PARIS — Fast-fashion giants H&M Group and Inditex on Tuesday touted an improvement in business in recent weeks, even as the renewal of coronavirus lockdowns weighed on their performances — offering evidence that efforts at both companies are paying off.
Inditex has invested heavily in further boosting its digital prowess and H&M has undergone a broad overhaul to catch up on the omnichannel front, while sprucing up its offer.
Choppy market conditions interrupted progress over the latest financial period for each of the two retailers, showing that the situation remains difficult to navigate, even for the industry’s most resilient operators.
In a call with analysts on Tuesday, executives at Zara-owner Inditex stressed ever-tighter inventory management — a clear advantage over rivals like H&M, which embarked on a restructuring drive after struggling under the weight of too much inventory in 2018.
That same year, Inditex executives said that thanks to efforts to integrate inventories in stores and online, through RFID technology, they began managing their company with lower levels of stock. Sales were growing, on a like-for-like basis, even as inventories decreased, they said.
While there may be variations from quarter to quarter, the overall trend at Inditex is to run the company with lower inventories as a percentage of sales as the company continues to increase efficiency over the coming years, executives said. Seamless omnichannel services are key to the strategy, which has helped the retailer navigate the challenging environment.
“Post-internet operating model offers superior flexibility,” noted analysts at HSBC in a recent note.
“Inditex’s inventory control remains strong and it has a very healthy net cash balance,” said Richard Chamberlain of RBC.
Still, the company — and its rival H&M — may suffer from further temporary store closures, as countries like Germany move toward tighter restrictions to stem the spread of the coronavirus.
“However, its recovery trajectory may be softer than market expectations due to further restrictions on stores,” added Chamberlain, referring to Inditex. The analyst noted that plans to absorb stores means it will rely more on like-for-like sales growth rather than expanding store space to drive revenues. A recovery from the pandemic crisis has already been priced into the share price, said Chamberlain, who rates the shares “sector perform.”
“We have had a remarkable execution in a challenging operating environment,” said Pablo Isla, executive chairman of Inditex.
Inditex reported a 10 percent decline in third-quarter sales with brisk online growth, and signaled a strong recovery in operations over the period running from August through October. “In a somewhat more normalized environment, store sales have recovered strongly,” the Spanish retailer said Tuesday.
H&M Group posted a 10 percent sales decline in local currencies in the fourth-quarter running from Sept. 1 through Nov. 30, trumpeting a strong recovery for much of the period, before a second wave of lockdowns weighed on business.
Inditex sales came to 6.05 billion euros, a 10 percent decline at constant currencies, while net income was down 13 percent to 866 million euros for the August to October period. Its online business grew 76 percent over the quarter.
The fast-fashion giant reported that 5 percent of its stores were closed, while 88 percent were affected by lockdown restrictions. The company is adjusting its network, focusing on bigger stores and said that space growth for the year is on track.
The Spanish retailer, which also owns labels Massimo Dutti, Bershka and Stradivarius, turned the corner in the second quarter, bouncing back from a loss at the start of the year.
Inditex has moved quickly on the digital front, building state-of-the-art tracking systems in stores and offering speedy delivery in urban areas. It is investing nearly 3 billion euros over the next two years to further improve its digital platforms and integrate store and online stock, while culling smaller boutiques to focus on high-tech flagships.
It recently enlarged its flagship in central Paris and had plans to open one of its largest stores in Asia in Beijing, touted as one of the most technologically advanced in the whole group.
H&M Group sales came to 52.54 billion Swedish kronor, or $6.24 billion, for the fourth quarter. A 3 percent sales decline in the first part of the quarter deepened to a 22 percent drop as a new wave of coronavirus measures swept across its markets. The company releases full-year results on Jan. 29.
“Industry conditions have remained challenging for H&M,” noted Chamberlain of RBC, citing the negative impact of further lockdowns and social-distancing measures. The analyst flagged good momentum for the retailer before the second wave of coronavirus restrictions.
The Swedish fast-fashion retailer had outperformed expectations last quarter with stronger full-price sales, a key issue for a company that had been caught in discounting spirals in past years.
Signs of improvement from its overhaul were just emerging as the coronavirus crisis hit.
Despite the disruption from lockdowns, some investors are interested in H&M’s potential in the longer term, analysts say.
“H&M is accelerating its transformation plan with investment in digital and optimization of its store portfolio,” noted analysts at HSBC in a recent note, flagging the potential of cost savings as it renegotiates leases.
The group, which operates Cos, Monki and Weekday in addition to H&M, has reacted to the crisis by cutting costs and renegotiating leases for its sprawling network of stores.
Analysts have forecast a modest pace of recovery for the fast-fashion industry.
More on Fast Fashion: