August 13, 2022

Zara Owner’s Lean Business Model Helps It React to Pandemic

(Bloomberg) — Inditex SA’s quick-reaction strategy allowed the Zara owner to reduce inventory in the middle of Covid-19 lockdowns, buoying first-half earnings.

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Inditex SA Retail Stores Ahead Of Earnings

The Spanish clothing retailer managed to reduce its stock-in-trade by 19% at the end of July, taking advantage of flexible purchasing agreements that allow the company to rapidly adapt to changes in demand. That softened the blow to earnings, which beat estimates even though they were less than half last year’s level. The stock rose as much as 5.1% Wednesday morning.

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The world’s largest clothing chain operator is steadily improving after reporting its first loss on record in the first quarter. A 74% increase in online orders buoyed sales, and the retailer has reopened almost all of its shops. Inditex is motoring on with a plan to invest about $3 billion in e-commerce, renovations and new stores over the coming three years to better position itself when the pandemic ends.

The company has navigated its most difficult year, cutting operating expenses by 21% in the second quarter. Gradually, things are returning to more normal levels. While sales plummeted 72% in April, that has moderated to a decline of 11% in the first weeks of the third quarter.

Inditex shares had gained 5.2% Tuesday after rival Hennes & Mauritz AB reported higher-than-expected quarterly earnings.

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©2020 Bloomberg L.P.

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