Good morning, ladies and gentlemen. A warm welcome to the presentation of Inditex's results for the interim Javier 2021. I am Marcos Lopez, Capital Markets Director. The presentation will be chaired by Inditexis Executive Chairman, Pablo Isla. Here today with us are also our CEO, Carlos Crespo and CFO, Ignacio Fernandez.
As usual, The presentation will be followed by a Q and A session, starting with the questions received from the telephone and then those received through the webcast platform. Before we start, we will take the disclaimer as read. And now over to Pablo.
Thank you, Marcos. Good morning to all of you and welcome to our first half results presentation. I would like to highlight some key messages before we go into an analysis of the period. Inditex differentiation and strategic transformation towards a fully integrated digital and sustainable business model is accelerating. First of all, I want to recognize the effort made by our teams.
Their dedication during the period has been outstanding. The strong individual commitment of all our people And our unique corporate culture totally focused on the customer continues increasing the differentiation of Inditex business model. Our operating performance continues to go from strength to strength. Sales, EBITDA and net income in the Q2 2021 have reached historic highs, surpassing pre pandemic levels. Constant currency sales growth accelerated over the Q2 to 7% versus the Q2 of 2019.
The springsummer collections were very well received by our customers. Almost all our stores are now open. Online sales continue their high rate of growth. Our operating performance continues to generate strong cash flows and reinforces the robust financial position of the group. We also continue to make progress with respect to the sustainable development of our business model.
At the AGM recently, we presented a set of new highly demanding targets. Regarding digitalization, The migration to the Inditex open platform is now 95% complete. As you have seen in our release, we have had a strong start to the autumn winter season. Store and online sales in constant currency Between the 1st August 9th September 2021 increased by 22% versus the same period in 2020 and 9% versus the same period in 2019. Let me add some details on the performance so far this year.
This remarkable performance in the first half of twenty twenty one was greatly helped by our fully integrated business model, our single inventory position and the attractiveness Of the product offer. Inditex competitive differentiation is bigger than ever. The impact of the store absorption program announced in June 2020 has already been fully recovered In store and online sales. As of today, 99% of stores are open. The strong trajectory of online sales that we saw last year has, of course, continued well into 2021.
Online sales in constant currency in the first half of the year have progressed very nicely indeed at +36%. This compares to +137% versus the first half of twenty nineteen. Online sales are expected to be more than 25% of total sales in 2021, 1 year before our initial target. It is because of these features that our operations enjoy sector leading growth rates and profitability. Inditex online business is non dilutive to margins and requires lower capital intensity going forward.
Let me tell you that we have total confidence in our unique business model that fully integrates stores and online. I'll hand you over to Ignacio now for the financial section.
Thank you, Pablo. As you have seen in our release, Inditex operations show a strong recovery in the first half of twenty twenty one. We executed very well in what turned out to be a challenging operating environment. We managed the supply chain very closely, and this drove exceptional gross margin performance. Operating expenses have, of course, been tightly managed.
As mentioned already, sales EBITDA and income in the Q2 2021 Risk history hikes, exceeding the pandemic levels. This is the result of the very active management of the supply chain with a healthy gross margin evolution and time management of the operating expenses. The first half has seen a strong recovery in sales of 49%. Sales in constant currency grew 53%. Sales trend in the first half twenty twenty one continuing to improve as the store reopened, and online sustained its strong performance.
Online sales in constant Currency grew 36% or 137% versus the first half of twenty nineteen. During the Q2 2021, sales growth in constant currency continued accelerating. Sales in the quarter were 51% higher than in the Q2 2020 and 7% higher than the Q2 2019, which was still a historic high. Over the first half twenty twenty one, currency impact on sales was minus 4.5%. At current exchange rates, the currency impact on sales is expected to be around plus 0.5 percent versus the second half twenty twenty and minus 5.5 percent The second half twenty nineteen.
