Industria de Diseño Textil, S.A. (IDEXY) CEO Carlos Crespo on Q1 2020 Results - Earnings Call Transcript

Jun. 10, 2020 9:46 AM ETIndustria de Diseño Textil, S.A. (IDEXY), IDEXF

SA Transcripts

137.93K Followers

Industria de Diseño Textil, S.A. (OTCPK:IDEXY) Q1 2020 Results Earnings Conference Call June 10, 2020 3:00 AM ET

Company Participants

Marcos Lopez - Capital Markets Director

Pablo Isla - Executive Chairman

Carlos Crespo - CEO

Ignacio Fernández - CFO

Conference Call Participants

Richard Chamberlain - RBC

Adam Cochrane - Citi

Mariana Horn - UBS

Nicolas Champ - Barclays

Warwick Okines - Exane

Anne Critchlow - Societé Generale

Chiara Battistini - JPMorgan

Geoff Lowery - Redburn

Rebecca McClellan - Santander

Operator

Good morning, ladies and gentlemen. A warm welcome to the presentation of Inditex’s Results for the Interim Three Months 2020. The presentation will be chaired by Inditex’ Executive Chairman, Pablo Isla; here today with us and are also the CEO, Carlos Crespo; and CFO, Ignacio Fernández.

As usual, the presentation will be followed by a Q&A session, starting with the questions received on the telephone and then those received through the webcast platform.

Before we start, we take the disclaimer as read. I will now hand over to Pablo.

Pablo Isla

Thank you. Good morning to everybody, and welcome to Inditex’ results presentation. First and foremost, our thoughts are with all those affected by the COVID-19 pandemic. Our number one priority is the health and safety of local communities and our employees. We would like to give our thanks to our teams whose contribution in this difficult time has been truly inspiring.

I would like to start my presentation highlighting the strength of Inditex fundamentals. Let me tell you that we have total confidence in our business model and the long-term potential of the group. We continue developing the key lines of our long-term strategy to extend our fully integrated store and online platform.

Initial collections for the spring summer season have been very well received by our customers. The COVID-19 pandemic has had a material impact on our operations, as lockdowns and restrictions have been in place in most markets.

At the end of the quarter, just 965 stores were open. At the same time, the online business has seen very strong growth in all markets during the period. Our supply chain has continued to operate normally due to the flexibility of the business model. Some unique features of our operations, like the inventory integration have proven to be pivotal during this period.

Let me also tell you that we are seeing a progressive recovery in sales in the markets that have reopened stores. In this chart, you can see the number of stores with sales in 2020 to date. After some temporary closures in February in China, most markets progressively imposed lockdowns over March that ended in the number of stores in operation below 1,000 by early April.

In May, markets have progressively started to reopen, but most of them with restrictions. In the first quarter 2020, we have seen a very strong progression of online sales globally, greatly helped by our single inventory position, online sales have grown 50%. Online sales grew by 95% in April.

We are seeing a progressive recovery in sales in the markets that have reopened stores. Store and online sales in local currencies decreased 51% in May. Store and online sales in local currencies from 2nd of June to 8th of June decreased 34%.

In the markets that were fully open 54% of total stores, sales decreased 16%. As of the 8th of June 5,743 stores were open in 79 markets and we expect to reopen most key markets by the end of June.

We have total confidence in our business model and the long-term potential of the group. In the final part of our presentation, we will comment on a number of strategic initiatives regarding Inditex in 2022.

Let me now hand you over to Ignacio for the financial section.

Ignacio Fernández

Thank you, Pablo. As mentioned, the COVID-19 pandemic has had a material impact in our first quarter 2020 operations. Sales reached €3.3 billion in the first quarter 2020. To minimize the impact, we have been actively managing our supply chain and inventory. The flexibility of our business model as the single inventory position have been pivotal in this process. As a result, gross profit reached €1.9 billion for the first quarter 2020.

