Sun Shines on ASOS as Inditex and H&M Feel the Chill

Source: Reuters

STOCKHOLM, Sweden — Cold weather in recession-weary Europe left spring collections on the racks of the world’s biggest clothing retailers, Inditex and H&M, while small British rival ASOS beat the seasons with soaring demand for its cost-conscious online offering.

Spain’s Inditex, which owns the Zara chain, posted its weakest quarterly growth in net profit in four years, and an unusually cold spring and early summer did little for sales of sleeveless minidresses and denim skater skirts going into the second quarter. Its shares slipped 1 percent. The group, whose brands include teen label Bershka and upmarket player Massimo Dutti, posted a 2 percent rise in first-quarter net profit on sales up 5.2 percent. Societe Generale analyst Anne Critchlow said this was equivalent to flat like-for-like sales, stripping out new stores.

Global leader Inditex has outpaced rivals in recent years, but investors were poised for signs that sales growth is slowing after aggressive expansion into markets like China and Russia to sharply reduce exposure to its struggling home market Spain, where unemployment, especially among the young, has hit retailers.

“The question for the incremental buyer is whether Inditex can enjoy another year of good execution on top of the exceptional 2012, and we don’t see current trading as much comfort,” said Christodoulos Chaviaras at Barclays Capital.

With 80 percent of sales from Europe, Sweden’s H&M, due to publish full quarterly results on June 19, has been hit harder by the region’s economic downturn than Inditex.The group posted unchanged May same-store and fiscal second quarter net sales on Wednesday, just missing analysts’ expectations. H&M has seen margins fall due to currency swings and long-term investments. Shares in H&M were down 0.5 percent.

ASOS stock, however, leapt 3.5 percent after it posted a 45 percent rise in its third-quarter sales, with robust growth in Britain, tapping into demand from value-seeking 20-somethings for both branded and own-label products. The online retailer is expanding into Russia and China and recently signed a deal with budget fashion chain Primark to sell its cheap womenswear on its website.

“Its partnership with Primark comes as a testament to ASOS’s unfailing ability to surprise and also reflects its considered response to the prevailingly budget-driven nature of consumer culture in Britain,” said Anusha Couttigane, analyst at retail consultant Conlumino.

According to StarMine data, Inditex shares trade at a multiple of just over 22 times forward price to earnings, compared with about 20 for H&M and 14.6 for U.S. rival Gap <GPS.N>. A hefty multiple of 67 for ASOS suggests there is plenty more growth to come.

Additional reporting by Neil Maidment in London and Tomas Cobos in Madrid; Writing by Sonya Dowsett; Editing by Will Waterman; Copyright (2013) Thomson Reuters. Click for restrictions