LONDON — Inditex is supersizing its business as sales gather momentum post-Omicron, and consumer confidence returns despite rising retail prices.
The Spanish fast-fashion giant, parent of brands including Zara, Massimo Dutti and Stradivarius, said that fiscal 2022 has begun with a bang: sales between Feb. 1 and March 13 were up 33 percent compared with the same period in 2021. They were 21 percent higher than the record pre-COVID-19 levels of 2019.
The company, which saw sales in the fourth quarter of 2021 slow due to the spread of Omicron, is so bullish about the growing momentum it has already raised prices by a mid-single digit for segments of its spring collections, and has seen no resistance from customers so far.
The company said one of its biggest surprises has been the boom in the U.S., which is now Inditex’s number two market after Spain.
During a call to discuss the fiscal 2021 results, Zara’s principals touted the rapid growth of the company’s online channel, and the “tight management” of the business over the past two years.
“After two years of the pandemic, this set of results demonstrates the incredible ability to adapt to any circumstances,” said Pablo Isla, executive chairman of Inditex.
The group’s chief executive officer, Óscar García Maceiras, said the digital transformation of Inditex “places us in an unrivaled position to offer an exceptional level of engagement” with the Inditex brands.
Inditex principals didn’t seem to mind that full-year 2021 results fell short of consensus estimates. With the worst of the pandemic over, the company is looking to the future, and to growth, online and offline.
In the year ended Jan. 31, 2022, profit nearly tripled to 3.24 billion euros, as revenues climbed 35.8 percent to 27.7 billion euros. Inditex noted that all of its individual brands were profitable, before tax, in fiscal 2021.
Analysts had forecast 28 billion euros in sales, and profit before tax of 4.7 billion euros, compared with Inditex’s reported 4.2 billion euros.
Inditex said the sticker price increases implemented over the past weeks were done “in a very selective way” and were meant to “preserve the brands’ market positioning.”
Company principals said there has been “no material impact” on sales volumes as a result of the higher prices, and that inventory levels remain healthy.
The Inditex board of directors said it will ask shareholders to approve a dividend of 0.93 euros per share, up 33 percent from 2020. The board has also agreed to pay an extraordinary dividend of 0.40 euros per share for 2022, which will be added to the ordinary dividend to be paid out over the course of 2023.
The online business grew further in 2021, and there is more to come. Inditex said online accounted for a bigger share of overall revenue than ever in the 12 months to Jan. 31.
Online sales were up 14 percent year-on-year, reaching 7.5 billion euros, and accounting for 25.5 percent of total group sales. That figure is set to reach 30 percent in 2024, which will make the Spanish fashion giant one of the largest e-commerce players in the world.
Inditex has been investing for years in the growth of its online channel, and in the integration of bricks and clicks. Since 2012, when it embarked on its digital transformation, the group has invested more than 13 billion euros.
The company said it is continuing to execute its 2.7 billion euros capital expenditure plan for 2020-22, and some of that investment has been earmarked for special functions such as “virtual footwear fitting rooms” at the Massimo Dutti and Zara Athleticz brands.
From their mobile handsets, shoppers can verify, virtually, whether a selected article best suits their needs with to 3D visualization technology, the company said.
On the physical front, Zara has opened, or reopened expanded and refurbished, flagship stores in cities including Paris, London, Barcelona, Milan, Cape Town, South Africa, and Nashville, Tenn.
Inditex said the Zara Paris La Défense store “epitomizes the group’s strategy of opening larger, more high-tech stores.” A similar store, in Madrid’s Plaza de España, is due to open on April 8. Zara also has high-profile openings in the pipeline in Qatar, Tokyo Ginza and Porto, Portugal, among other places.
It’s not just the stores that are getting bigger. Inditex is also improving the size and scale of its HQ outside A Coruña, and other facilities in its home market of Spain.
Inditex said it plans to invest 80 million euros this year to increase capacity by 20 percent at the Plataforma Europa in Zaragoza, Spain, which distributes Zara clothing globally. The capacity increase planned at Zaragoza will increase the center’s workforce to around 2,000.
Inditex is investing a further 238 million euros to build a new 1.8 million-square-foot building that will house the Zara sales and design teams at Inditex’s HQ in Arteixo, near A Coruña. The work began in January and is expected to take around two years to complete.
Sustainability was another big area of growth in fiscal 2021. The company said it outperformed its sustainability targets for 2021, specifically in the use of renewable energy, which now accounts for 91 percent of total consumption, and more sustainable raw materials.
Its Join Life products, which are made using “the best processes and more sustainable raw materials,” according to Inditex, accounted for 47 percent of the total, 7 percentage points ahead of the company’s target for 2021.
During the call, García Maceiras said Inditex has about 30 pilot projects in the sustainability arena, including one that captures carbon to create polyester fibers.
For the full fiscal year, gross margin stood at 57.1 percent, the highest level in six years, while EBITDA amounted to 7.18 billion euros, and EBIT was 4.28 billion euros, demonstrating year-over-year growth of 57.8 percent and 184.2 percent, respectively.
Net cash rose to 9.36 billion euros, which was a record high, Inditex said.
As reported, Inditex has closed all its stores in Ukraine and prioritized the safety of its workers in the region. The group has also paused its activity in Russia “due to the inability to guarantee operations.” The company reiterated that it has no investment in Russia, and no significant inventory in the region.
In the Feb. 1 to March 13 period, sales in stores and online in the Russian Federation and Ukraine represented approximately 5 percentage points of sales growth, Inditex said.
The company added that sales in countries bordering Russia and Ukraine had not been impacted by the war so far. Shares in the company closed down 1.9 percent at 21.50 euros on Wednesday.