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Inditex’s Q1 Swings to Black as Tech Fuels Digital Sales

Pent-up demand continued to boost sales at Inditex in May, maintaining the first-quarter momentum when in-store and online purchases jumped 50 percent above year-ago figures.

In a Nutshell: The Zara owner said store and online sales in local currencies from May 1-June 6, 2021, when restrictions trimmed business hours by 10 percent, recorded year-on-year growth of 102 percent compared with the same 2020 period, and was up 5 percent versus the comparable 2019 period.

Sales were also higher across all geographies and brands even though 24 percent of business hours were down due to store closures and restrictions. By the start of Q2, 98 percent of the stores were open, Inditex said.

In Spain, Japan and the U.K., Zara has finished deploying its Store Mode app feature, allowing customers to gauge in-stock availability before visiting a store and book a fitting room, too. Store Mode covers in 30 stores apiece in Germany and Italy, and 10 stores in France, and will be introduced to markets including Russia, Poland and the U.S.

In 17 markets, including Spain and parts of Europe, Zara has rolled out a returns consolidation service, allowing consumers to group returns bought at different times through the electronic receipt function, which is being deployed to other markets.

Inditex said its new integrated stock management system “has been pivotal” because it allows an online order to be fulfilled from any store. The system relies on full deployment of radio frequency identification technology to provide real-time data on inventory levels. The Inditex Open Platform allows for greater efficiency, agility and sustainably in inventory management, the company said.

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At the quarter’s close, Inditex had 6,758 stores in 96 markets, opening 53 new stores in 21 markets. Zara store openings include: Clermon-Jaude in France; Lize Paradise in Beijing, China; the Waterfront shopping center in Belgrade, Serbia, and a new flagship in Nashville, Tenn., in the U.S. Zara is also planning Q2 store openings in Cairo and Edinburgh. The new U.K. store in Cardiff has already opened.

Inditex said Zara, together with Stradivarius and Zara Home, will open stores in one of the biggest real estate developments in Europe, in Madrid’s Plaza de España. The brands will occupy 9,000 square meters between two stores, serving as benchmarks for the company’s focus on large stores in premium locations.

The company’s other brands–Pull&Bear, Massimo Dutti, Bershka and Oysho—also opened new stores during the quarter in Ankara, Turkey; Puebla, Mexico; Hong Kong; Algiers, Algeria; Pamplona, Spain, and Jerusalem.

Inditex started a wind power generation project that will enable self-sufficiency at headquarters in Arteixo, with enough excess to fully power the neighboring port.

Inditex said it is still working towards having 90 percent of the energy used at all of its facilities to come from renewable sources by the end of this year. At the end of 2020, 80 percent of Inditex’s worldwide energy consumption came from renewable sources, ahead of its target date and reaching 100 percent in Spain.

Net Sales: For the three months ended April 30, 2021, the company said first quarter sales rose 50 percent to 4.94 billion euros ($6.03 billion) from 3.30 billion euros ($4.03 billion) in the comparable year-ago period. Inditex said digital sales in local currencies rose by 67 percent.

The company said new collections in Q1 and Q2 “transmit the sense of renewal ushered in by the spring,” incorporating joyful colors, striped and tie-dye prints, rich, floral prints, season-appropriate cottons and linens.

Zara introduced its Alphabet line of silver jewelry and silk scarves featuring letters of the alphabet, as well as a pet collection that includes rain coats, a brush set and a roll-away bed. It will launch Zara Beauty in the second quarter. Pull&Bear launched (Un)catalogued, a limited-edition capsule collection that combines iconic denim pieces with minimalist apparel and trendy finishes, Inditex said. Massimo Dutti introduced a line of personal care products called the Body Care Collection.

Gross margin grew to 59.9 percent from 58.4 percent a year ago.

Earnings: Net income swung to the black to 421 million euros ($513.4 million), against a net loss of 409 million euros ($498.8 million) in the year-ago quarter.

CEO’s Take: “Our differentiation and strategic transformation towards a fully integrated, digital and sustainable model continues to bear results, supported by the commitment displayed by all the people who work at Inditex,” said executive chairman and CEO Pablo Isla.