We have also [indiscernible] operating expenses stretching efficiencies are just for sales volumes. Cost control has been key in the quarter. As explained in the note, we have charged €308 to depreciation to complete the space optimization process. We’ll update you on this matter in the strategy subs.

As Pablo mentioned, the sales performance has been marked by the timing of a temporary store closures. Online sales growth in the period has been very strong at 50%, have continued our upward trajectory. In the month of April, online sales grew 95%.

At the start of the second [ph] quarter 2020 sales trends have improved as store re-open in some markets while the restriction still remain. Gross profit reached €1.9 billion in the first quarter 2020. The gross margin was 58.4%. The gross margin evolution is the consequence of three factors, the strong flexibility of our supply chain. Closing inventory being 10% lower than in same quarter of 2019. And the inventory provision to account for the impact that the COVID-19 pandemic had in the net realizable value for the spring/summer inventory position of 31 January 2020.

Efficiency gains t have allowed us to try to control operating expenses in the period. Operating expense decreased 21%. All main components of operating expenses have shown a good performance.

Depreciation and amortization reached €992 million, it includes the full charge for the completion of the store optimization in 2020 and 2021. The financial results line of the income statement includes the interest of lease liabilities of €33 million [ph].

The flexibility of the business model we run can be seen clearly in the evolution of the working capital in this quarter. Despite the very material impact of lockdowns on sales, we have been able to use the flexibility of our supply chain to adjust the volumes.

The single inventory position was pivotal achieving this performance facilitated by the integration of the stores and online operations. As a result, inventory fell 10% at the end of the first quarter 2020 and demonstrated the flexibility of our business model, because inventory is considered to be of high quality. This assumes, in conjunction with the time management of the operating expenses had to sustain the net cash position of €5.8 billion.

Let me now hand you over to Pablo.

Pablo Isla

Thank you, Ignacio. In recent years we detailed to you a number of strategic initiatives to strengthen our global fully integrated store and online model. We plan to continue developing these key long-term priorities to increase organic growth.

The goal is to increase the differentiation of our business model - to provide a unique customer experience. The strong differentiation of our stores, the global online presence and the inventory integration have greatly aided their recent performance.

We want to further strengthen our competitive advantage through the development of the fully integrated store and online model. Our priority remains to provide a stronger customer experience with improved management of stores, inventory, supply chain and sales conversions.

Up to 2022, we foresee a very strong progression of online sales. We also want to focus on high-quality stores, fully integrated digital and eco efficient, all this with sustainability as a key part of this strategy. We expect higher returns and lower capital intensity.

As stores are critical to the implementation of the following three key strategic areas, digitalization, integration between stores and online and all matters relating to sustainability, including eco efficiency and circular economy.

Source will also play a stronger role in the development of online sales due to their digitalization and capacity to reach customers from the best locations worldwide. It is for this reason that we must focus on those high-quality stores that are best able to deliver on this long-term strategic goals.

We have total confidence in our business model and the long-term potential of the group. We will continue developing our long-term strategy. The unique store and online platform provides the strongest customer experience. Online sales should exceed 25% of total by the end of 2022. We expect an underlying annual like-for-like sales growth of 4% to 6% and growth and gross annual space growth of around 2.5%. Also there should be capital expenditure of around €900 million annually over this period, helping to drive lower capital intensity and increased profitability.

Let me now hand you over to Carlos, to talk about online.

Carlos Crespo

Thank you, Pablo. We have, of course, developed a global online business. Online sales have been profitable non-dilutive from launch and reached 14% of group sales last year. We see some progress here. Progress that has seen a very high level of integration between physical stores and online. The benefits of this integration have been especially evident in recent months. To reinforce our position, we will have completed the construction of our new building of 64,000 square meters for Zara Online studios by the end of 2020.

We continue launching online globally with recent additions like Argentina, Paraguay, Uruguay and Peru. Online sales as a percentage of total is expected to continue rising over the long-term. We expect to invest €1 billion in online capital expenditure for the period 2020 to 2022.

