By
with contributions from Samantha Conti
 on March 18, 2020
Zara's revamped flagship in Milan.

PARIS — As the apparel industry struggles to come to grips with the shutdown of retail activity across Europe and in much of the U.S., Zara-owner Inditex on Wednesday offered insight into the state of affairs at a prominent player, reporting that sales declined by nearly a quarter in the first two weeks of March and over half of its stores are temporarily closed.

“The COVID-19 pandemic is having a very significant impact,” said the fast-fashion giant, noting that it is too early to quantify the future impact of the disruption to business. Inditex booked a 287 million euro provision to account for the potential hit from the virus on its inventory position and delayed its decision on a dividend later in the year, ahead of the July annual meeting.

“When even the best company in the sector decides to defer its dividend decision until the summer, you know we’re in unprecedented times,” said Richard Chamberlain, analyst with RBC Europe, in an e-mailed research note.

“We remain positive as we think Inditex is best placed to weather the storm given its high margins, flexible business model and balance sheet firepower,” Chamberlain added.

Inditex “does have a strong balance sheet to weather the current storm,” Berenberg analysts said.

The Spanish retailer has closed 3,785 stores in 39 markets, over half of the vast network of 7,469 units worldwide. The company did not provide a geographic breakdown of the closures, but governments across Europe have ordered all nonessential stores to be shut. The continent accounted for 62 percent of group sales last year. In China, meanwhile, the company has reopened all but 11 stores.

Sales in the March 1 to March 16 period were down 24.1 percent in constant currencies and the decline from Feb. 1 to March 16 was 4.9 percent, Inditex said.

The company reported a 6 percent rise in full-year profit, as the 287 million euro provision related to COVID-19 disruption weighed heavily. Full-year results to the end of January were strong, excluding the significant inventory provision, noted RBC.

Sales for the year were up 8 percent in local currencies to 28.3 billion euros, with brisk growth in online activity, which rose 23 percent. The company launched online sales platforms, which account for 14 percent of group sales, in 18 countries over the past year, many in the Middle East.

“We continue believing very much in this fully integrated approach regarding stores and online. This is one of the key elements of our global strategy. Once things come back to normality we will come back to this approach,” said Pablo Isla, Inditex’s executive chairman, in a conference call with analysts.

Given the environment of deep uncertainty, executives declined to provide guidance for the year, for sales or store space growth, but said they hoped to do so during the first quarter results presentation in June.

In China, Inditex’s online business worked throughout the month of February, at the height of COVID-19 there, and has been developing “in a very normal way,” said Isla, who declined to elaborate further, noting it was a short period of time.

Inditex also said Wednesday that it is making logistics, procurement and sales management capabilities, most particularly in China, available to the Spanish government to help with emergency efforts to procure health and textile supplies, which currently are seeing shortages.

Each week the company plans to deliver materials it purchases directly. Inditex has already donated 10,000 protective face masks and by the end of this week expects to be in a position to ship another 300,000 surgical masks.

“We are working to bring the materials the Spanish health authorities have indicated they need most urgently: masks, gloves, protective glasses, caps, shoe covers and face shields. Inditex will lend logistical support in transporting the materials the Spanish government acquires directly from China,” the company said.

Inditex is also looking into switching some of its textile manufacturing capacity over to produce health-care supplies, like making protective gowns in Spain — which will require specific adjustments to meet health sector regulations, as well as the availability of the required raw materials.

The company noted a number of suppliers and partners in China are helping out, especially Tsinghua University, which has proved “instrumental in getting access to essential protective materials.”