Inditex – Second-quarter revenue, profits and cash hit historic highs

First-half revenue reached EUR 11.94 billion, up 49 % year-on-year.

  • Inditex’ executive chairman, Pablo Isla, commented that this strong performance “is the result of the commitment displayed by everyone at the company and their continued focus on delivering top creative and quality fashion. Thanks to all of them we are reaping the benefits of the strategic and sustainable transformation in our unique business model”.
  • Online sales in local currencies registered first-half growth of 36% from 1H20, and 137 % when compared to the same period in 2019. Online sales expected to account for more than 25 % of total sales in FY2021.
  • The first-half gross margin was strong at 57.9 %.
  • Net profit amounted to EUR 1.27 billion, compared with a loss of EUR 195 million in the first half of 2020; EBITDA topped EUR 3.1 billion, year-on-year growth of 109 %.
  • Cash generation remained strong: the Group´s net cash position reached an historic high of EUR 8 billion at the end of 1H21.
  • Zara Man launches a line of sportswear that will be available online and in selected stores from September 30. The collection is called Zara Athleticz and is based on three fundamental ideas: simplicity, comfort and functionality.
  • Store and online sales in local currencies between August 1 and September 9, 2021 registered growth of 22 % compared to the same period of 2020 and of 9 % when compared with 2019.

I. HIGHLIGHTS

The Inditex Group reported revenue of EUR 11.94 billion in the first-half (1 February 1 – July 31, 2021), representing growth of 49% year-on-year, or 53% growth in local currencies. Net profit amounted to EUR 1.27 billion, compared with a loss of EUR 195 million in the first half of 2020.

The Group’s revenue, profit and cash generation in the second quarter 2021, between May and July reached historic highs for the period.

Inditex’ executive chairman, Pablo Isla, commented that this strong performance “is the result of the commitment displayed by everyone at the company and their continued focus on delivering top creative and quality fashion. Thanks to all of them we are reaping the benefits of the strategic and sustainable transformation in our unique business model”.

Second-quarter revenue accelerated and grew 7% in local currencies, to EUR 6.99 billion, when compared with the previous historic high for the quarter, set in 2Q19. Similarly, second-quarter 2021 net profit reached EUR 850 million, outperforming the previous high set in  2Q19.

The Group’s ability to generate cash is particularly noteworthy: as of July 2021, Inditex had EUR 8 billion in cash, compared to EUR 6.49 billion as of July 2020 and EUR 6.73 billion as of July 2019.

First half earnings were robust despite trading hours being down by 15% (6% in 2Q21), due to closures, limitations and capacity restrictions across the Group’s various markets and specific locations due to the pandemic.

Online sales, meanwhile, continued to register significant growth, reaching 36% above 1H20 levels and 137% above the prepandemic 1H19 figure (all in local currencies). Online sales expected to account for more than 25% of total sales in FY2021.

The Group’s first-half gross margin was a robust 57.9%, thanks to the performance of the business model, its flexibility and the digital transformation. Based on the information currently available, the company forecasts full year gross margin of around 57.5% (+/- 50bps) in 2021.

With respect to the start of the second half, specifically between 1 August and 9 September 2021, store and online sales, in local currencies, increased by 22% year-on-year and by 9% compared to the same period of 2019.

II. DIGITAL ANTICIPATION AND TRANSFORMATION

Integration of Uterqüe into Massimo Dutti.

As part of the Group’s digital anticipation and transformation strategy, Uterqüe is going to be integrated within Massimo Dutti over the course of next year. Uterqüe’s full product range will be available only online and within select Massimo Dutti stores and will no longer be sold in standalone stores.

The overriding goal is to optimise Massimo Dutti’s long-standing presence in renowned international markets such as the US, Canada, Mexico and Turkey. The move marks the continuation of the very successful strategy initiated between Zara Home and Zara to take adventage of synergies between the two brands.

All the other brands continue to pursue their integrated digital transformation strategies and open new flagship stores.