A key aspect is a development of the Inditex open platform. Designed in 2018 and which will be completed in the period 2019, 2021. This proprietary platform currently supports 60% of Inditex’s digital activities. The platform allows us to develop unique solutions both in store and online. It is a solid proprietary base for Inditex’s business and digital expansion. The ultimate aim is to accomplish full digitalization of stores across the globe. Online sales should exceed 25% of total sales by the end of 2022.

Let me now hand you back to Pablo.

Pablo Isla

Thank you, Carlos. Since 2012 we have been very active with our portfolio. We have reinforced the differentiation of our stores and added high-quality, highly visible stores. We can confidently say that this process has now being applied to 90% of our store base.

Our stores are in the best locations worldwide. They are fully integrated digital and eco efficient. As a result of the process I mentioned to you in the previous slide, our newest stores now have an average age of 3.5 years. All new stores are digital and eco efficient.

The vast majority of our stores have been refurbished and enlarged. The result is an unparalleled customer experience, as evidenced by the like-for-like performance of 6.5% achieved in fiscal 2019.

In order to complete the space optimization program, we plan to absorb between 1,000 and 1,200 stores at the end of their life cycle between 2020 and 2021. The optimization focuses mainly on the smaller stores, mainly among the younger concepts, which are graphically diversified.

The sales from all these stores can be potentially recovered in neighboring stores and online. The average book value of these units is very low at around €260,000. The net book value of these stores has been charged to the profit and loss account in the first quarter.

To summarize, in a two year timeframe we are going to optimize a similar number of units as in the last three years. This will conclude the process. The profit from absorbed stores is expected to be fully compensated by increased sales from nearby stores and online and the efficiencies generated by the improved purchasing function and inventory management, driving higher sales volumes at full price in the long-term.

In the coming years, we expect gross space growth of around 2.5% annually, with around 150 store openings annually and significant enlargements to high-quality stores. At the end of this process, we will be trading from a high-quality digital, eco efficient store and online platform. We are expecting increased profitability and lower capital intensity.

A good example is the third enlargement of Zara in Barcelona Paseo de Gracia with a brand new menswear section. The relocation of our store in Edinburgh to St James, the brand-new Zara store in Riyad, the enlargement of the Zara store in Bogota at Calle 82, and the relocation of the Zara store in WangFujing at Beijing. This store will be the largest in Asia and one of the most technologically advanced in the whole group.

Sustainability is a key part of our strategy. Our commitment to a circular economy is best illustrated in these five main areas. The sustainability of the supply chain, the use of renewable energies, the commitment to sustainable fabrics, the transformation to eco efficient stores and at zero waste and recycling policy.

To summarize, we aim to further develop our unique business model by continuing with the global rollout of our fully integrated store and online platform. Finally, Inditex Board of Directors will propose to the Annual General Meeting an ordinary dividend for full year 2019 of €0.35 per share to be paid on 2nd November 2020.

In the tax dividend policy of 60% ordinarily payout and bonus dividends remains in place. The remainder of the bonds dividend for calendar 2020 and 2021, €0.78 per share will be paid in calendar 2021 and 2022.

And that concludes our presentation today. We'll be happy to answer any questions you may have.

Carlos Crespo

Please go ahead, operator.

Question-and-Answer Session

Operator

[Operator Instructions] The first question today comes from Richard Chamberlain of RBC. Richard, your line is now open.

Richard Chamberlain

Thank you very much. Morning, everybody. One question please from me. On the store optimization plans, I wondered how you - how have you thought about these - the store optimization plans assuming now during the aftermath of COVID-19 that people are going to shop more locally, and so may not travel so much to the bigger more destination Zara stores, more reliant on tourism and public transport. Has that influenced your thinking on the store optimization plans? Thanks.

A - Pablo Isla

Well, thank you for your question. The first thing I would like to mention is that, of course, store optimization plan is a continuation of what we have been doing in the last few years, as we were seeing during the presentation, we begun with this process in the year 2012. We applied this process with more intensity in the years 2017 to 2019. And what we are doing right now is what we call to conclude the process with these new store optimization plan that we are announcing to you today.

