Russia clouds prospects for Inditex after sales surge By Reuters

©Reuters. A shopper carries a bag from Zara clothing store, part of Spain’s Inditex group, in Bilbao, Spain, November 30, 2021. REUTERS/Vincent West/Files

By Corina Pons

MADRID (Reuters) – Sale at Zara owner index (MC:) rose well above pre-COVID levels at the start of the new fiscal year, although the world’s top fashion retailer faces a challenge in the coming months after halting trading in Russia, a key market.

Shares of Inditex plummeted on March 5 after the company closed its 502 stores and halted online sales in Russia following its invasion of Ukraine and the imposition of Western sanctions. Russia and Ukraine accounted for 5% of sales growth from February to March.

The Spanish group, which also owns brands Massimo Dutti and Pull&Bear, announced on Wednesday that its in-store and online sales grew by 33% between February 1 and March 13 compared to the same period last year and to pre-COVID levels increased by 21% in 2019.

Net income more than doubled to 3.2 billion euros ($3.51 billion) for the fiscal year ended January 31, as it recovered from the worst of the pandemic the year before. Results reflected the recovery in peers such as Swedish company H&M.

However, fourth-quarter sales were severely impacted by temporary store closures in countries like Germany and China amid the spread of the Omicron variant coronavirus. These restrictions reduced quarterly sales by an estimated EUR 400 million.

“Inditex results are weaker than consensus expectations, mainly due to Omicron effects in the second half of the fourth quarter. Nonetheless, the company has made a very strong start to the new financial year,” RBC analyst Richard Chamberlain wrote in a note to clients.

Shares of Inditex, which has 6,477 stores worldwide, were up 0.5% in early trade.

The group weathered the pandemic in part by being able to manufacture more than half of its goods near Spain and quickly deliver them to consumers, while increasing the share of online sales to about a quarter of its total sales in 2021.

Next month, Marta Ortega, daughter of Inditex founder Amancio, will take over as chair of the group in the latest step in a generational change that began a decade ago.

Marta will replace veteran CEO Pablo Isla in April, along with new CEO Oscar Garcia Maceiras, who was promoted in November, and an experienced team of managers.

The new team will face challenges amid inflationary pressures and uncertainties caused by the war in Ukraine.

“Apparel demand has been weak so far this year in Europe and any further weakness in the demand environment will make it even more difficult to endure higher input costs in a deflationary industry,” CreditSuisse (SIX:) said in a recent note to clients.

According to Inditex, the United States will be its largest market after Spain in 2021.

($1 = 0.9113 euros)

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Chris Barrese

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