PARIS — Financial data published by European retailers Inditex SA and Hennes & Mauritz AB underlined the volatility fast-fashion players face as they juggle geographical growth opportunities with increased pressure on their margins.
Spain’s Inditex, the owner of the Zara retail chain, said net profits rose 10 percent in its fiscal first quarter as it continued its worldwide expansion with 110 openings in 29 countries for its various brands. The firm also revealed plans to bring online sales for Zara to the United States and Japan by the end of the year.
“We continue to identify significant opportunities for global expansion,” first deputy chairman and chief executive officer Pablo Isla said in a conference call.
Europe’s largest clothing retailer posted net profits of 332 million euros, or $466 million, in the period of Feb. 1 to April 30, exceeding analysts’ expectations. Dollar figures are calculated at average exchange rates for the period in question.
Meanwhile, H&M disappointed with lower-than-expected sales in May and in its fiscal second quarter.
The Swedish high-street retailer said sales excluding value added tax (VAT) rose 2 percent to 27.6 billion Swedish kronor, or $4.4 billion, during the period of March 1 to May 31, noting the sharp appreciation of the Swedish currency weighed on the conversion.
H&M, which will publish second-quarter results on June 22, broke out the quarterly sales figures for the first time Wednesday. It also published monthly sales data for May, usually made public in tandem with the quarterly report.
Same-store sales rose 2 percent in the month following an increase of 11 percent in April. Sales in local currencies were up by 12 percent, also down versus April, when they rose by 21 percent. In May 2010, H&M had reported a 4 percent drop in same-store sales and a 6 percent increase in local currencies.
H&M did not provide a detailed explanation of its sales data, though analysts noted warm weather in April had likely favored early purchases of summer apparel. Like Inditex, the retailer has opted to maintain prices despite a sharp increase in the cost of labor and raw materials including cotton, thereby putting pressure on its margins.
Inditex said its gross margin stood at 58.8 percent during the first quarter, down from 59.9 percent at the same time last year, on sales of 2.96 billion euros, or $4.15 billion, up 11 percent year-on-year. Officials declined to comment on the margin fall for the quarter, but capital markets director Marcos López reiterated that for the fiscal year as a whole, the group expected to lock in 50 percent of the gross margin gains achieved in 2010.
Based in Arteixo in northwest Spain, Inditex said it would launch e-commerce sales for its Pull and Bear, Massimo Dutti, Bershka, Stradivarius, Oysho and Uterqüe brands from Sept. 6 in selected European countries.
Zara’s e-commerce operations, launched last fall, will be extended to the United States on Sept. 7, with Japan to follow at a date still to be determined.
Inditex officials declined to say what percentage of overall sales e-commerce accounted for, merely stating they planned to launch online sales in all 78 countries in which the group operates. “We are quite happy with the evolution of our online operations in the different European markets in which we are present today,” Isla said.
Inditex operated a total of 5,154 stores worldwide as of April 30. Meanwhile, the store count at H&M stood at 2,297 doors on May 31 versus 2,062 stores at the same time last year.
Nicolaj Jeppesen, equity analyst at Sydbank, said that although he had expected a better performance from H&M in May due to its competitive pricing strategy, its top-line sales growth for the quarter was still better than both Inditex and Gap Inc. in local currency terms.
“My expectation is that this increase in market share will put H&M in a favorable position for the rest of the year,” he predicted.
“We expect to see a decrease in the historically high cost pressure, beginning from the fourth quarter. Also, the currency will become less of a headwind for H&M. Both of these effects will show as increased earnings power from the third quarter going forward,” Jeppesen added.
He saw the outlook for Inditex as more risky, despite its strong European and North African manufacturing base, which guarantees very short lead times. “Inditex is highly exposed to Southern European markets and in our view, this can become a very difficult situation for Inditex in the year to come,” he explained.
Inditex officials declined to comment on conditions in Spain, noting merely that performance there has been “very stable.”
The group has been expanding aggressively overseas, with 120 openings planned in China alone this year.
“China for us represents a very, very relevant growth opportunity, not only for this year and for the next five years, but I would say for the next 20 or 25 years, or who knows how many years,” Isla said.
Inditex opened its second Zara store in Australia in Melbourne on Wednesday and plans to unveil its first stores in South Africa, Taiwan and Peru before the end of the year.
Shares in Inditex closed down 1.6 percent at 60.77 euros, or $86.79. Shares in H&M ended down 2.6 percent at 218 Swedish krona, or $34.98.
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