The gross margin reached 57.9%. It was 170 basis points higher than the same period in 2020. The gross margin evolution over the period is turning to the high levels of flexibility enjoyed by our unique supply chain. Based on current information, Inditex expects a gross margin of around 57.5 percent, plusminus50 basis points for the full year 2021. There has been very efficient management of operating expenses across all departments and business areas.
This has demonstrated our ability to react and adapt to the changing trading environment. The main components of operating expenses have shown a very good performance. This has been a result of us to assess high level of control over operating expenses in the period. As you can see, operating expenses over the first half twenty twenty one increased 25% or below sales growth. Operating expenses were below the same period in 2019 despite the fact that practically other stores are open.
Depreciation and amortization came to €1,400,000,000 16 percent lower. The difference reflects the provision for the store optimization program for 20202021 charged to the Q1 2020 accounts. Excluding the provision, this line would have increased 3%. The flexibility of the business model with Ram can be clearly seen in the evolution of working capital over this period. As you can see in this table, working capital has returned to the more normal levels seen prior to the pandemic.
As a result, inventory at the end of the first half twenty twenty one was below the level seen in the first half of twenty nineteen. The gross inventory is considered to be of high quality. This assumes, in conjunction with the strong cash flow, took the net cash position to €8,000,000,000 And now over to Marcos.
Thank you. Over the first half of twenty twenty one, we have continued expanding our operations. This can be seen in the 27 different markets in which we have opened stores over the period. The weight of the different concepts on group sales remains practically unchanged. We are seeing a progressive recovery across all concepts going into the autumn winter season.
The differences relate to the geographic presence, location of stores and fashion profile of each individual concept. Store sales are improving and online sales continue to grow. Stradivarius and Ojio had a strong performance in the first half of twenty twenty one. We continue with optimization activities across all concepts. As part of Inditexis' strategy, Uterque will be fully integrated into Massimo Dutti over the next year.
Uterco's entire product range will be available only on Massimo Tutti's website and selected stores. And now over to Carlos to focus on sustainability. Thank you, Marcos. Inditexis
lead in Sustainability is reflected in the achievement of all the targets set for 2020, and in some cases, even exceeding some of these demanding milestones. Inditex continues to make good progress in sustainable development, having approved the following demanding targets at its last AGM. Joint life more than 50% by 2022, 100 percent renewable energy by 2022 from 80% previously in 2025 100% more sustainable cotton by 2023, Previously, 2025. Water consumption, minus 25 percent in our supply chain by 2025. Net 0 emissions by 2,040.
Previously, 2050 elimination of single use plastics in customer packaging by 2023 100% recycled or sustainable polyester linen by 2025 and 100% sustainable cellulosic fibers by 2023. This is in addition to the existing targets already in place for 2023 and beyond, such as in the use of renewable energy to reduce carbon emissions. And now back to you, Pablo.
Thank you, Carlos. Let me now talk about the outlook 2021 and very especially about the features that make Inditex unique. Let's start with our fashion collections and the integrated store and online execution. A great place to start is with the Thara Guman 2021 Fall Winter collection or Thara Guman 2021 On 30 September, Tharamang will launch the sport collection, Thara Athletics, available online and in selected stores. The Thara Kids Back to School Collections, Farahome Portraits of a Home campaign marked by sustainable interiors, Massimo Dutti Relaxed City editorial, Bersca Natural Tones Collection, Poulomburg Pacific Republic collection, the Stradivarius Autumn Winter collection, Pollo's working leisure collections and last but not least, the Uterque fallwinter collection.
A very significant project for the beginning of October will be the opening of a new store for Tara in Parilla de France with 5,000 square meters of surface on a single level. This will be one of the largest Thala stores of this type in the world. In November, we will open a very unique Thala store at Chengdu Taikuli, A center inspired by Chinese vernacular architecture and a recent outstanding opening for Bersca with 2,700 square meters has taken place at Madrid Pretiados. The strategic initiatives to strengthen our global fully integrated store and online model are accelerating. We plan to continue developing these key long term priorities in order to maximize organic growth.
