June 10, 2020 / 6:30 AM / a month ago

Zara owner Inditex books first loss, shifts to big stores and online

MADRID (Reuters) - Zara owner Inditex booked its first loss as the coronavirus crisis forced it to shut most shops but its shares rose after it unveiled a 2.7 billion euro ($3.1 billion) plan to accelerate its focus on large stores and online sales.

Inditex, the cash-rich owner of fashion brands like Massimo Dutti and Bershka, said the rapid drop in sales had slowed, with sales at constant currencies falling 34% in the June 2-8 period over a year earlier, versus a 51% slide in May.

Despite tumbling sales, inventories still fell by the end of the February to April first quarter compared to a year ago, underscoring Inditex’s ability to respond to demand.

“Impressively - especially in the current environment and testament to the strong business model - inventories were actually down 10% at the end of the quarter,” JP Morgan wrote.

Shares in Inditex, which said it would pay a 0.35 euro/share dividend for 2019, rose 1.2%.

Shop sales in Asian countries, such as China and Korea, were reaching the same levels as last year, Inditex Chairman Pablo Isla told a conference call.

Inditex booked a net loss of 409 million euros after sales tumbled to 3.3 billion euros, down from 5.9 billion euros in the same period a year earlier.

Clothes retailers from H&M to Gap Inc have reported a sharp drop in sales as shoppers hunkered down at home during global lockdowns to halt the spread of the coronavirus.

Rival H&M warned it would make its first quarterly loss in decades in the March to May period.

Inditex’s quarterly loss included a 308 million euro provision to close up to 1,200 smaller stores in 2020 and 2021, part of its shift to bigger stores.

FILE PHOTO: People wait observing social distancing oustide a Zara shop in Paris as France softens its strict lockdown rules during the outbreak of the coronavirus disease (COVID-19) in France, May 11, 2020. REUTERS/Benoit Tessier

It said it would spend an extra 2.7 billion euros overall to upgrade technology at stores and to drive its online sales so that they made up a quarter of sales by 2022, compared to 14% now. Online sales surged 95% in the lockdown in April.

Inditex said the focus on bigger stores would expand shop floor space by about 2.5% a year in 2020-2022.

($1 = 0.8800 euros)

Reporting by Sonya Dowsett, Editing by Inti Landauro and Edmund Blair

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