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Inditex Profit Beats Estimates, Outpacing Main Fashion Rival H&M

Operating profit increased 6 percent to €705 million ($790 million) in the three months through April, Inditex said.
Zara store | Source: Shutterstock
By
  • Bloomberg

ARTEIXO, Spain — Inditex SA, owner of the Zara clothing chain, reported profit that beat expectations as its fast-paced distribution model allowed it to outrun competitor Hennes & Mauritz AB, whose sales missed analysts' estimates.

Operating profit increased 6 percent to €705 million ($790 million) in the three months through April, Inditex said Wednesday. Analysts expected 696 million euros. Revenue advanced 15 percent in the first weeks of the second quarter, excluding currency shifts, besting the 9 percent uptick seen by H&M in May. Inditex shares rose 3.3 percent in early Madrid trading, while H&M gained 1.4 percent in Stockholm.

"In a market environment where most retailers are bemoaning the weather, Inditex’s results demonstrate the strength of the business model,” wrote Jamie Merriman, an analyst at Sanford C. Bernstein. Unfavourable weather has crimped H&M’s sales so far this year.

Inditex, the world’s largest clothing retailer with more than 7,000 stores in 90 countries, has been scaling back bricks-and-mortar store openings while pushing further online. The web helps drive sales in shops as online purchasers often go to stores for product returns and end up buying extra items, chief executive officer Pablo Isla has said. E-commerce could represent 6 percent of Inditex’s sales this year, double the proportion of three years ago, estimates Anne Critchlow, an analyst at Societe Generale.

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"Inditex has been running at an exceptionally high sales-growth rate for precisely one year now,” said Critchlow, who estimates a like-for-like sales increase of 10 or 11 percent in the quarter. "We argue that this cannot last forever.” Sales decelerated from growth of 17 percent in the prior period.

The company, founded by Amancio Ortega, the world’s second-richest man, aims to have all its brands online in every European market and Turkey by the end of the year.

With headquarters and most of its manufacturing and logistics based in Spain, the maker of Massimo Dutti also faces the impact of wage inflation in its home country, according to a report by Barclays Plc. Spanish wages have been increasing for two years and are rising 5 percent now, which can significantly affect margins over the next three years, according to the bank.

By Rodrigo Orihuela and Thomas Mulier; editors: Matthew Boyle, Thomas Mulier and Paul Jarvis.

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