The goal is to continue increasing the differentiation of our business model so as to provide a unique customer experience. We will have invested €1,000,000,000 in digital capital expenditure between 2020 2022. Our key focus is on high quality stores with the aim that they be fully integrated digital and eco efficient. Total capital expenditure over this same period will be around €900,000,000 annually, helping to drive lower capital intensity and increasing profitability. Let us not forget that we aim to achieve all of this with sustainability remaining very much central part of this strategy.
We expect to deliver higher returns and lower capital intensity. As a reminder, the final dividend for full year 2020 of $0.35 will be paid on the 2nd November. Thank you for attending. That concludes our presentation for today. Now we would be very happy to answer any questions you may have.
Please, operator, go ahead.
Ladies and gentlemen, the telephone Q and A starts now. We request that you limit yourself to only one question per turn, so we can maximize the number of participants in the session. And the first question today comes from Richard Chamberlain of RBC. Richard, please go ahead.
Thank you very much. Good morning, guys. Just a question for me, please, on the Zara brand. I wonder if you can give us an idea of the basket size for Zara online And also in store and whether the gap there is changing at all. I'm just wondering if that presumably higher basket online is helping to lift up the gross margin and also the operating Expenses, along with, obviously, strong full price sales.
Well, thank you. Elisa, answering your question, the first thing I would like to say is that What is really helping the evolution of the gross margin and the operating expenses and the efficiencies inside our company It is what we call this fully integrated approach. I think that what is remarkable, if you see what has happened during the second the first half of the year Or the start of the autumn winter season. But thinking about the first half with the gross margin evolution, this has a lot to do, as we were saying during the presentation, With the single inventory position, with the fully integrated approach, you see that, for example, if we think about the start of the season, The trading update sales growth between August 1 September 9 is growing 22% compared to 2020, but even 9% compared to 2019 and inventories are minus 4% compared to 2019 level at the end of July. So what is really remarkable Is this fully integrated approach between stores and online?
And what I could also say About this trading update is that, well, this 9% is including, as we were saying during the presentation, the full Absorption of the impact of the 800 stores that we have absorbed during the period. So it's really anti having in mind because you all know That there is some COVID impact in the Asian countries in the month of August. So even with all that, sales growth 22% compared to 2020 and 9% growth compared to 2019. What is very remarkable is the collections that we have, the execution of the business model, the work that our commercial teams Are doing the work that our teams at the country level are doing, and this is what is driving the evolution of the company, which we think is a very unique business model and very unique approach to the business.
Comes from Rebecca McClellan of Santander. Rebecca, please go ahead.
Good morning. And just a small one, please. Previously, you sort of talked about hourly trading restrictions. How is that in sort of like the Q2 or in current trading?
Well, as we were saying, but you perfectly know and when you think about the second quarter And this is something also to have in mind if you think about OpEx during the Q2 that if you remember in the Q1, On average, 25% of our stores were closed. We were having 25% less commercial hours in our stores. So in the Q2, you see the impact of all these reopenings that we have. What we said in the Q1 results presentation It's that during that period, well, I can answer you for the whole quarter. For the whole quarter, it has been 6% In the Q2, 6% of non available hours coming from COVID.
And now at this moment is Say less than 2%. So now we are nearly operating fully. Our stores, as I was saying, there is some COVID impact In some different countries, but globally even with that, we are having 9% sales growth compared to 2019 And 22% sales growth compared to 2020.
The next question comes from Warrick O'Kane of Zane BNP. I've got a question about costs into the second half. Last year in H2, you booked a €394,000,000 COVID related extraordinary expense. Do you expect to face more Extraordinary cost this year? Or should we think about that cost just dropping out of the P and L?
