Global clothing giant Inditex, which owns Zara, on Wednesday posted a sharp increase in 2021 profits but warned sales would be impacted by Russia’s war on Ukraine.
The world’s biggest fashion retailer, whose financial year closed at the end of January, said its annual net profit hit €3.2 billion, nearly 200 per cent higher than in 2020 when the pandemic took hold. Turnover rose 36 per cent to €27.7 billion, compared to €20.4 billion in 2020, while revenue from online activity rose by 14 per cent, accounting for just over a quarter of its total sales.
The figures were lower than those seen by analysts at FactSet, who predicted profits of €3.7 billion on a turnover of €28 billion, with the Spanish group blaming it on reduced footfall when Omicron hit late last year.
The fashion group, which owns eight brands, including upmarket Massimo Dutti and teen label Stradivarius, warned that this year’s sales would be impacted by its closure of operations in Russia as a result of its war on Ukraine. When the invasion began in late February, Inditex closed all its stores in Ukraine, and on March 5 suspended all retail activity in Russia, its biggest market after Spain, shutting its 502 shops and suspending all online transactions.
Although Inditex did not say what the impact would be, analysts said it could be significant, as the Russian market accounts for nearly 10 per cent of the textile giant’s sales and 8.5 per cent of its operating profit.
The Russian market accounts for nearly 10% of Inditex’s sales and 8.5% of its operating profit
“Russia is a very important market for Inditex,” said Alfred Vernis, a former senior figure at Inditex and now professor at the Esade business school. And it would also suffer an indirect impact from the conflict, he told AFP. “Food prices are going to rise so that will impact on people’s budget for clothing,” he said.
Inditex said the highly-contagious Omicron variant had “significantly” affected commercial activity in the last quarter of 2021, causing “a sudden fall in retail traffic at its shops” in many countries. “The Omicron variant took hold in mid-December, which weighed on sales following the reintroduction of restrictions in most markets,” it said, estimating the impact on the fourth quarter was around €400 million.
When the pandemic first took hold two years ago, the group saw its profits nosedive as the virus forced it to shutter most of its shops in the first half of 2020. This year, as the effect of the Omicron variant began to wane, “sales momentum resumed,” it said, indicating that since February 1, sales in its 6,500 stores and online were “up 33 per cent compared with 2021, and up 21 per cent from the record pre-COVID levels of 2019”.