The Two Sides Of Inditex’s 2020 Results: Profit Falls By 70%, Online Sales Grow By 77%

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Inditex’s results in the year of the pandemic have shown an annual drop in profit and revenues of 70% and 28%, respectively, although the counterpart for the company has been the rapid conversion of its business model to the online environment, with internet sales growing by 77%.

In year 2020, Inditex generated net sales of €20.4bn in FY20 (1 February 2020 to 31 January 2021), a year dominated by the COVID-19 pandemic. The company prioritised the health of its staff and customers at all times, and every one of its stores was mandated to close or restrict trading hours and capacity during long periods of the year.

Against that backdrop, online sales registered growth of 77% in local currencies, to over €6.6bn in FY20, with growth of over 100% during certain periods of the year. Those figures rank Inditex as one of the leading players in online fashion globally.

Active and continuous cost management throughout the pandemic drove a reduction in operating expenses of 17%, evidencing the company’s flexibility and ability to adapt. In parallel, gross margin stayed at a robust 55.8%, despite the restrictions faced across the store network, particularly during the fourth quarter, which has the biggest impact on this metric every year. In local currencies, gross margin growth increased 170bps to 57.6% of sales (257bps in the second half).

The Group ended the year with a solid liquidity position of €7.56bn and high-quality inventory, thanks to continuous improvement in stock management. Inventory decreased by 9% following the impairment in value provision recognised in 2019 in anticipation of the effects of the pandemic.

The integrated management of online and store inventories was one of the highlights of the year: thanks to the rapid deployment of the Integrated Stock Management System (SINT) – already available in 5,777 stores across 89 markets – the Group was able to fulfil online orders worth over €1.16bn from its stores.

The Group’s tax contribution was €4.7bn, while its effective global income tax rate was 21.2%, in line with previous years. As a result, the Group was able to reach a net profit of €1.1bn in FY20. In this sense, the company reached a remarkable €1.3bn net profit during the second half of the fiscal year. 2021 trading update. Store and online sales in local currencies declined by 15% between 1 and 28 February, with 21% of the stores closed. Between 1 and 7 March, with 15% of stores closed, sales contracted by 4%. Excluding the five more significant markets with mandated closures (Germany, Brazil, Greece, Portugal and UK) sales registered growth of 2%.

Thanks to the robust net financial position and cash flows generated by the strong operating performance, the company was able to pay dividends worth €1.1bn last November, while maintaining its ability to reinvest in the growth of the company. In this same line, Inditex’s Board of Directors will submit a motion for a €0.70 per-share dividend at the Annual General Meeting scheduled for July. The proposed payment will consist of an ordinary dividend of €0.22 and an extraordinary dividend of €0.48 per share, divided into two equal payments, €0.35 per share to be paid on 3 May 2021 and another €0.35, on 2 November 2021.

A key year for Inditex’s strategy

Fiscal 2020 was a key year for Inditex’s strategy. The strategic plan initiated nine years ago and the investments made to integrate the online and store platforms since 2012 enabled the company to continue its business throughout the pandemic, leveraging a single, digitally integrated ‘stockroom’ to respond to its customers’ evolving needs.

Thanks to those capabilities, the Group was able to seamlessly transition to meeting demand from its stores with the flexibility and efficiency needed. Full deployment of the RFID system paved the way for rapid rollout last year of the integrated stock management system, which is presently available in 5,777 stores across 89 markets. Thanks to that system, the Group was able to fulfil 46 million online orders worth €1.2 billion from its stores, and stock management was more precise and efficient.

The Group has invested over €11 billion in technological integration, digitalisation, transformation and store adaptation since 2012. The Group invested further in fiscal 2020 and that momentum is set to continue in 2021 and 2022, with capital expenditure of €2.7bn.

These technological investments supported the 77% online sales growth in local currencies to €6.6bn putting Inditex among the top global players in the online fashion arena. Online visits increased by 50% in 2020 to 5.3bn.

The Company leveraged its response capabilities, specifically its online channels and agile logistics capability, to adapt seamlessly to the new environment, with the number of orders per hour surging 57%, and peaking at over 400,000.

The Group’s eight brands have 50 million online users, who increasingly show a preference for mobile apps, with 132 million active app users in 2020. All the brands also have a strong social media presence, evidenced by their 200 million followers.

The reach of the integrated store-online sales platform continued to grow, to 91 markets, as did the various brand’s global websites, which between them now reach 216 countries around the world.

In FY20, launched its integrated online platform in Argentina, Paraguay, Uruguay, Chile, Panama, Costa Rica, Puerto Rico, Iceland, Georgia, Tunisia, Kazakhstan, Cyprus and Algeria, among others. Elsewhere, Lefties launched its new online sales platform in Spain and Portugal.

The rest of the Group’s brands (Bershka, Pull&Bear, Massimo Dutti, Stradivarius, Zara Home, Oysho and Uterqüe) also continued to expand their online reach throughout the year.

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The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.