Two of fast-fashion’s biggest juggernauts are jockeying for post-covid dominance but only one has pulled ahead—for now.
In a Nutshell: On Wednesday, Zara owner Inditex reported strong first-half profits on a 49 percent sales increase as customers resume shopping in stores.
Second-quarter revenue jumped 7 percent in local currencies to 6.99 billion euros ($8.27 billion), compared with the same 2019 pre-pandemic period. Net profit in the period reached 850 million euros ($1.01 billion), topping the previous high set in the same 2019 quarter, the Spanish clothing giant said.
Revenue, profit and cash generation in Q2 reached historic highs for the period, it added.
In contrast, rival H&M’s first-half sales rose 12 percent to 86.6 billion Swedish kronor ($10.1 billion)—still more than 20 percent off 2019 totals of 108.5 billion Swedish kronor ($11.4 billion). Roughly 1,800 stores were shuttered during H&M’s first half from Dec. 1 2020 through May 31, 2021. Adding insult to injury, Chinese consumer-led boycotts over H&M’s statements on allegations of forced labor in Xinjiang thwacked sales for the period. Inditex, Uniqlo and Skechers have similarly faced accusations of human-rights abuses in the Uyghur-heavy region.
But even H&M’s June-to-August third quarter—a closer comparison with Inditex’s Q2, given the June and July overlap—suggests the Swedish titan’s progress still lags its Barcelona competitor. H&M on Wednesday said net sales rose 9 percent to 55.59 billion Swedish kronor ($6.47 billion) versus the 2020 period. One bit of good news was that sales in local currencies were up 14 percent in the quarter to pre-pandemic levels, save for Asia and Oceana where restrictions hamper business. H&M reported 180 temporary store closures to start the quarter, along with limited operating hours and capacity constraints. At quarter’s end, about 100 doors will remain shuttered. H&M expects to report its nine-month results on Sept. 30.
Inditex, meanwhile, reported earnings before interest, taxes, depreciation and amortization (EBITDA) of 3.1 billion euros ($3.67 billion) for 109 percent year-over-year growth. EBITDA is used as metric to evaluate a company’s operating performance, and often serves as a proxy for cash flow generated during the specified period. As of the end of the first half, Inditex was sitting on 8 billion euros ($9.46 billion) in cash, versus 6.49 billion euros ($7.68 billion) in the same 2020 period and 6.73 billion euros ($7.96 billion) in the 2019.
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Inditex’s ongoing digital transformation strategy will infuse web-based capabilities into its new flagship stores. “In this integrated model of stores and online, displays are regularly updated and layouts are meticulously recreated around the world, ensuring brand continuity no matter the location in order to offer an easy, agile and efficient experience,” according to the company, which also owns Bershka, Resto, Pull&Bear, Massimo Dutti, Stradivarius, Oysho, Zara Home, and Uterqüe.
Inditex plans to integrate Uterqüe with Massimo Dutti over the next year, moving merchandise online and within select Massimo Dutti stores and away from the former’s standalone locations. This mirrors how Zara Home and Zara similarly leverage their synergies to drive sales. Of note, in the first half, Massimo Dutti launched Start Over, a Fall-Winter 2021 women’s collection that includes lingerie.
The Spanish firm is also linking its stores through Inditex Open Platform, which offers new microservices through the network. Services can include virtual fitting rooms via apps, augmented reality, and a returns consolidation service available in 20 markets. Zara customers at select stores can use the Store Mode app feature to gauge in-stock availability before visiting a store, as well as book a fitting room. Inditex is also working on a Zara ID service option using a QR code that allows shoppers to identify themselves in Zara’s stores to enable digital payments, returns and online order collection functions. Currently, 15 markets—including Spain, the U.K., France, the U.S. and Mexico—are testing the project’s first phase by offering e-receipt functions. And finally, an integrated stock management system—relying on deployment of radio frequency identification technology to provide real-time data on inventory levels—allows online orders to be fulfilled from any store.
Zara Man is planning a new sportswear line available online and in select stores beginning on Sept. 30. Called Zara Athleticz, the line is centered around simplicity, comfort and functionality.
Net Sales: First-half revenue from Feb. 1 to July 31, 2021, rose 49 percent to 11.94 billion euros ($14.12 billion) from the same year-ago period.
While Inditex said online sales in local currencies rose 26 percent from the year-ago period, it also noted that growth jumped 137 percent when compared with the same 2019 pre-pandemic period. The company expects online sales to account for over 25 percent of total sales in Fiscal Year 2021.
Store and online sales in local currencies between Aug. 1 and Sept. 9, 2021, the start of Inditex’s second half, “registered growth of 22 percent compared to the same period of 2020 and of 9 percent when compared with 2019,” the company said.
First-half gross margin was 57.9 percent.
Earnings: Net profit for the first half was 1.27 billion euros ($1.50 billion), a turnaround from a 195 million euros ($230.6 million) net loss a year ago.
CEO’s Take: The company is “reaping the benefits of the strategic and sustainable transformation in our unique business model,” Inditex executive chairman Pablo Isla said.