COVID-19 Hits Hard; Some Zara Shops Still Closed
Zara owner Inditex, which operated over 6,800 stores globally, reported a net profit of €1.1 billion ($1.31 billion) for 2020, which is about 70% lower compared to a year ago. On a full-year basis, sales fell 28% to €20.4 billion ($24.26 billion) despite a surge of 77% in online sales.
In Q4, the fashion business saw its net profit falling 53% to €435 million ($517.37 million) on sales of €6.3 billion ($7.61 billion) amid renewed pandemic-related restrictions on shopping — particularly in Europe.
Reported Q4 earnings came in lower-than-expected as surveyed market analysts were expecting a net profit of €602 million ($716 million) and a full-year net profit of €1.3 billion ($1.55 billion).
“Despite the disruption caused by the lockdowns and restrictions, the strength of the business model is reflected in the high sales productivity. Trading hours were down 25.5% versus 2019. Total store and online sales in constant currency were down 24.5% versus 2019,” the company said in a statement.
Most of the company’s stores are still working in a limited capacity as of January 31, with 30% of stores closed and 52% operating under restrictions. Inventories fell by 9%, the company said.
The Zara owner is restructuring business with as many as 751 stores already closed, with plans to shut down another 449 stores. Instead, the fashion company will focus on investing in flagship locations from which it can serve both online and in-person customers.
Despite weaker-than-expected results, the fashion business reported net cash holdings of €7.6 billion ($9.04 billion), allowing the company to propose a dividend payout of €0.70 ($0.83) per share for its fiscal 2020.
In February, Inditex temporarily lost its top position as the most valuable fashion business in the world after Japan-based Fast Retailing, owner of the Uniqlo brand, reached a market capitalization of ¥10.8 trillion ($103 billion).
However, Inditex’s current market cap stands at €90.73 billion ($107.91 billion) compared to Fast Retailing’s $89.42 billion.
Zara owner Inditex witnessed a sharp drop in Q4 and full-year profits as the COVID-19 pandemic continues to disrupt its global fashion business.