Inditex's executive chairman, Pablo Isla, stressed how 'our differentiation and strategic transformation towards a fully integrated, digital and sustainable model continues to bear results, supported by the commitment displayed by all the people who work at Inditex'
Sales grew 50% in the first quarter of 2021 to €4.9 billion. Online sales in local currencies grew by 67%.
Net cash reached €7.2 billion by the end of the Quarter.
Gross margin expanded to a robust 59.9%, thanks to the implementation of the business model and the efficiencies unlocked by the digital transformation strategy
Store and online sales in local currencies between 1 May and 6 June 2021 registered year-on-year growth of 102% compared to the same period of 2020, and of 5% compared to 2019. During this trading period, 10% of trading hours were unavailable due to store closures and business restrictions.
I. Key figures
Inditex Group reported sales growth of 50% in the first quarter of 2021 (1 February to 30 April) (56% in local currencies) to €4.9 billion. Online sales in local currencies grew by 67%
Sales were higher across all geographies and every brand despite the fact that 24% of trading hours were unavailable due to lockdowns and restrictions (16% of the Group's stores remained closed at the end of the quarter), in addition to other capacity restrictions. In local currencies, revenue was just 11.5% below the level of the first quarter of 2019.
In light of this figures, Inditex's executive chairman, Pablo Isla, highlighted how 'our differentiation and strategic transformation towards a fully integrated, digital and sustainable model continues to bear fruit supported by the commitment displayed by all the people who work at Inditex', attributes which are crucial as restrictions ease.
The integration of the business model has allowed the effects of the store absorption programme announced in June 2020 to have already been fully recovered in store and online sales in May 2021. The integrated stock management system (SINT), which allows an online order to be fulfilled from any store, has been pivotal.
One of the highlights of the reporting period was the trend in gross profit, which amounted to €2.96 billion, lifting gross margin to 59.9%, 152 basis points above the 58.4% recorded in 1Q20 and 47 basis points above that of 1Q19.
The first quarter stands out for its solid operating performance, with growth in operating expenses at only 19%, significantly below sales growth. EBITDA amounted to €1.2 billion (€484 million in 1Q20), while EBIT totalled €569 million (compared to a loss of €508 million in 1Q20).
Net profit reached €421 million in the quarter, compared with a loss of €409 million in the first quarter of 2020.
Thanks to the solid earnings performance, the Group's net cash reached €7.2 billion at the reporting period, up 25% from a year earlier, and the highest in a first quarter. It is also worth highlighting the control over inventories, which increased by less than sales compared to the first quarter of 2020 and is even lower than at the close of 1Q19.
By the start of the second quarter, as of 7 June, 98% of the Group's stores were open. Store and online sales in local currencies between 1 May and 6 June are tracking 102% above the same period of 2020 and 5% above that of 2019 helped by the popularity of the Spring collections. Throughout that trading period, 10% of trading hours were unavailable due to store closures and restrictions.
Inditex is holding its Annual General Meeting in Arteixo (A Coruña, Spain) on 13 July. The Board of Directors will ask the company's shareholders to approve the payment of a total dividend from 2020 profits of €0.70 per share, €0.35 of which was already paid out on 3 May; the balance would be paid on 2 November 2021.
II. The sustainability commitment
In terms of energy sustainability during this quarter, the Group announced a significant wind power generation project in the outer port of Punta Langosteira (A Coruña, Spain), that will generate enough electricity to enable self-sufficiency at Inditex's headquarters in Arteixo, which spans nearly one million square metres, with enough excess to completely power the neighbouring port.
That green power capacity joins the 554 photovoltaic panels installed on the roof of the new zara.com building, with another 2,826 panels installed in the outdoor car park - complete with electric charging points - to account for half of the building's electricity requirement. With these solar and wind sources combined, all of the building's energy consumption comes directly from renewable sources.
The Group is working towards delivering its target to have 90% of the energy consumed at all of its facilities worldwide (offices, logistics platforms and stores) to come from renewable sources by the end of this year. By the end of 2020, 80% of the Group's worldwide energy consumption came from renewable sources, which was ahead of its target, with that figure rising to 100% in Spain.
The continued progress in sustainability was evidenced by external rankings during the quarter.
