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Inditex Writes Down Inventory, Signals Sales Drop as Coronavirus Hits

The Zara owner took a nearly €300 million impairment on its inventory and said sales fell 24 percent this month.
Zara store
By
  • Sarah Kent

LONDON, United Kingdom — Spanish fast fashion giant Inditex, on Wednesday, wrote down the value of its Spring/Summer inventory by nearly €300 million ($335 million), and flagged the prospect of a huge sales hit, as the Zara-owner adjusts to the ongoing coronavirus crisis.

The company said it’s too early to quantify the impact of the pandemic on its 2020 performance, but it is holding off making a decision on dividend payments until closer to its annual general meeting, which is scheduled for July.

Retailers across Europe and America have been left reeling over the last few weeks as consumer spending has dropped and governments have tightened restrictions on both citizens and commerce in an effort to contain the spread of the pandemic. Italy, France and Spain are among the countries that are only allowing only essential stores to remain open. This week, a host of companies, including luxury giant Kering, Macy's and Nordstrom, have voluntarily shuttered stores across America. The current disruptions follow the impact of similarly tough containment measures that are only now lifting in China.

As of Wednesday, 3,785 of Inditex's stores are closed in 39 markets, though almost all of its stores in China have reopened.

Inditex said it booked a €287 million impairment in 2019 to account for the possible impact of the pandemic on its current stock. Store and online sales in local currencies fell nearly 5 percent between the beginning of February and March 16, but the impact on business escalated significantly this month, as the pandemic spread to western markets. Between March 1 and March 16, Inditex said sales in local currencies tumbled 24 percent.

Underneath the current turmoil, the company is in good shape. The group has €8 billion in cash, putting it in a strong position to weather the crisis. Online sales continue and its supply chain is functioning normally, the company said.

In 2019, net sales increased by 8 percent to €28.3 billion, and net profit rose 6 percent to €3.6 billion, despite the inventory impairment. Without that, net profit would have been up 12 percent.

“The start of 2020 is driven by severe but temporary external factors,” Executive Chairman Pablo Isla said on an analyst call. “We have total confidence in our business model and the long-term potential of the group.”

We’re tracking the latest on the coronavirus outbreak and its impact on the global fashion business. Visit our live blog for everything you need to know.

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