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The global fashion business journal

Aug 8, 202011:13pm

Inditex: best fourth quarter in three years excluding corona imapct

The 287 million euros provision has harmed the final sprint of the year for the Spanish group. 

Mar 19, 2020 — 9:00am
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Inditex confirms fourth-best quarter in three years disregarding coronavirus impact

 

 

Although its exercise ended on January 31, the time at which the coronavirus had only caused disruptions within the sourcing sector, Inditex has already suffered in 2019. The sum of 287 million euros established by the giant to prepare for the impact of the pandemic has hindered Inditex, which would have closed its best fourth quarter since 2016.  Discounting the coronavirus effect, Inditex would have increased its profit by 12.82% from November to January.

 

Yesterday, Inditex released the results for the fiscal year 2019, in which its sales stood at 28.3 billion euros, an increase of more than 8%, compared to the 3% increase it registered in 2018. The net income, for its part, stood at 3.6 billion euros, which represented an increase of 5.89%, and the gross margin was 55.9%.

 

Both the net income and gross margin were affected throughout 2019 by the provision derived from the coronavirus. As the company explained yesterday, the net income would have grown 12%, while the gross margin would have been 56.9%.

 

The same has happened in the fourth quarter of the year. The group’s sales in the last period of 2019 rose to 8.5 billion euros, which represented an increase of 9.83% compared to 7.7 billion euros in the same period of 2018. This increase is the fourth-best trimestrial growth recorded since 2016, when the group’s sales shot up 12.17%, to 6.9 billion euros.

 

 

 

 

The group’s net income in the fourth quarter stood at 927 million euros, following a fall of 7.85% compared to the same period in 2018 due to the impact of the group’s inventory provision to account for the potential impact of the Covid-19 on the business. Excluding this measure, the net result in the fourth quarter would have been 1.1 billion euros and would have risen 12.82%. It would be necessary to go back to the fourth quarter of 2014 to find a greater increase when the net income saw an increase of 15.79%.

 

The fourth quarter’s gross margin has also been hit by this inventory provision. The indicator stood at 50.4% in the period, compared to 53.6% in the same quarter of 2018. However,  discounting the coronavirus effect, the margin would have stood at 53.8%, still the best mark in a fourth quarter since 2016.

 

 

The moment

“We are facing an extraordinary and unexpected situation,” said Pablo Isla, chairman of Inditex yesterday. The epidemic, which has impacted the entire value chain of the fashion business (from supply to distribution),  comes at a time when Inditex was beginning to take advantage of the structural and technological changes made in recent years.

 

The store network optimization plan carried out over the last few years and the investment in the implementation of Rfid technology have begun to bear fruit in the quarterly results for the 2019 year. Inditex managed to end the second and third quarter of the year with the first reduction in stock since 2012 and, despite this, sales continued to surge.

 

 

 

 

Inditex ended the first semester with inventories of 2.7 billion euros, 5% less than the same period of the previous year. In the third quarter (ended in October), the group reduced them another 5%, to 3.4 billion euros. The last time the group had reduced its stock was in the second quarter of 2012, with a decrease of just 1%.

 

Throughout 2019, inventories stood at 2.3 million euros, a 16% drop compared to 2.7 billion euros the previous year. Excluding the impact of the inventory provision of 287 million, inventory would also have decreased, albeit by 6%.

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