At the same time of course, we are planning to continue opening stores. We are saying we will open around 2.5 - we will open around 150 stores per year, its around 2.5 gross space growth per year. And it has a lot to do with the strategy that we have been following there in the last few years of having very high quality stores totally integrated with online, and this is the strategy in which we believe.

As we were mentioning during the presentation, this new step in the store optimization plan has more to do with the younger concept, is diversified geographically in the different areas, in Asia, in Spain, and the rest of Europe, in the Americas.

It has very much to do with the smaller stores at the end of their life cycle. You have seen that the net book value of these stores is quite limited and we think its the right decision, thinking about the long term of the company, thinking about this fully integrated approach between stores and online.

And you must always have in mind that running the company we are always focused in the long-term and we are always focused in the type of store network that we think is appropriate, having in mind this fully integrated approach and online representing in the year ’22 above 25% of our total sales.

So it is very much in line with our strategy and these are the main features of this plan of this paper right now. And as I was saying to you, these are profitable stores, the stores that we are absorbing. We are mentioning, in fact, their average profitability is double digits, so it is not to say that they are losing money or anything like that. It is that we think, it is the right strategy that we are developing since several years ago, and particularly, during the last three years thinking always about the medium and the long term prospects of the company.

Operator

The next question comes from Adam Cochrane of Citi. Adam, please go ahead.

Adam Cochrane

Morning. The question for me is you talked about full digitalization and of the store state. Could you just give us a description of what full digitalization really means and looks like in terms of your stores? And is this true across all of the concepts or is that just in reference to Zara? Thank you.

Carlos Crespo

Well, this is something which is quite relevant and we were mentioning during the presentation, the most visible I would say element of this full digitalization is the full stock integration, and what we call internally sint [ph] knowing in our company, which is a stock integration.

As we were saying during the presentation and you will see this in a very clear way during these months, in the month of April, also in the month of May, when - because there were many markets that were not yet open in their in the month of May. This stock integration has been absolutely key, because we have our online sales growth has been so relevant, because we have been able to use the stock that we had in the stores without the full stock integration, this would have been impossible, because in order to offer the product online you need to have full accuracy about the product and where it is located and if it is available or not for your online customers.

This full stock integration is now complete in Zara, Massimo Dutti and Uterqüe, and it has to do with RFID, without RFID it would be impossible. And it will be during this year a reality all across the different brands.

Of course, there are many other elements in terms of full digitalization, about what we call also store mode, the possibility of making a reservation for the fitting rooms or even for garments when they have arrived to the stores, online with the app. There are many different things.

But the most relevant one in terms of how do we operate our business is the full stock integration, which is key. And that is the way we feel because when we were talking about the store optimization plan, we are saying, well, the profits of these stores, we believe that is going to be fully compensated with the sales that we are planning to recover in neighboring stores and online. And also, thanks to the stock integration, is why we can feel confident about achieving this.

So there are many things involved in this fully digitalized the stores, but I would say in terms of the way we operate our business, the most relevant one is the full stock integration. And then, of course, many additional things in terms of customer service. As I was mentioning before about the fitting room, about the garments, about also for example you could see through the app where the garment is located inside the store and then if you enter the store you can go directly to the floor or to the part of the story in which the garment is located. So many additional things in terms of customer service that we are planning to implement in the coming months, but the most relevant one the full stock integration.

Operator

The next question comes from Mariana Horn of UBS. Mariana, please go ahead.

Mariana Horn

Hi, good morning. I hope you're all well. Thank you very much for taking my question. So you mentioned in the press release that you've implemented a set of initiatives to mitigate the impacts from store closures in relating – relating to your OpEx space. Can you comment maybe or provide some color around the area where these cost savings in a way or cost cutting measures are being implemented? And whether we have already witnessed some of these in Q1 and how we should think about them for the rest of the year? Thank you very much.

