Inditex Profit Drops as Consumers Spend Less in Second Lockdowns

(Bloomberg) -- Zara owner Inditex SA reported a drop in earnings as a return to lockdowns in Europe eroded an improvement in sales.

• Earnings fell 18% to 1.85 billion euros ($2.3 billion) before interest, taxes, depreciation and amortization in the three months through October. That matched the average analyst estimate.

Key Insights

• Inditex’s sales had been getting close to the level they were last year, with revenue down just 6% in October, but the new quarter started badly as new lockdowns led to a 19% drop in November and 13% in early December.
• Inditex managed to reduce its stock-in-trade by 11% at the end of October, showing how its flexible purchasing agreements allow the company to quickly adapt to changes in demand. Chairman Pablo Isla had said the company reached a turning point in the second quarter and that the company can run in the future with even lower inventory levels.
• Online revenue gained 76%. Like most retailers, Inditex is betting on e-commerce to mitigate the decline in in-store revenue. However, the Zara owner has invested much more in its online business and can deliver clothes to almost any country.

Market Reaction

• Inditex rose as much as 0.9% in morning trading. The stock is down 12% this year.

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