Inditex, the renowned Spanish fashion retail giant, recently announced its financial results for the first quarter of this year, which were accompanied by a comprehensive strategy update. Unlike its usual impressive figures, the company reported its first-ever net loss, primarily due to the significant impact of the COVID-19 pandemic. Despite a positive reception of its initial SS20 collections, Inditex saw a decline in net sales from €5.9 billion to €3.3 billion and a drop in gross profit from €3.5 billion to €1.9 billion. The gross margin also experienced a decrease from 59.5% to 58.4%. On an EBITDA basis, the profit stood at €484 million compared to €1.7 billion in the previous year, resulting in a net loss of €409 million, compared to a profit of €734 million in Q1 2019. However, if it weren’t for the one-off costs associated with its store optimization program, the net loss would have been €175 million.

Moving past the first quarter, Inditex witnessed a 51% decrease in online and store sales in local currencies for the month of May. June saw a further decline of 34% in sales. During June, approximately 54% of Inditex’s total stores were open, and in fully open markets, sales fell by 16% between June 2 and June 8. As of now, 78% of its stores are operational, and it is expected that all stores in key markets will be open by the end of June.

Despite the challenging business environment, Inditex experienced impressive growth in online sales, with a surge of 50% in the first quarter and a remarkable 95% increase in April. The company foresees this growth trend continuing, with online sales projected to represent over 25% of its total sales by 2022, compared to 14% in 2019.

In its strategy update, Inditex highlighted its commitment to the development of a fully integrated store and online business model. The strategy’s core areas of focus will be digitalization, seamless integration between stores and online platforms, and sustainability. While online sales will undoubtedly be a crucial driver of growth, Inditex firmly believes that physical stores will continue to play a significant role in driving e-commerce sales. Therefore, the company plans to prioritize high-quality stores that align with its long-term strategic goals.

To bolster its online operations, Inditex will be opening new 64,000 m² studios at its headquarters specifically for Zara by the year’s end. Furthermore, by the end of the year, the company aims to complete the implementation of its RFID product traceability system, achieve full inventory integration, and enhance global online development across all concepts. Additionally, Inditex expects to see modest annual gross space growth of approximately 2.5% between 2020 and 2022, which equates to opening around 150 stores annually. The primary focus will be on establishing a network of high-quality, well-located stores while concurrently strengthening the online platform. This strategic approach is anticipated to generate long-term annual like-for-like sales growth of 4% to 6% and higher profits.

In line with its new strategy, Inditex has also placed a renewed emphasis on sustainability. The company aims to enhance the sustainability of its supply chain, increase the use of renewable energy for its eco-efficient stores, incorporate more sustainable fabrics into its product range, and promote zero-waste and recycling initiatives.

Overall, Inditex’s recent financial performance and strategy update demonstrate the company’s resilience in the face of the challenges posed by the pandemic. By prioritizing its omnichannel strategy, Inditex seeks to capitalize on the growth of online sales while leveraging the strengths of its physical store network. With a renewed focus on sustainability, Inditex is positioning itself for long-term success in the ever-evolving retail landscape.

Useful links:
– [Inditex Q1 Results](https://www.inditex.com/investor-relations/news/news-detail/inditex-group-q1-2020-results-303124-t1535)
– [Inditex Sustainability Strategy](https://www.inditex.com/sustainability/)