Inditex Group reported sales growth of 50% in the first quarter of 2021 (1st February to 30th April) (56% in local currencies) to US$5.9 billion. Online sales in local currencies grew by 67%.
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Sales were higher across all geographies and every brand despite the fact that 24% of trading hours were unavailable due to lockdowns and restrictions (16% of the Group’s stores remained closed at the end of the quarter), in addition to other capacity restrictions. In local currencies, revenue was just 11.5% below the level of the first quarter of 2019.
In light of this figures, Inditex’s executive chairman, Pablo Isla, highlighted how “our differentiation and strategic transformation towards a fully integrated, digital and sustainable model continues to bear fruit supported by the commitment displayed by all the people who work at Inditex”, attributes which are crucial as restrictions ease.
The integration of the business model has allowed the effects of the store absorption programme announced in June 2020 to have already been fully recovered in store and online sales in May 2021. The integrated stock management system (SINT), which allows an online order to be fulfilled from any store, has been pivotal.
One of the highlights of the reporting period was the trend in gross profit, which amounted to US$3.6 billion, lifting gross margin to 59.9%, 152 basis points above the 58.4% recorded in 1Q20 and 47 basis points above that of 1Q19.
The first quarter stands out for its solid operating performance, with growth in operating expenses at only 19%, significantly below sales growth. EBITDA amounted to US$1.4 billion (US$590 million in 1Q20), while EBIT totalled US$693 million (compared to a loss of US$619 million in 1Q20).
Net profit reached €421 million in the quarter, compared with a loss of €409 million in the first quarter of 2020.
Thanks to the solid earnings performance, the Group’s net cash reached US$8.7 billion at the reporting period, up 25% from a year earlier, and the highest in a first quarter. It is also worth highlighting the control over inventories, which increased by less than sales compared to the first quarter of 2020 and is even lower than at the close of 1Q19.
By the start of the second quarter, as of 7th June, 98% of the Group’s stores were open. Store and online sales in local currencies between 1st May and 6th June are tracking 102% above the same period of 2020 and 5% above that of 2019 helped by the popularity of the Spring collections. Throughout that trading period, 10% of trading hours were unavailable due to store closures and restrictions.
Inditex is holding its Annual General Meeting in Arteixo (A Coruña, Spain) on 13th July. The Board of Directors will ask the company’s shareholders to approve the payment of a total dividend from 2020 profits of US$0.85 per share, US$0.43 of which was already paid out on 3rd May; the balance would be paid on 2nd November 2021.
In terms of energy sustainability during this quarter, the Group announced a significant wind power generation project in the outer port of Punta Langosteira (A Coruña, Spain), that will generate enough electricity to enable self-sufficiency at Inditex’s headquarters in Arteixo, which spans nearly one million square metres, with enough excess to completely power the neighbouring port.
That green power capacity joins the 554 photovoltaic panels installed on the roof of the new zara.com building, with another 2,826 panels installed in the outdoor car park – complete with electric charging points – to account for half of the building’s electricity requirement. With these solar and wind sources combined, all of the building’s energy consumption comes directly from renewable sources.
The Group is working towards delivering its target to have 90% of the energy consumed at all of its facilities worldwide (offices, logistics platforms and stores) to come from renewable sources by the end of this year. By the end of 2020, 80% of the Group’s worldwide energy consumption came from renewable sources, which was ahead of its target, with that figure rising to 100% in Spain.
The continued progress in sustainability was evidenced by external rankings during the quarter.
For example, the Manuel Olivencia Prize for Good Corporate Governance awarded by the Cuatrecasas Foundation, the Clean List 200 Corporate Knights (#47 out of 200) and acknowledgement by the Financial Times as one of the companies to have reduced its emissions intensity relative to revenue most significantly between 2014 and 2019.
Technology is proving integral to the Group’s integrated, digital and sustainability strategy. Chiefly, the Inditex Open Platform (IOP) is enabling, for example, greater efficiency and agility in inventory management by helping to be more efficient with lower inventory, thus reinforcing Sustainability in a production model based from its origins on not having surpluses.
In parallel, the company continues to invest in communities. In India it rolled out an emergency relief plan to mitigate the effect of the COVID-19 pandemic,including the donation of US$608,898 to the Red Cross. The Group also increased the scope of its programme with UNHCR, to which it donated 1.9 million garments for refugee camps in Rwanda, Burkina-Faso, Ethiopia, Uganda and Belarus. In Spain, we collaborated with the NGO COGAMI, a Galician association for disabled people, in the Alentae project, a special not for profit job centre to make facemasks in facilites equiped by Inditex in Bergondo (A Coruña)
During the quarter the Group opened a new eco-efficient and technologically advanced building within its Arteixo complex (A Coruña, Spain) to house the new Zara.com studios and the Zara Man central design department. Surrounded by a natural ecosystem of trees and plants, the building features next-generation sustainability and technology developments. The project entailed an overall investment of €110 million. Spanning 67,000 square metres, the building stands out for the 720 high-energy-efficiency glass modules that clad the façade – flooding the interior with natural light.
