Zara owner Inditex profits beat rival H&M

Revenue at Swedish rival Hennes & Mauritz rises 9% in May

Zara owner shares rose 2.6% in Madrid (Getty)

Inditex SA reported profit that beat expectations as a faster distribution system enabled the owner of the Zara clothing chain to outpace competitor Hennes & Mauritz AB, whose sales missed analysts’ estimates.

Operating profit increased 6 per cent to €705 million ($790 million) in the three months through April, Inditex said Wednesday. Analysts expected earnings of €696 million .

Revenue advanced 15 per cent in the first weeks of the second quarter, excluding currency shifts, besting the 9 per cent uptick posted by H&M in May.

Inditex shares rose 2.6 per cent in Madrid trading, while H&M gained 1.5 per cent in Stockholm.

“Inditex has been materially outperforming the industry,” said Anthony Guglielmo, an analyst at Raymond James. “We are convinced that Inditex is better positioned to capture growth in key segments.”

Inditex, the world’s largest clothing retailer with more than 7,000 stores in 90 countries, has been scaling back brick-and-mortar store openings while pushing further online, revamping older outlets and adding RFID-tracking technology to improve garment logistics.

Higher average spending per customer allows Inditex to offer free delivery and returns in most markets, which isn’t the case for H&M, Guglielmo 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.

‘‘Inditex has been running at an exceptionally high sales-growth rate for precisely one year now,” Critchlow wrote in a report to clients. ‘‘This cannot last forever.”

The 15 percent revenue growth from May 1 through June 13 compares with a first-quarter sales jump of 17 per cent.

On a webcast, Inditex Chief Executive Officer Pablo Isla reiterated the company’s forecast for a stable gross margin this year.

About 65 percent of Inditex’s products have short lead times, compared to about 20 percent for H&M, according to Critchlow. H&M’s sales rose 2 per cent in March and 5 per cent in April. The retailer reports earnings June 22.

“After two very difficult months at H&M, there should have been a better bounce-back in May,” Critchlow said.

“My guess is that they will have had to mark down in the quarter. So that could lead to a weaker gross margin in the second quarter through May.”

© 2016 Bloomberg L.P