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Sep 21, 2011
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Zara owner Inditex profits from new markets

By
Reuters
Published
Sep 21, 2011

MADRID, Sept 21 (Reuters) - Zara owner Inditex , the world's largest clothing retailer, posted a forecast-beating 14 percent rise in its half-year net profit on Wednesday, as aggressive overseas expansion compensated for tough times back at home in Spain.

Inditex, Zara
A Zara store in Melbourne

The retail empire, started by Spain's richest man Amancio Ortega, made 717 million euros ($983 million) in the six months to July 31, ahead of a market forecast of 672 million given in a Reuters poll of analysts. Sales rose 12 percent to 6.2 billion euros.

"A big beat," said SG analyst Anne Critchlow, who calculated second-quarter like-for-like sales -- which strip out the boost to sales from new store openings -- had risen 9 percent, beyond her estimate of 3 percent.

However, analysts thought the underlying like-for-like trend in trading had slowed in the first few weeks of the third quarter because Inditex said store sales in local currencies were up 9 percent between Aug. 1 and Sept. 17.

Like-for-like sales slowed to about 2 percent in the first six weeks from about 8 percent in the second quarter, calculated Peter Farren, analyst at Bryan, Garnier & Co.

But he said that the full-year results would still come in in line with most forecasts for sales growth.

"This was a very strong second quarter and the gross margin resisted very well," said Farren.

The first-half gross margin fell to 58.4 percent from 59.4 percent in the same period a year earlier.

With eight brands across 78 countries, Inditex has reduced its exposure in Spain to 26 percent of total sales, down from 28 percent a year earlier, targeting fast-growing Asia and eastern Europe in particular.

Spain's retail sales fell 3.9 percent in July , for the 13th month in a row, further evidence that shoppers are still tightening their belts in a country with the highest unemployment in Europe at more than 20 percent.

Inditex has performed better than many of its rivals at home and abroad during the recent slowdown. Globally, retailers are seeing margins squeezed by higher raw material costs, rising Asian wages and price wars in mature markets.

Hong Kong-listed fashion retailer Esprit , which makes 79 percent of its sales in Europe, is pulling out of some developed markets including Spain and North America after posting a 98 percent drop in full-year profit earlier this month.

Swedish fashion group Hennes & Mauritz (HMb.ST), which rivals Inditex's flagship Zara for collections that imitate catwalk trends at budget prices, reported flat sales in August, beating gloomy forecasts.

All Inditex brands, including upmarket Massimo Dutti and underwear label Oysho, are now online after new launches this month although not all labels are available in all countries where Inditex operates. ($1=0.729 euros) (Additional reporting by Mark Potter in London; Editing by Greg Mahlich)

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