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

MADRID (Reuters) - Zara owner Inditex ITX.MC 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 HMb.ST to Gap Inc GPS.N 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.

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.

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