Retail Rebounds as H&M and Zara Swing to a Profit

By Mariliana Fotopoulou Monday, September 21, 2020

The COVID-19 outbreak resulted in social distancing measures, lockdown measures, and store closures. This situation led to huge losses for retailers, and especially fashion retailers, as this sector isn’t seen as critical in times of the pandemic.

According to JP Morgan projections, continental Europe fashion sales declined 15% in July on average compared to the 42% fall in May. However, the rebound was stronger than anticipated following the reopening, which led to a quick transition from a loss to profit for major fashion retailers.

For instance, British fashion retailer company Next upgraded its outlook for a second time since coronavirus lockdowns shut its stores earlier this year. Next forecasts to generate around $388 million in annual profit thanks to its online business. Earlier this week, the fashion retailer announced it formed a joint venture with the UK branch of Victoria’s Secret from L Brands.

Zara storefront

H&M: Sales Recover

H&M share price soared, recently gaining nearly 11% in a single day after the Swedish giant posted greater-than-expected figures. Accordingly, a preliminary profit before tax for the three months ending in August was reported at $229 million.

This figure is over ten times greater than the $21.8 million expected from the market analysts. For comparison purposes, H&M recorded a profit of over $570 million for the same period a year ago.

The fashion retailer saw its net sales tumble 19% to $5.81 billion, compared to a year ago.

"As a result of appreciated collections together with rapid and decisive actions, the H&M group's recovery is better than expected," H&M said in a statement. "More full-price sales combined with strong cost control enabled the company to already turn to profit in the third quarter."

The Sweden-based fashion retail giant witnessed a stronger rebound than expected in a quarter following the lockdowns and store closures.

"Third-quarter profit is indicated much better than expected," Societe Generale analyst Anne Critchlow said in response to H&M quarterly figures.

"This would be 60% down on last year’s 5 billion [Swedish] crowns [$570 million], but is still very good news and well above consensus."

Shares of H&M trade over 10% higher this week to log the highest levels since June.

Zara’s Inditex Rebounds

In June, Inditex — which owns brands such as Zara, Bershka, and Massimo Dutti - reported a net loss of $465 million for three months ending April. The swing is over $1 billion, as the company made a net profit of $834 million over the same period in 2019.

However, the rebound in sales was quicker than previously anticipated for the Spanish giant, Inditex. The retailer made sure it returned to a quarterly profit — for a quarter ending in July — despite a decline of 31% in sales. As a result, the latest quarterly financial report shows a Q2 net profit of $253 million, smashing market analysts’ expectations.

"The recovery and strong performance are due to the hard work, engagement and creativity of everyone in Inditex. I am particularly pleased with our online sales growth, which demonstrates the critical importance of our strategy to integrate store and online. This is a cornerstone of our unique business model,” Inditex’s executive chairman, Pablo Isla, said in a statement.

Inditex said that nearly all of its stores have reopened as the in-store sales recover, while online sales continue to surge. In particular, the company said its quarterly in-store and online sales from August 1 to September 6 rose but still 11% lower compared to 2019.

Online sales erupted 74% during the first half of the year. Additional costs also rose as the retailer had to pay over $360 million to integrate its stores and online platforms.

Shares of the company soared over 8% in Madrid on the latest set of quarterly financial figures. Although the buyers pared back some gains today, it was still enough for the stock to close over 6.5% higher on the week.

Summary

Major European fashion retail companies — Inditex and H&M — reported better-than-expected quarterly results. While it’s too early to say that fast fashion has fully recovered post-pandemic, the latest set of financial figures shows that a rebound has been quicker than originally anticipated.

About the Author


Mariliana Fotopoulou

Mariliana has an MSC in consumer analytics and business strategy. She has a special interest in fast-moving industries and big data.

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