Inditex explains stures normal return complex process - This is the graphic that Inditex uses to explain how its stores are returning to normal and that reveals how complex the process has been.

There have been several challenges that Inditex has had to face in recent years, from moving towards a symbiosis between the physical and the online channel to a constant optimization of its commercial network. Of course, nothing comparable to the sudden closure of stores that he had to undertake with the arrival of the pandemic and its expansion throughout the world.

"Never before have you had to close so many stores for so long," explains Luis Lara, who was international director of Inditex for 5 years, and he was not wrong. In the first quarter of fiscal year 2020 —from February to April of that year—, 88% of the group's store network had the blind lowered. The trend began to improve in May and, at the end of June last year, Inditex had 5,743 stores open, 78% of the total.

Now, the recovery seems to be a reality that is coming to stay and the first results of the year confirm this: between February and April 2021, the sales of the owner of Zara rose by 50% their sales, to 4,942 million euros, with a profit of 421 million. Although they are improving, the figures are still far from pre-COVID-19 levels.

The president of Inditex, Pablo Isla, stressed in the conference with analysts that these results represented the most evident proof of the "progressive and strong recovery" of the group. Likewise, the company once again used the graph that accompanies its presentations in recent months to reflect how the return to commercial normality is getting closer, without forgetting how steep the curve had been until the recovery was reached.

Inditex explains stures normal return complex process

Luis Lara, professor at ISEM Fashion Business School, believes that the pandemic has been a huge challenge for the fashion sector and, especially, for the Galician giant and its extensive network of stores, which in previous levels of the pandemic amounted to 7,469 points of sale. The prediction comes true.

The pandemic has laid out an unprecedented scenario for the company: Inditex closed the start of 2020 with losses of 409 million euros, the first in its history as a listed company —it debuted on the parquet in 2001—. This, of course, marked a turning point.

In the fourth quarter of the year, the strongest by turnover for the company due to Black Friday, Christmas and winter sales campaigns, sales reached 6,317 million euros, which was 2,149 million less than in the same period of the previous year. Net profit stood at 435 million, down 52.6%.

Inditex explains stures normal return complex process

Despite everything, the company managed to close the year with profits of 1,106 million euros, 70% below a year earlier and its lowest annual profit since 2006. As for sales, these fell by 27.9%, to 20,402 million euros, the threshold of 5 years ago.

The beginning of 2021 reflects an evident recovery of Inditex's commercial network, which does not mean that it remains the same. A year ago, the group launched a plan to absorb 1,200 establishments, between 250 and 300 of them in Spain. This process is nearing completion. Thus, at 30 April, the company operated 6,758 stores, 654 establishments less than a year ago.

But, beyond this closure program, the return to activity of your commercial network is a reality. So much so that, at the close of the first fiscal quarter, 5,677 points were open (84% of the total). Today, the figure rises to 98% or, what is the same, 6,623 stores. And all despite the punctual impact on key markets such as the United Kingdom, France, Germany, Italy, Portugal and Brazil, which have suffered closures and restrictions.

Inditex explains stures normal return complex process

Isla has stressed that"traffic in stores accelerates week by week". Which, on the other hand, does not imply that the business environment has been easy. Between February and April, 24% of business hours were unavailable due to COVID-19. The result is that sales in store and through the online channel have been reduced by 11.5% compared to prepandemia levels.

The gross margin, however, has grown. It stood at 59.9% in the first quarter of the year, which is 1.5 percentage points above 2020. The reasons? The reopening of the stores, the proper functioning of the online-store model, inventory management and, as Isla pointed out, "a level almost 0 of promotions", which reflects a greater inclination to purchase among its customers.

Inditex explains stures normal return complex process: A year ago, between 2 and 8 June, sales in store and online at constant exchange rate decreased by 34%. 12 months later, the situation is quite different. Between May and June, transactions were 102% above the same period in 2020. More importantly, they're 5% higher than in 2019.

"First quarter sales have been very strong, considering the restrictions still in place in stores," Isla explained. And in fact, during the month of May, 10% of business hours were unavailable due to closures or limitations.

The executive pointed to the good reception that the initial spring-summer collections had had. A factor that has contributed to sales growing by 50%, to 4,942 million euros. A figure that puts Inditex at levels of 2016 but, at the same time, breathes air after the puncture of 2020.

# Inditex explains stures normal return complex process #