Russia clouds prospects for Inditex after sales surge

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  • Full-year net profit more than doubled to 3.2 bln euros
  • Fourth-quarter sales hit by Omicron coronavirus wave
  • Reports strong start to new financial year

ARTEIXO, Spain March 16 (Reuters) - Sales at Zara owner Inditex surged above pre-pandemic levels at the start of its financial year, though the world's No.1 fast fashion retailer by sales faces a fresh challenge in the months ahead after it stopped trading in Russia.

Inditex shares tumbled on March 5 after the company closed its 502 shops in Russia and halted online sales there after the country's invasion of Ukraine and the imposition of Western sanctions. Russia and Ukraine accounted for 5% of its sales growth from Feb. 1 to March 13.

"Our objective is to resume operations in Russia and Ukraine as soon as circumstances allow," CEO Oscar Garcia Maceiras said during a news conference after Inditex published results for its financial year to the end of January.

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He said that the company is still paying salaries to employees in Russia.

The Spanish group, brands of which also include Massimo Dutti and Pull&Bear, on Wednesday reported that its store and online sales between Feb. 1 and March 13 jumped by 33% from the same period a year earlier and were up 21% from the same period of pre-pandemic 2019.

Net profit in the year to Jan. 31 more than doubled to 3.2 billion euros ($3.51 billion) as it bounced back from the worst effects of the pandemic the previous year, mirroring the recovery at rivals such as Sweden's H&M (HMb.ST).

Fourth-quarter sales, however, were hit hard by temporary store closures in countries such as Germany and China as the Omicron coronavirus variant spread. Those restrictions knocked an estimated 400 million euros off quarterly sales.

"Inditex results are softer than consensus expectations, mainly due to Omicron effects in the second half of Q4," RBC analyst Richard Chamberlain wrote in a note to clients, adding that the company had still made "a very strong start" to its new financial year.

Shares in Inditex, which has 6,477 stores worldwide, were down 0.4% by 1230 GMT.

The group weathered the pandemic in part through its ability to produce more than half of its goods near Spain and deliver them to consumers quickly while also raising the share of online sales to about a quarter of its overall revenue in 2021.

Marta Ortega, the daughter of Inditex founder Amancio Ortega, next month takes over as chairwoman of the group in the last step of a generational handover that began a decade ago.

She will replace veteran executive chairman Pablo Isla in April, joining new CEO Garcia Maceiras in a management team that must contend with inflationary pressures and the uncertainties caused by the invasion of Ukraine.

Garcia Maceiras said the company plans to make price adjustments in markets affected by inflation without disrupting its business model of accessible fashion. In Spain it expects to increase prices by an average of 2%.

"The rises will depend on the situation and will be selective. We do not plan massive increases," he added.

Inditex said the United States became its largest market behind Spain last year and that all markets, with the exception of Russia and Ukraine, have recovered to pre-pandemic levels.

"Apparel demand has already been weak in Europe so far this year and any further softness in the demand environment will make it even harder to pass through higher input costs in a deflationary industry," Credit Suisse said in a recent note to clients.

($1 = 0.9113 euros)

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Reporting by Corina Pons Editing by Inti Landauro, Mark Potter and David Goodman

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