Carlos Crespo

Well, thank you. Of course, we have implemented a lot of measures in all the different lines of the cost base. Perhaps, Marcos, you can elaborate a little bit more.

Marcos Lopez

Yes, we have done many things Mariana, as you can imagine we've tried to use our resources in the most efficient way. I think Pablo put out a perfect example in the sense that from mid-April we've been able to access our stores and some of our personnel we're able to get in and redeploy that product, that inventory that we had in the stores through the sint to online sales.

So obviously we have adjusted a number of things. You've seen that operating expenses have decreased by 21% in this first quarter, but we leave that - we believe is very early to give you any type of guidance for the year in terms of the different drivers.

However, operating efficiencies are a key part of our strategy. We've always been very, very keen on that type of actions. And again, as of today, expect very tight management, but we would refrain to providing you know, guidance specifically on this matter.

Pablo Isla

Yes, I think as you are seeing, when you look at the trading update, that as far as we are progressively opening stores in the different markets that sales are recovering. In fact, we were saying that in their last seven days in the countries in which all our stores are open, which represented 54% of total stores, sales decrease was 16%, so we are getting closer to the same level as the previous year.

By the way, I would tell you that since this Monday, since two days ago, all our stores in Spain are open, because before that there was the exception of Madrid and Barcelona which are so relevant for us cities. So currently since Monday all our stores in Spain are opening. We are supposed to open in the U.K. as you know next Monday, also in Lisbon. We are supposed, because in Portugal all the stores are open with the exception of the Lisbon area that is also supposed to open next Monday. Well, in the US there are some stores which are open, some stores which are not yet, depending on the different states.

But what we were saying during the presentation is that within that between now and the end of June most of the markets we will have reopened our stores. Currently, the number of stores that are open are 78%, so we are moving in the direction of having a fully opened stores. And you also know, that a part of cost evolution has to do with sales evolution, because of the variable element that we have in our costs.

Of course, we are planning to continue managing our costs during the whole year in a very tight way. This is something – and all the different lines of the cost it has to do with everything, it has to do with personnel expenses, of course, with the rental expenses, having conversations with our landlords worldwide. This year is extremely exceptional. And I think all their landlords are aware of that and we are finding a very reasonable agreement for the year, having in mind the two sides involved, other operating expenses, structure, logistics everything, all the different lines of their profit and loss account that we need to take care about them.

Its very remarkable, what was achieved in the first quarter because you must have in mind that it was mid-March when this extraordinary situation appeared. So cost in the quarter is minus 21%. It means that in the second half of the quarter it was significantly above this minus 21% because we began to act in a very serious way, let us say like that since March into mid-March.

This shows also the flexibility, not only when we talk about the flexibility of the business model, of course, the main element is the sourcing, the way we buy, that by the way, is extremely relevant. And we were saying in the presentation that at the end of the quarter inventory was minus 10%. This means that we've reacted in early March seeing what was coming because we don’t buy in advance the season. We buy as you know on a weekly basis, and then this means that early March where we were seeing what was coming and then we acted in terms of our purchases for the season.

And then in early May, we began to buy again significant way in order to have the available product for this month of June, July and August. So this is the flexibility of our business model. And also when we talk about costs, I think that this first quarter results also show the flexibility of our business model, regarding costs.

But as Marcos was saying, we think it is too early to elaborate for the full year because it will also have a lot to do with the evolution of sales. I think in September in the first half results presentation we could be - we could have much more information in order to talk about this.

Operator

The next question comes from Nicolas Champ of Barclays. Nicolas, please go ahead.

Nicolas Champ

Yes. Good morning. Thanks for taking my questions. I think it's fair to say that you have a slightly higher price positioning on average and most of your peers in the sector, which is partly related to your more – as the more fashion component of your assortment. How are you confident given tough economic environment ahead that you will continue to gain market share and outperform your peers given again your slightly higher price point on average? Or let's put in another way, do you have any plan to slightly change your commercial strategy, again given the tough economic environment ahead? Thank you.

