Inditex swings to a loss as Coronavirus shuts stores in the first quarter

Written by: Wajeeh Khan
June 10, 2020
  • Inditex swings to a £364.10 million loss as Coronavirus shuts stores in the first quarter.
  • The Spanish multinational clothing company to close up to 1,200 smaller shops by 2021.
  • The retailer targets its digital sales to make up roughly 33% of the total sales by 2022.

Inditex (BME: ITX) said on Wednesday that it swung to a loss in the first quarter as the Coronavirus pandemic forced its shops into temporarily closing in recent months. The company also revealed a £2.4 billion plan aimed at increasing its focus on online sales and bigger stores that pushed the shares of the company up by more than 4% on market open after declining by over 2% in premarket trading on Wednesday.   

At £23.38 per share, the Spanish retailer is currently more than 15% up year to date in the stock market after recovering from a low of £17.96 per share in March. At the time of writing, Inditex has a market cap of £72.86 billion and a price to earnings ratio of 22.47. Learn more about how to choose winning stocks.

Inditex reports a 34% year over year decline in sales

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The owner of prominent fashion brands like Zara and Bershka said that it saw a significantly lower 34% year over year decline in sales between 2nd and 8th June as compared to a much broader 51% decline in May. By the end of Q1, however, its inventories still fell by 10% hinting at the company’s sustained strength to respond to demand. Retail competitors like H&M and Gap have also reported a sharp decline in sales in recent months.

The Spanish multinational clothing company declared a 31 pence per share of annual dividend for 2019 on Wednesday. In a conference call, Chairman Pablo Isla of Inditex also highlighted that sales at company’s locations in Asian countries including Korea and China, were gradually returning to the pre-virus level.

At £364.10 million, Inditex’s net loss came in significantly higher than £655.21 million net profit in the same quarter last year. According to FactSet, analysts had anticipated the company to print £143.33 million net loss in the first quarter.

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Inditex to close up to 1,200 smaller shops by 2021

As part of the company’s plans of shifting to larger stores, Inditex said that it will close up to 1,200 of its smaller shops by the end of 2021. The move resulted in a £274.19 million provision and contributed to its loss in Q1.  

The Arteixo-headquartered company also accentuated on Wednesday that it will spend an additional £2.40 billion to improve its digital sales via upgrading the technology infrastructure at its stores. Inditex’s online sales currently account for 14% of its total sales. The company targets its digital sales to make up roughly 33% of its total sales by 2022. In April, the nationwide lockdown pushed its online sales up by 95%.