For example, the Manuel Olivencia Prize for Good Corporate Governance awarded by the Cuatrecasas Foundation, the Clean List 200 Corporate Knights (#47 out of 200) and acknowledgement by the Financial Times as one of the companies to have reduced its emissions intensity relative to revenue most significantly between 2014 and 2019.
Technology is proving integral to the Group's integrated, digital and sustainability strategy. Chiefly, the Inditex Open Platform (IOP) is enabling, for example, greater efficiency and agility in inventory management by helping to be more efficient with lower inventory, thus reinforcing Sustainability in a production model based from its origins on not having surpluses.
In parallel, the company continues to invest in communities. In India it rolled out an emergency relief plan to mitigate the effect of the COVID-19 pandemic,including the donation of €500,000 to the Red Cross. The Group also increased the scope of its programme with UNHCR, to which it donated 1.9 million garments for refugee camps in Rwanda, Burkina-Faso, Ethiopia, Uganda and Belarus. In Spain, we collaborated with the NGO COGAMI, a Galician association for disabled people, in the Alentae project, a special not for profit job centre to make facemasks in facilites equiped by Inditex in Bergondo (A Coruña)
Premier sustainable building
During the quarter the Group opened a new eco-efficient and technologically advanced building within its Arteixo complex (A Coruña, Spain) to house the new Zara.com studios and the Zara Man central design department. Surrounded by a natural ecosystem of trees and plants, the building features next-generation sustainability and technology developments. The project entailed an overall investment of €110 million. Spanning 67,000 square metres, the building stands out for the 720 high-energy-efficiency glass modules that clad the façade - flooding the interior with natural light.
III. A digital and integrated Company
As a fully digital company, it continues to develop its universe of applications and microservices which are being layered over the Inditex Open Platform (IOP). The versatility of this digital architecture makes it easy to create and integrate new services for users and professionals in each of the steps of the Company's activity, besides improving our customers' experience. The process is enriched constantly by incorporating new functionalities and developments adapted in-house to each need, to permanently improve the performance and scope of the IOP platform.
Elsewhere, the integrated stock management system, underpinned by the full deployment of radio frequency identification (RFID) technology providing real-time data on inventory, is enabling the company to operate with even tighter inventory levels, whileimproving the customer shopping experience.
In Spain, Japan and the UK, Zara has completed the rollout of its Store Mode app feature, which allows customers to browse items in the store of their choice through their mobile app to know which items are in store before they arrive. It also enables customers to purchase these items in advance for collection in half an hour, in-store fitting room booking, and location of items they've seen online in store. 'Store Mode' functionality is also operational in 30 stores each in Germany and Italy, in 10 stores in France and is being gradually introduced in markets such as Russia, Poland or the US.
Sales and IT teams continue partnering with distribution and operations to develop services that improve customer experience, while making a more efficient and sustainable use of resources.
One example is how Zara continues to roll out its returns consolidation service organised through the electronic receipt function of the app which is currently available in 17 markets, including Spain (in-store and online), Portugal, Germany, UK, France, Netherlands, Poland, Italy, Sweden, Denmark, Austria and the Czech Republic, with others in the pipeline.
This allows customers to group returns of items bought at different times to boost efficiency and convenience. The app keeps organized a list of the items customers can still return in a specific period using the electronic receipt, so they can group the return along the returning period whenever they like.
In the same vein, Zara also continues to rollout in-store Customer Experience areas, with new convenience services and spaces such as fitting room waiting areas and showroom areas. Dedicated exchange and returns areas, online order pick up and clothes collection points, and recycling points have also been implemented.
In a bid to continually improve the shopping experience, during the first quarter, Inditex inaugurated the new zara.com building at its head offices in Arteixo (A Coruña, Spain), which houses the audiovisual production studios and the teams tasked with coordinating the brand's online presence. The building, which boasts 67,000 square metres of floor space and next-generation sustainability credentials, entailed an investment of over €110 million.
The company is also forging ahead with its €1 billion digitalisation investment plan, with another €1.7 billion of capex to be set aside for platform integration between 2020 and 2022. At the quarter close, the company had 6,758 stores in 96 markets, having opened 53 new stores in 21 markets during the period. These are bigger and higher-tech stores that are fully ready to adapt for business model evolution.