As a fully digital company, it continues to develop its universe of applications and microservices which are being layered over the Inditex Open Platform (IOP). The versatility of this digital architecture makes it easy to create and integrate new services for users and professionals in each of the steps of the Company’s activity, besides improving our customers’ experience. The process is enriched constantly by incorporating new functionalities and developments adapted in-house to each need, to permanently improve the performance and scope of the IOP platform.
Elsewhere, the integrated stock management system, underpinned by the full deployment of radio frequency identification (RFID) technology providing real-time data on inventory, is enabling the company to operate with even tighter inventory levels, whileimproving the customer shopping experience.
In Spain, Japan and the UK, Zara has completed the rollout of its Store Mode app feature, which allows customers to browse items in the store of their choice through their mobile app to know which items are in store before they arrive. It also enables customers to purchase these items in advance for collection in half an hour, in-store fitting room booking, and location of items they’ve seen online in store. ‘Store Mode’ functionality is also operational in 30 stores each in Germany and Italy, in 10 stores in France and is being gradually introduced in markets such as Russia, Poland or the US.
Sales and IT teams continue partnering with distribution and operations to develop services that improve customer experience, while making a more efficient and sustainable use of resources.
One example is how Zara continues to roll out its returns consolidation service organised through the electronic receipt function of the app which is currently available in 17 markets, including Spain (in-store and online), Portugal, Germany, UK, France, Netherlands, Poland, Italy, Sweden, Denmark, Austria and the Czech Republic, with others in the pipeline.
This allows customers to group returns of items bought at different times to boost efficiency and convenience. The app keeps organized a list of the items customers can still return in a specific period using the electronic receipt, so they can group the return along the returning period whenever they like.
In the same vein, Zara also continues to rollout in-store Customer Experience areas, with new convenience services and spaces such as fitting room waiting areas and showroom areas. Dedicated exchange and returns areas, online order pick up and clothes collection points, and recycling points have also been implemented.
In a bid to continually improve the shopping experience, during the first quarter, Inditex inaugurated the new zara.com building at its head offices in Arteixo (A Coruña, Spain), which houses the audiovisual production studios and the teams tasked with coordinating the brand’s online presence. The building, which boasts 67,000 square metres of floor space and next-generation sustainability credentials, entailed an investment of over US$133.9 million.
The company is also forging ahead with its €1 billion digitalisation investment plan, with another US$2 billion of capex to be set aside for platform integration between 2020 and 2022. At the quarter close, the company had 6,758 stores in 96 markets, having opened 53 new stores in 21 markets during the period. These are bigger and higher-tech stores that are fully ready to adapt for business model evolution.
The high-profile openings last quarter include the Zara stores in Clermont-Jaude (France), Lize Paradise in Beijing (China), the Waterfront shopping centre in Belgrade (Serbia), and a new flagship in Nashville (US) and the expansion of the flagship store on Paseo de Gracia in Barcelona (Spain) and Puerto Banús (Marbella, Spain). Other important openings for Zara in the second quarter include in Cairo (Egypt), Cardiff (UK), which have already opened, and Edinburgh (UK).
In addition, Zara, together with Stradivarius and Zara Home, has just announced an agreement to open stores in one of the biggest real estate developments in Europe, in Madrid’s Plaza de España (Spain). Located in one of the city’s most vibrant shopping areas, the three brands will occupy 9,000 square metres between two stores which will become benchmarks for the Group’s focus on large stores in premium locations.
In line with that same model, during the second quarter Bershka has opened one of the most important stores on the calendar for the year, a store spanning almost 2,000 square metres in Forum des Halles in Paris which showcases the brand’s impressive image.
Similarly, Zara Home unveiled its new store image in A Coruña (Spain) during 1Q. The new space is open-plan and diaphanous to boost the customer’s sensory interaction with the store, articulated around a minimalist design with traditional and natural design, all of which compatible with the latest technology features, including ‘Store Mode’.
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Pull&Bear, Massimo Dutti, Bershka, Stradivarius, Oysho and Zara Home also opened new stores across the most popular shopping streets and centres in cities such as Ankara (Turkey), Puebla (Mexico), Hong Kong SAR (China), Algiers (Algeria), Pamplona (Spain) and Jerusalem (Israel), among others.