Pablo Isla

Well, thank you. Well, the first thing I would say is that, we are very proud of our work commercial teams and the type of product that we have in the stores and also the way we show this product in the stores and online. So that is why, combined with this fully integrated approach that is what we talk a lot about the uniqueness of our business model.

And what I would tell you is that, we believe very much in what we are doing. So it is having the best product, with this flexibility of the business model. So when it is needed then the efficiency of the distribution. So we are focusing much more on the quality from every point of view of our products, and how do we communicate with our customers than with anything else.

Having said that, what I would tell you is that, as a company we have gone through every type of economic environment. So this of course, we all prefer to run the company in a good economic environment, but we are quite used to running the company in different economic environments. You have the financial crisis and how we manage the company during that period.

So what I can tell you at this stage is that our focus, our 100% focus is to serve our customers in the best possible way, first of all through our product. And second, through the way we communicate with them, both in the stores and online.

Operator

The next question comes from Warwick Okines of Exane. Warwick, please go ahead.

Warwick Okines

Yes. Good morning, everybody. I had a follow up question on costs. You didn't mention government schemes like furloughing being one of the drivers of cost evolution in Q1. I was just wondering if you could comment on whether there was meaningful support in the quarter and how we should think about that, whether we should have that in mind when we're thinking about costs for the next couple of quarters?

Marcos Lopez

Thank you. As we have mentioned during the call and Pablo made very clear, we have used mostly efficiencies. We have used some schemes but in a very, very minor way in some geographies, but not in a very significant way. And also the duration of the process was very small, because as we mentioned in the presentation as well, by the end of June, we expect practically all the key markets to be fully reopened. And we can tell you that the behavior we see is a very normal one. So this has not been a very significant measure that we have used.

Operator

The next question comes from Anne Critchlow of Societé Generale. Anne, please go ahead.

Anne Critchlow

Good morning. Thanks for taking my question. Just to ask really what's in practical terms is happening in the stores as they reopen. And I know it's difficult to generalize across 96 markets and all the different concepts. But in general, are fitting rooms open for example? Do you have social distancing measures in most countries? What's your experience of that? Are people having to queue outside the stores and so on?

Pablo Isla

Well, the first thing I would say is that the customer behavior is completely normal. So this is the first thing I would like to mention. Of course, when the stores reopen in the different markets at the beginning there are restrictions but we already begin to have several markets with no restrictions as it is the case, for example in China, Japan, Korea or in Switzerland or in some other different – in Poland or in some other different European markets. But for example in Asia, they are a little bit in advance in China, Japan and Korea.

Well, by the way, if we think about the last week or the last 10 days China, Japan and Korea combined we are reaching the level of sales of the previous year. And in terms of customer behavior inside the store, it is completely normal. Customers like to go to the stores, they see the product, they try the product. They pay.

So we are seeing, of course, everybody is wearing masks, but that is the case right now, of course, our employees, and we have all the measures, and we have the sanitizer and we have the way we operate the cashiers. But in terms of the customers, what I would say is total normality, the way they behave inside the stores.

Operator

The next question comes from Chiara Battistini of JPMorgan. Chiara, please go ahead.

Chiara Battistini

Good morning. Thank you for taking my question. It's a follow up question really on the trends you're seeing after the reopening. I was wondering if on one side you could comment on what kind of traffic and conversion rates you're seeing in the physical stores that have reopened so far on average.

And on the other end, if you could comment also on the online trends you’ve been seeing after reopening, especially in May, if you're seeing a further acceleration or actually a normalization of the online trends since reopening? Thank you very much.

Pablo Isla

Well, the first thing I would like to say is that, of course, it is too early to give detailed explanation, because as I was saying to you for example, in the case of Spain, we have reopened all the stores two days ago, in the case of, I don't know, Italy it was the 18th of May, in the case of Portugal, Lisbon is going to open next Monday and then the whole country will be open.

In the case of Germany, at the beginning there were restrictions. Then, a few days ago, these restrictions in terms of the size of the -that you could open disappeared. So there are many different things going on. So it is difficult to give a very detailed picture.

