Inditex’s first quarter report showed the Zara owner’s best gross margin in 10 years with profits showing healthy improvement.
In a Nutshell: Despite the uncertainty in Europe with the Russia-Ukraine conflict, the Spanish company’s sales rose in the quarter following a “significant rebound in traffic to Inditex’s stores.”
“The performance has been very strong across all geographies, with the exception being those markets subject to restrictions. The strong growth in the USA continues,” Inditex said on Wednesday.
Cash from operations grew 28 percent to 9.19 billion euros ($9.87 billion) by the quarter’s end from 7.18 billion euros ($7.71 billion) a year ago. Gross profit rose 37 percent to 4.1 billion euros ($4.40 billion). The gross margin reached 60.1 percent in the quarter, reflecting an increase of 20 basis points versus the year-ago quarter and its highest in 10 years. Inditex said it kept “tight control of operations expenses” in the quarter.
Inditex reconfirmed its commitment to buying 100 million euros ($107 million) worth of sustainable Infinna textile fiber over three years when Infinited Fiber Company opens its first-large scale factory in 2024.
Net Sales: For the first quarter ended April 30, net sales jumped 36 percent to 6.74 billion euros ($7.24 billion) from 4.942 billion euros ($5.31 billion).
Inventory at the end of the quarter was up 27 percent as Inditex flowed product in to circumvent any potential supply chain disruption.
In the quarter, Inditex opened stores in 16 markets for 6,423 doors across Zara, Zara Kids, Zara Home, Pull&Bear, Massimo Dutti, Bershka, Stradivarius and Oysho. In addition to temporary store closures in Russia and Ukraine, 67 Chinese stores are locked down and four remain temporarily closed.
Zara recently implemented a fee for online returns.
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Earnings: Net income for the quarter jumped 81 percent to 766 million euros ($822.6 million), or 0.244 euros ($0.26), from 421 million euros ($452.1 million) or 0.135 euros ($0.14).
The company said it took a charge of 216 million euros ($232 million) related to expenses in the Russia Federation and Ukraine. Net income would have been 940 million euros ($1.01 billion).
“The flexibility and responsiveness of the business model in conjunction with in-season proximity sourcing allows a swift reaction to consumer demand with price stability and unique market positioning,” Inditex said.
For the second quarter, the spring-summer collections have been “very well received” by customers, with store and online sales in constant currency between May 1 and June 5 climbing 17 percent versus a year ago, and up 13 percent in \ the last two weeks compared with the same year-ago two-week period.
Capital expenditure for 2022 is expected around 1.1 billion euros ($1.18 billion). For Fiscal Year 2022, online sales are expected to exceed 30 percent of total sales by 2024.
CEO’s Take: “The strength and adaptability of the business model and the excellent performance of our creative, sales and operating teams are driving that differentiation forward, underpinned by a strategic focus on innovation, digitalisation and sustainability,” CEO Óscar Garcia Maceiras said.