Zara, for example, opened impressive new stores in Edinburgh and Cardiff (UK) during the second quarter, as well as refurbishing stores in Marbella and Seville (Spain). In August, the brand inaugurated a store on Bahnhofstrasse in Zurich (Switzerland), which has a devoted area for the Zara Home collection. The latter opened stores in Düsseldorf and Berlin (Germany), Brussels (Belgium), Perm (Russia) and Kharkov (Ukraine) and has plans to refurbish and expand existing stores in Amsterdam (Netherlands), Geneva (Switzerland) and Abu Dhabi (United Arab Emirates).

Over the course of the year, Zara has opened or expanded high-profile stores in cities such as Barcelona, San Sebastián (both Spain), Guangzhou (China), Cairo (Egypt) and Puglia (Italy), among others, and has others in the pipeline in City of London (UK), Paris-La Défense (France), Milan-Corso Buenos Aires (Italy), Sydney-Westfield, (a refurbishment of the brand´s first maiden store in Australia), Chengdu Taikoo Li (China) and Cape Town-Waterfront (South Africa).

The rest of the Inditex brands also remained active in terms of openings and refurbishments. Pull&Bear launched stores in Edinburgh (UK) and Florence (Italy), and plans to open stores in Izmir (Turkey), Qatar and Guadalajara (Mexico) in the coming months.

Massimo Dutti opened a store in the Lotte Dongtan shopping centre (South Korea) at the end of August, unveiling its new brand image, which will also feature in the new store due to open in Seville’s Nervión Plaza (Spain) during the second half, alongside stores planned for other cities including Budapest (Hungary), Bratislava (Slovakia), Shanghai (China), Qatar and Guadalajara (Mexico).

On  September 3, 2021, Bershka saw one of its highest-profile openings of the year with its new flagship store on calle Preciados in Madrid, a thriving European shopping district. The store, which has four storeys, fully reflects the brand’s new image and, as is customary, fully integrates with online to offer a number of digitallyenabled features.

Earlier, during the second quarter, Bershka had already opened important stores in Paris and Marseilles (France), Edinburgh (UK) and Cairo (Egypt). Over the next few months, Bershka will open new stores in Rome (Italy), Istanbul (Turkey) and Bucharest (Romania), among others.

Stradivarius also made its début in Scotland with an opening in Edinburgh (UK). Meanwhile, Oysho reopened the doors of its enlarged stores in A Coruña (Spain), Puebla (Mexico), Doha (Qatar) and Kharkov (Ukraine), with additional refurbishments slated for Barcelona-La I´lla (Spain) and Beijing Solana shopping centre (China), while its first stores in Slovakia and North Macedonia are in the pipeline.

Inditex Open Platform

Technology-wise, all of the new stores are linked up to the new services offered by the Inditex Open Platform (IOP), the scope of which and performance of was continuously upgraded over the course of the first half. The Group thus continues to work on the development of the entire architecture of applications and microservices under the platform.

As a result, Zara stores in 21 markets currently feature Store Mode, with this service fully implemented in all of the brand’s stores in Spain, the UK and Japan. In other markets, including Italy, France, Germany and the US, implementation is progressing well.

Furthermore, the Zara and Massimo Dutti apps have added virtual fitting rooms for their Beauty and footwear collections, respectively, combining augmented reality and artificial intelligence technology, to offer an enhanced customer experience by enabling digital interaction with the product.

Elsewhere, the returns consolidation service is up and running in 20 markets, which allows customers to group items from different orders into a single return within the returns and exchanges period.

An app for the different Zara ID service user options is also in development. Zara ID is a QR code that allows shoppers to identify themselves in Zara’s stores to enable digital payment, returns and online order collection functions. At least 15 markets, including Spain, the UK, France, the US and Mexico, are currently participating in the first phase of this project by offering e-receipt functions.

During the first half, Zara opened its http://www.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 EUR 110 million.

Execution of the 2020-2022 capex plan, with EUR 1 billion earmarked to digitalisation and EUR 1.7 billion to the integrated store and online platform, therefore continues at a good pace. As of the first half close, the Group had 6654 stores, having opened 92 new stores in 27 markets worldwide.

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