Zara owner Inditex continues to outperform its rivals
ZARA owner Inditex reported better-than-expected first-half sales and profit yesterday as the world’s biggest clothing retailer outperformed rivals thanks to quick production times that allow it to react to changing weather and fashions.
Inditex has reported consistently better figures than its next biggest rival H&M in recent years, helped by its ability to get the latest trends to stores in a matter of days from factories in Europe and north Africa rather than Asia.
Floral dresses, jumpsuits and over-sized sweaters helped push sales up 16 percent in local currencies in the six months to July 31. Net profit was up 8 percent at €1.26 billion (R19.61bn), above an analysts’ poll which forecast a 7 percent rise.
Mirabaud analyst Gonzalo Sanz Martin, who rates the stock “sell”, said Inditex’s lead over its rivals was priced in to shares that traded on 31 percent forward earnings compared with a historical average of 24.6 times and 19 times for H&M.
“We harbour no doubts as to the group’s quality or visibility, as well as its ability to generate recurrent cash flow or its cash position at this time. The problem is that all of this comes at too high a price,” he said.
Inditex shares, which have opened up a big premium to other major fashion retailers, dipped 0.9 percent, reacting to news of a slowdown in sales in the August 1 to September 18 period.
In the first weeks of its
Rise in sales in local currencies in the six months to July 31
second half to September 18, sales growth slowed slightly to 13 percent, but was still ahead of most analysts expectations after H&M blamed a hot second half of August for missed forecasts last week.
The figure implies growth of at least 7 percent once the effect of new store openings is stripped out, according to Société Générale analyst Anne Critchlow, well ahead of an implied fall of 2 percent for H&M in August. H&M reports third quarter results on September 30.
Long-lead times
“There are very few short-lead time retailers. Inditex is one of them. That makes it stand out from commoditised value fashion retailers like H&M, which are all about price and longlead times,” Critchlow said.
Inditex, whose other brands include younger fashion chain Pull&Bear and upmarket label Massimo Dutti, is known for its fast turnover by keeping its manufacturing bases close to its distribution centre in northern Spain. This allows its brands to react to trends immediately, reducing in-store markdowns and boosting profitability.
Société Générale estimates that Inditex sources 65 percent of its products from Spain, Portugal, Turkey and north Africa, whereas most other retailers source about 80 percent of their products from Asia.
About 40 percent of Inditex’s sales come from outside Europe, denting sales as emerging market currencies have fallen of late. It has also been hurt by the strong dollar. – Reuters