Well, as Paolo was mentioning, we believe that the key driver both in sales, gross margin and OpEx will be this reopening. And you see that sales are accelerating in a very nice way despite the fact that we are assuming some costs from the reopening in terms of stores and there is some lag in the sales in the stores, but this is happening and you've seen the trading update with 22% growth over last year. So COVID, hopefully, we will not have anything this year. And I think that the evolution of costs has been very, very nice, as Pablo has mentioned, very much in line with the performance of the company. The two key factors, as we discussed in the to analyze that, are probably this reopening and we don't expect anything additional at this stage.
The next question comes from Simon Irwin of Credit Suisse. Simon, please go ahead.
Good morning, gentlemen. Thanks for taking my call. Can you just talk a little bit about what you're seeing in terms of airfreight trends?
I didn't understand and Marcos was clarifying to me our freight trends. Well, when we talk about the normally, the gross margin or the cost structure of the company, We always say the same. Of course, there are elements that, let us say it this way, that Are happening in the markets, but there are many elements involved. There are a lot of things that we can do related with that. Of course, This is air freight costs are increasing, but this is one element of the many that you have when you run a company.
I think the key for us with a huge difference well, having said that, the first thing I would say is that we are giving guidance for the gross margin. So we are expecting to have a very healthy gross margin in the second half of the year. And as Marcos was saying, of course, we will continue managing actively Our costs all across the company, and we believe we will also have a healthy performance regarding costs. And what we can say is that what for us is key, of course. Every results presentation, you could have this or that, this element That is increasing, decreasing this, but what is key is the essence, is the execution of the business model.
We announced in June last year this Absorption of a very significant number of stores. We have absorbed 800 stores, and we are seeing trading uplift plus 9% compared to 2019, A strong execution of the business model, very healthy gross margin in the first half, and we believe is going to be the case in the second half because of this fully integrated approach. So we always, as you know, us perfectly and we always prefer to talk much more about the essence, About the medium, long term trends of the business in the way we operate the business that about any this or that In one particular moment. So to answer your question, nothing as relevant as to have A very significant impact on our old performance, our global performance.
The next question comes from Anne Critchlow of Societe Generale. Anne, please go ahead.
Thanks. Good morning, everyone. My question is on U Turquay. I just wondered if you could give us a bit more color behind your decision to merge U Turquay into Massimo Dutti. Mean, was it because U Turquoise wasn't quite as promising as you'd hoped?
Or are you looking for cost efficiencies? Also, are you going to close all of the U Turquoise stores?
Well, yes, the reason behind this integration of Utterco into Massimo Dutti is that We believe that integrating the Ultracue collection into Massimo Dutti is going to give to Ultracue more visibility in many different markets. So Turquay currently is present in very, very few markets and we have thought that this was a better approach to integrate into Massimo Dutti Not to have separated Euterquay stores and then to have this collection integrated into the Massimo Dutti collection, Of course, online globally and in some Massimo Dutti selected stores. We think well, we have the experience when we integrated Thera Home into Thera. In this case, we decided also to keep the Therahome stores, But at the same time, we are also introducing Thera Home Stores into a Thera store. For example, We were mentioning in the presentation this big store that we are opening in LADES funds.
This Thara will have a Thara home Inside the Thara stores, the Thara store and we are offering Thara Home product in the Thala web progressively In most of the countries in which in the world, no, in most of the relevant countries in the world with very, I would say, Positive performance. So we think it is the right movement. It is a way to give to Circway More visibility in different markets in which today it is not present, and we think it is the right approach and the right strategy going forward.
The next question comes from Olivia Townsend of UBS. Olivia, please go ahead.
My question is just about the lockdowns in Asia that you Mentioned earlier in the Q and A segment. So that's impacting demand at the moment. I was just wondering if you were able to quantify The impact of those lockdowns in Asia on sales during the latest period?