What I would like to say is that, combining stores and online, what I was mentioning before, we have in mind the last week, the last 10 days, if we combine for example in Asia, China, Japan and Korea, we are reaching the same level as the previous year. So we are not seeing any additional sales decrease.

In the countries in which all the stores are open, as I was saying in the last seven days, in these countries total sales combining online and stores is minus 16%. So that is why I was saying that we see an evolution week after week, as far as we reopen in terms of the evolution of the stores.

And then regarding online, while it is true that, of course, online, we have gained a lot of customers, I will tell you every year or every month we gained online customers. But of course, during these month of April and May it has been much more significant because during April most of our stores were closed and during May we were progressively reopening. But on average during the month I would say 50% of our stores were closed on average during the month. So we have gained online customers in a more significant way than any other years.

And well, what I will say is that, that is why we believe very much in this full integrated approach. I was mentioning before without our full stock integration we would have not been able to have this so significant online sales growth, because a big part of the product that we have been selling online in the months of April and May was located inside the stores that were closed. So that is why we have been able to have this so significant online sales growth during these months.

Well, I think in general terms, it is too early to say what is going to be exactly customer behavior. But for us what is very, very relevant is first of all, this full integrated approach, which is a key, key, key element currently of our strategy. And second, the second thing I would like to mention again is that when customers come back to the stores they act with total normality inside the stores, which is also something relevant to mention.

Operator

The next question comes from Geoff Lowery of Redburn. Geoff, please go ahead.

Geoff Lowery

Morning, team. So just come back to the store optimizations and your comment about it enhancing both profitability and returns. Does it enhanced profitability just because you are closing lower margin stores, albeit still good margin but lower margin? Or is there an implicit comment here that online is actually profitability enhancing, and therefore, its growth in the mix of the business lifts the overall margin?

Pablo Isla

Well, what I would say is that, it is a profitability enhancing from different points of view. First of all, because if you recover sales online and in neighboring stores, these additional sales are - let us say this way, a very profitable way, because all these different elements of costs of one particular store don't increase.

So that is another element which is extremely relevant here is inventory management and this - which for us is so relevant. If you remember, we have mentioned several times the example - for example just to talk about the one in Bilbao in Spain that we used to have four small stores, and we concentrated into one very relevant store that in terms of space was slightly above the four other stores combined.

In terms of sales it is above the other four combined. And in terms of inventory management, we are running the operation with significantly less stock than we used to have divided into the four stores. So that is why we are mentioning that there are many advantages.

Regarding online, what I would tell you is what we have always said since the beginning that online is not at all dilutive in terms of profitability.

Operator

The next question comes from Rebecca McClellan of Santander. Rebecca, please go ahead.

Rebecca McClellan

Yes. Good morning, everybody. And just one question please. Of the stores that are destined for absorption over - under the Plan 2022, do you – could you give us the aggregate like-for-like for 2019?

Ignacio Fernández

Rebecca, what we would like to add is what Pablo has mentioned. These stores were good stores with smaller sizes, mainly in the younger concepts and as you can see by the detail we have provided in terms of sales and EBIT, you see they were profitable stores. However, these stores no longer represent what the company wants to do with three key strategies, digitalization, integration and eco efficiency.

This is why as part of a long reaching optimization program that we started in 2012 we decided to anticipate and do that. They were good stores, very nice stores, it is not a question of stripping out the like-for-like performance. But I think what Pablo mentioned is a very, very important and probably one of the most important messages.

These initiative has three different sides in terms of profitability. First, its obviously we believe that the sales of these are stores we can recover. We are going to obtain efficiencies in terms of inventory management, supply chain, product allocation, stock turns. And third, we believe that, as you can see in our plan, we expect lower capital expenditure going forward down to €900 million per year. So it's all these factors that basically with a strategic view to fully integrate the store and online that drive the plan.

Operator

Thank you very much. We are now finished with the telephone Q&A session. Now to address the questions received through the webcast platform.