The high-profile openings last quarter include the Zara stores in Clermont-Jaude (France), Lize Paradise in Beijing (China), the Waterfront shopping centre in Belgrade (Serbia), and a new flagship in Nashville (US) and the expansion of the flagship store on Paseo de Gracia in Barcelona (Spain) and Puerto Banús (Marbella, Spain). Other important openings for Zara in the second quarter include in Cairo (Egypt), Cardiff (UK), which have already opened, and Edinburgh (UK).
In addition, Zara, together with Stradivarius and Zara Home, has just announced an agreement to open stores in one of the biggest real estate developments in Europe, in Madrid's Plaza de España (Spain). Located in one of the city's most vibrant shopping areas, the three brands will occupy 9,000 square metres between two stores which will become benchmarks for the Group's focus on large stores in premium locations.
In line with that same model, during the second quarter Bershka has opened one of the most important stores on the calendar for the year, a store spanning almost 2,000 square metres in Forum des Halles in Paris which showcases the brand's impressive image.
Similarly, Zara Home unveiled its new store image in A Coruña (Spain) during 1Q. The new space is open-plan and diaphanous to boost the customer's sensory interaction with the store, articulated around a minimalist design with traditional and natural design, all of which compatible with the latest technology features, including 'Store Mode'.
Pull&Bear, Massimo Dutti, Bershka, Stradivarius, Oysho and Zara Home also opened new stores across the most popular shopping streets and centres in cities such as Ankara (Turkey), Puebla (Mexico), Hong Kong SAR (China), Algiers (Algeria), Pamplona (Spain) and Jerusalem (Israel), among others.
Appendix I Stores
The search for differentiated spaces has been fully utilised through the experience-rich Zara Beauty section which launched during the quarter. The open plan in-store dedicated sections meld the floor, walls and ceiling together, supported by natural light above which highlights the new product lines developed in collaboration with Diane Kendal. Each product is displayed on stainless steel trays to give it prominence.
Another new and unique direction unveiled in the first quarter was the new Zara Home concept. Framed by a store layout that echoes the traditional layout of a house, the cosmetics collection is located in a spacious hall from which the customer then moves to the sitting room and kitchen. The various spaces seek to boost sensory interaction with the store. An experience based on minimalism with traditional and artisan roots. In that manner the brand fuses the new and the old to connect with its customers via the senses, helped by a range of materials featuring warm textures and high ceilings designed to leave the original structure on view. Music, light and scent round out the sense of welcome felt upon arrival at the store.
Appendix II Commercial initiatives
The new collections arriving throughout the first quarter and beginning of the second transmit the sense of renewal ushered in by the spring. After a challenging year, all of the Group's brands have once again demonstrated their ability to adapt and react, to move forward by providing customers with what they are looking for, introducing not only new products but also innovating in terms of the product engagement experience.
The brands' proposals attempt to accompany customers in what makes them feel best: healthy habits such as exercise and good food, their relationship with nature and their surroundings, time enjoyed at home, hobbies, new situations that have arrived to stay, in short, products that help them do all these things with greater intensity and optimism.
They have launched new collections filled with colour that transmit joy; striped and tie-dye prints; floral prints in intense, vibrant colours; light and breezy natural fabrics such as cotton and linen; these are the common threads running through all the brands' collections. They have also launched new products: pet ranges, stationary, home scents and bodycare products in delicate aromas.
Into the Light is the theme of Zara's spring collections. Images that evoke the desert, mystery and the power of dreams. The brand once again allied with Steven Meisel on photography and Fabien Baron on the video shoots this season. The most recent - and sixth - edition of Zara SRPLS strikes a more elegant and renewed cord, taking its inspiration from military clothing, which has become a global dress code, on this occasion made using more sophisticated fabrics and techniques.
Zara also launched its Alphabet Collection, silver jewellery and silk scarves featuring the letters of the alphabet. Pet Collection, the first dedicated design range, also made its début in the Group's stores: coats for rainy days, a brush set, toys and other exclusive products such as a roll-away bed made from materials designed with pet comfort in mind.
During the second quarter, Zara launched Zara Beauty, one of the most important new additions to the Group's product range. Framed by the slogan, 'There is no beauty, only beauties', the idea is to cater to everyone's needs. To that end it includes lipsticks, balms, oils, bronzing powers, long-lasting nail polish and make-up brushes, all formulated from high-quality compounds designed by British make-up artist Diane Kendal. The products come in a range of more than 130 colours, a mix of matt, satin and pearl finishes and are apt for a wide spectrum of skin tones.
