Nov. 30, due to a slowdown as a result of the pandemic’s second wave.
For the full year, net sales fell 18 percent in local currencies, to 187.03 billion Swedish krona ($22.27 billion).
Earnings: The company will report its full-year results on Jan. 29.
Net Sales: For the third quarter ended Oct. 31, sales fell 10 percent in constant currency to 6.05 billion euros ($7.35 billion) from 7.00 billion euros ($8.50 billion). Inditex said gross margin reached 60.5 percent versus 60.8 percent in the year-ago period. Online sales grew 76 percent in the quarter.
Inventory decreased 11 percent, helped in part by both operating performance and active supply chain management.
The company noted as an example of its recovery that sales in constant currency between Oct. 1 to 18 “already reached the historic highs of the same period in 2019.” From Oct. 19 and thereafter, a “new phase of closures and restrictions began in various markets until the first week of December.”
For the nine months, sales in constant currency fell 26.9 percent to 14.1 billion euros ($17.13 billion) from 19.8 billion euros ($24.05 billion)in the year-ago nine-month period. Online sales rose 75 percent over the nine-month period, with online visits up 44 percent to 3.4 billion visits. Inditex said 97 percent of the growth was organic.
During the interim nine-month period, the company opened 25 doors and operated a total of 7,197 stores.
Earnings: Net income for the third quarter fell 13 percent in constant currency to 866 million euros ($1.05 billion) from 1.17 billion euros ($1.42 billion) in the year-ago period.
For the nine months, net income fell 75.3 percent to 671 million euros ($815.0 million) from 2.72 billion euros ($3.30 billion) a year ago.