Well, We prefer not to elaborate very much on trading update. It's I mean, from August 1 to September 9, Very healthy trading update even having in mind this impact in the Asia market. So you can I think that it was very, very healthy without those markets? But we prefer not to elaborate very much A trading update about that. I think what for us is key is how strongly Well, first of all, because of course everything comes, first of all, with the product, with the collections and you will see many, many things in the coming weeks about collections, capsules from tomorrow onwards, you will also see We were talking about in the Sara Man this Sara Athletics, which we think is quite relevant.
But you will also see from tomorrow in the Faraway, what we call origins collection In the Faramax section, which is also very strong. And then in the Faramax section, you will see many capsules, They can pay many different things during the season. So this is talking about Thera, but we could talk also About the other brands, so what for us is relevant is the global performance of the company within this 9% trading update is very healthy. And well, the autumn winter collections, as we were saying, have been very well received by our customers In the different markets and what we will do is to continue working to have the best possible product, very sustainable And managing the company in a very efficient way.
Thank you very much. We are now finished with the telephone Q and A session to address the question received through the webcast platform.
We've had a few questions on the webcast platform. The first of which is, has online click and collect And returns to store return to normal, please?
Well, thank you. Yes, I think it is all progressively Coming back to normal, of course, this is something that when the stores are closed or with many restrictions, This particularly online deliveries or online returns in the stores Are not at the normal level. Once the stores come back to normality, then of course, for us, this is a key feature of our full integrated approach between stores and online, Having a significant part of online deliveries in our stores and 2 thirds of our online returns Taking place in the stores. And this is something that we see coming back to normal progressively in the different markets.
Perhaps you could talk a little bit about the 3 openings you mentioned in the presentation, please.
I was mentioning before in a previous question about LADESFAZ, I think LADESFAZ and also Preciado's in Madrid Are a good example, example a very good example when we talk about this store optimization plan because in LADESFAUNS, in Paris, We used to have 2 small Thara stores for what Thara is today, 1 small Thara home store And one small pool and beverage store. And with this reorganization that we are doing, we are having a huge Para in the best Relocation inside the mall with a Tara home inside the Tara store. And then we are also enlarging and Okay. The Pool and Bear store in a very significant way and one of the 2 previous Star Stores is becoming a new Berska store in La Defense, which for Berska is the perfect size. Was small for what Tara is today, but it's perfect for Bresca.
So we used to have 4 stores in LADFANS. Now we are going to have 3, But it has nothing to do our presence, our approach to I mean, the customer experience in our stores, the level of sales, the surface, The operation of the stores. So it's a perfect example of this store optimization plan. And Preciado's, I was mentioning that also because we used to have well, in Preciado's, we have Zara, we have Bulambert, a very beautiful store. We have Stedivarius, and we used to have a Verzcal store close to the third And then 2 years ago, we enlarged and refurbished the 3rd store and we took the Berska store that was very small for what Berska is today.
And then 2 weeks ago, we have opened a very, very relevant flagship for Burska in Preciado Street. So this is These are two very good examples of this store optimization plan that we are developing in the different markets And which is a key part of our strategy as you perfectly know.
The final question is can you talk a little bit New Saruman Athletics collection?
Well, I think we have mentioned during the presentation and during the Q and A session, Sara Athletics is something that we are launching on September 30 in some selected stores And of course, online, progressively, we will introduce in many other stores, Well, and you will see, you have seen now in the presentation a small well, one slide about the image, but you will see fully Very soon, about the whole approach and the idea is simplicity, comfort, functionality And of course, style, because it is frara and it always has to be a style, but very, very high quality from a technical point of view. And within this is something that is going to become progressively relevant inside the Saraman section. So we think it's a very, very good initiative and with high potential going forward.
That concludes the webcast questions. Well, thank
you very much to all of you. And Marcos?
Thank you very much. This concludes the Q and A session. We are open to have your questions. And now let me hand over to Pablo for the closing remarks, if there is nothing else.
No, nothing more. Thank you. Thank you. And We keep in touch through the Capital Markets department. Thank you.
Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect.