Inditex Outpaces Major Rivals -- Update

By David Román

MADRID--Industria de Diseño Textil SA, the retailer behind the Zara fast-fashion chain, reported soaring sales and higher profit margins during the summer, outpacing major rivals who struggled to grow.

Inditex, as the company is commonly known, said Wednesday that net profit for its fiscal second-quarter, ending July 31, rose 24% to EUR645 million ($727 million), while sales advanced 16% to EUR5.05 billion. Analysts polled by FactSet had expected net profit of EUR637 million and sales of EUR5.02 billion.

Inditex added that sales in local currencies are also increasing fast, with 16% annual growth in the period between Aug. 1 and Sept. 10. And Chairman Pablo Isla told analysts that Inditex doesn't require significant price discounts to keep up the pace. The company will release full third-quarter data in December.

"We just had a strong start of the season in all the different geographies and all the different brands," Mr. Isla said. "Our collections have been quite well received by customers."

The numbers point to a weaker euro underpinning Inditex's continued market dominance, and its Zara brand, which accounts for 65% of company sales.

On Tuesday, Swedish rival Hennes & Mauritz said sales grew a mere 1% on the year in August, well below a 5.4% consensus growth forecast. And last month, Los Angeles-based Guess Inc.--now run by a former Inditex executive--gave a muted earnings guidance for the current quarter and reported a 10% drop in sales for the quarter ended Aug. 1.

Anne Critchlow, an analyst with Société Générale, said H&M may have been hurt by its higher reliance on Northern European markets, where the weather was unhelpful in August. Still, Ms. Critchlow estimates that H&M's like-for-like sales, a metric that doesn't include new stores, fell 8% annually in the month.

That compares with an estimated 11% like-for-like growth for Inditex for the same month, and 9% growth for the entire first half of the company's fiscal year. Inditex opened stores in 35 markets during the period, bringing its count across 88 markets to 6,777.

"There is a huge difference in the implied like-for-like numbers between the two companies," Ms. Critchlow said.

Inditex shares rose strongly on the news, with Madrid traders citing the Aug.-Sept. sales data as a reason for optimism ahead of the second half of the year in which the positive effect of the weak euro should be less pronounced.

By midmorning, shares were up 3%, giving Inditex a market value of almost EUR92 billion, the largest of any Spanish company and well ahead of Banco Santander SA at number two, with EUR72 billion. Inditex's market capitalization is just over 10 times the value at its initial public offering in 2001.

Write to David Román at david.roman@wsj.com

(END) Dow Jones Newswires

September 16, 2015 05:56 ET (09:56 GMT)

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