Inditex is growing strongly, but still disappoints

Zara’s parent company Inditex tripled its profit to 3.24 billion euros last year, while sales rose by more than a third. Compared to the pre-pandemic year 2019, however, the figures were disappointing.

Weak basis for comparison

Compared to the year before, 2021 was a strong year for the group behind Zara, Pull & Bear and more: the world’s largest fashion holding company recorded sales of 27.7 billion euros, 36 % higher than the 20.4 billion in 2020. Online sales rose by 14 % and accounted for a quarter of total sales, the clothing giant says.

Yet the figures do not convince analysts: the base for comparison, 2020, was a very weak year for comparison because of the corona pandemic. At constant exchange rates, sales were only 3 % higher than in pre-pandemic 2019, in accounting terms even 2 % lower. Analysts had expected sales of 28 billion euros and profits of 3.7 billion.

The profit of 3.24 billion stayed far behind those expectations: even though it is a tripling of the 1.1 billion euros profit forecast for 2020, it is also only slightly more than the figures for 2019. The gross margin was 57.1 %, the highest level in six years. Inditex blames the fourth quarter, when the omicron variant caused new lockdowns. The sudden drop in sales cost the company 400 million euros and led to more markdowns, Barclays notes.

Russia major impact

The new year started with positive momentum, at least until the war in Ukraine broke out. Russia is one of Inditex’s most important markets and accounted for 5 percentage points of sales growth last year, but is now temporarily dropping. All 502 stores and the webshop in Russia are closed. The group does not specify what impact this decision will have on sales, but nearly 10 % of all sales and 8.5 % of operating profit would normally come from the country, Belgian newspaper Le Soir reports.

By 2022, the company will invest 80 million euros to increase the capacity of its Zaragoza-based distribution centre, which distributes Zara garments across Europe, by 20 %. Furthermore, Inditex expects a stable gross margin this year.