Jun 10, 2015
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Weak euro helps Zara-owner Inditex beat forecasts

Jun 10, 2015

Spain's Inditex, the owner of Zara fashion stores, reported a better than expected rise in quarterly profit on Wednesday, helped by a recovering European economy and the weak euro.

Inditex makes more of its garments in the euro zone than competitors like Sweden's Hennes & Mauritz, which largely sources from Asia in U.S. dollar-denominated contracts, meaning it has benefited of late as the euro has tumbled against the greenback.

Inditex's model of sourcing closer to its major markets in Europe allowed it to respond quickly to warmer than usual weather in Spain and cooler conditions in other European countries.

Net profit rose 28 percent to 521 million euros ($588 million) in the period from Feb. 1 to April 30 on sales up a currency neutral 13 percent to 4.37 billion euros, outpacing forecasts in a Reuters poll.

Gross margin rose to 59.4 percent from 58.9 percent a year ago. H&M reported a gross margin of 55.2 percent for the three months to Feb. 28, when profits are usually dented by the discounting of winter stock.

"Results reflect a very strong operating performance with positive like-for-like sales growth in all geographies," said Marcos Lopez, Inditex's capital markets director.

The world's largest clothing retailer, which runs brands such as teen chain Bershka and up-market chain Massimo Dutti, said sales had picked up further in May and June, rising 13.5 percent from Feb. 1 to June 7 in local currencies.

H&M reported a 10 percent rise in sales in April and is expected to post an 8 percent increase for May when it reports second quarter sales on June 15.
Inditex shares, which are already up 26 percent so far this year, were down 0.3 percent, in line with the European retail sector.

"Underlying trading remains very strong at Inditex," said Societe Generale analyst Anne Critchlow, who rates the stock a "buy".

She estimated that like-for-like sales, data which the company does not provide, rose 6.5 percent in the first six weeks of the second quarter, compared with an estimated rise of 5.3 percent in the first quarter.

In contrast, fashion group Gerry Weber issued a profit warning on Tuesday, blaming a shrinking German market and unseasonable weather, and saying it wants to overhaul its sourcing to make it more responsive to trends.

Inditex said Zara would launch online shopping services in Taiwan, Hong Kong and Macau in 2015, in line with its targets for this year.

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