In-store, the new Zara Beauty collection has been introduced as a new section alongside the Women's, Men's and Kids sections and can be purchased online in all the European markets, the US, Canada, China, South Korea, Japan, Mexico, ustralia and New Zealand. The plan is to gradually introduce it around the rest of the world. Customers can also discover the entire collection by means of an exclusive immersion experience receiving personalised beauty tips, a service on offer in 22 stores across the world's most important shopping capitals. The rest of the Group's brands were similarly active.
Pull&Bear launched (Un)catalogued, a limited-edition capsule collection that combines iconic denim pieces with minimalist garments with trendy finishes and also presented its summer collection with Pol Granch. The collection includes exclusive Havaianas flipflop designs and the brand also launched Pull&You, Pull&Bear's bag and wallet personalisation initiative. The brand's commercial initiatives also included Pacific Game, which was developed on the Spark AR platform and inspired by its collection.
With the launch of its Body Care Collection, Massimo Dutti started to redefine the bases of its creative code, developing a personal care product range that joins an offering that is increasingly aligned with the brand's values, a line whose philosophy is underpinned by the values of personal care and exclusivity. Body Care Collection encompasses four fragrances created from an exclusive collection of natural ingredients presented in eau de parfum format. Bershka was particularlyactive this quarter, with a capsule collection designed together with French rapper Hatik, the Paloma Mami x Bershka collection and the brand's initial foray into Anime with Evangelion. On the sustainability front it is worth highlighting the Hack Denim and the Join Life capsule collection in collaboration with Organic Cotton Accelerator (OCA). During the second quarter, the brand launched a new laser-printed Denim Lab personalisation experience together with Jeanología.
Stradivarius made its mark with Varius, a prodiversity label-free social movement. To be Varius is to be different while remaining true to one's essence. A manifesto featuring seven international ambassadors who raise the movement's visibility through the #LoveAllYourVarius hashtag. Actresses Beatrice Vendramin of Italy, Julia Wieniawa of Poland and Renata Notni of Mexico, Spanish singer Nía Correia and Spanish model Lorena Durán, Russian artist Sasha Spilberg and Dutch influencer @queenofjetlags are the voices of Varius, between them reaching a community of over 17 million people worldwide.
Stradivarius also introduced Sport, Living Movement, a new product line targeted at young women who love sport and healthy living. The core Living Movement message aims to transmit a lifestyle with which all kinds of girls can identify as they share a common characteristic: they live life in movement, practising a range of disciplines, such as dance, cycling, running and fitness.
Oysho, meanwhile, continued to organise its International Yoga Tour and a digital event with Vinyasa Yoga sessions broadcast from the world's main capitals. A digital tour featuring seven international yogis: Riva G (US), Alessandra Oram (Spain), Elvin Levinler (Turkey), Claudia Casanova (Italy), Brenda Medina (Mexico), Kino MacGregor (US) and Caroline Perrineau (France).
Oysho also launched New Talents, a search for trainers for its online programme, Train With Us. Professionals from different disciplines, including yoga, functional training and Pilates, among others. The main aim of the initiative is to give emerging trainers visibility at the international level by giving live classes from Oysho's social platforms.
Zara Home's ever-expanding product range extended to new initiatives such as Bakery Kids and bikes - Paris by Bike (in collaboration with Veloretti). It also launched its Outdoor Collection during the second quarter and is working on a range centred around filmmaking and a collaboration with Cedric Grolet.
Uterqüe's spring-summer collection is designed for adventurous and free-spirited women and is an explosion of joy and colour designed to inspire summer dreaming. The brand's proposals this season are a mix and match of fabrics, colours and prints. Bright colours such as royal blue and lemon yellow are juxtaposed with pastel pinks and greens, working together to perfection.
Lastly, Uterqüe, which made its début on TikTok, launched Dear jasmine, Warm oud, Silent rose and Breath neroli, four fragrances that denote floral and botanic scents presented in 50-ml bottles. Each perfume is accompanied by a solid stick version, which can be applied directly to the skin, a simple and practical solution that is ideal for a handbag or suitcase.