This story first appeared in the June 12, 2014 issue of WWD. Subscribe Today.
PARIS — Europe’s fast-fashion giants Inditex and Hennes & Mauritz continue to clock strong growth as they roll out new stores and expand e-commerce — even as currency fluctuations nibble into profits.
Spain’s Inditex on Wednesday touted an 11 percent gain in local currencies in the three months to April 30 while Sweden’s H&M trumpeted a 19 percent improvement in May, aided by calendar effects and rapid store expansion.
Investors shrugged off a 7.3 percent decline in Inditex’s first-quarter net profits, sending shares in the company up 1.1 percent to close at 111.50 euros, or $154.35, on the Spanish stock exchange.
Net profits amounted to 406 million euros, or $558.7 million, as a strong euro put a crimp in the Spanish retailer’s tallies. The company operates in 88 markets, including ones with weak currencies such as Russia and Japan.
During a conference call, Ignacio Fernández, Inditex’s chief financial officer, told analysts currency headwinds should “diminish markedly” for the balance of the year. Should exchange rates remain at current levels, the company estimates the total impact for the year at minus 3 percent, versus minus 6 percent in the first quarter.
Chief executive officer Pablo Isla also touted “significant growth potential for the coming years” as nameplates such as Zara, Massimo Dutti and Pull & Bear multiply across existing and emerging markets.
Its younger Bershka chain ranked among banners that “underperformed” in the quarter, while innerwear-focused Oysho outpaced other retail concepts, he noted.
Inditex recently opened online stockrooms in Poland and Los Angeles to support its burgeoning e-commerce business, with online sales for Zara rolling out to Mexico and South Korea in September. In addition, Zara is to join Alibaba Group’s Tmall for the fall season, giving Inditex a second sales platform for the brand in China.
“Our online business is very scalable,” Isla stressed, while declining to give figures. “Traffic is growing in a very solid way with smartphones and tablets.”
Inditex continues to open sprawling retail locations for Zara, including a new unit on Lincoln Road in Miami touted by Isla as “one of our highest-profile stores in the U.S.,” and one on Queen’s Road in Hong Kong set to open “in the coming days.”
“We believe the combination of stores and online is the winning formula in this sector,” Fernández said.
Inditex opened 53 stores in 26 different markets in the first three months of the year, and Isla reiterated the company would pursue space growth between 8 and 10 percent this year, in line with its long-term targets. At the end of the quarter, Inditex boasted 6,393 stores.
The company also unveiled a five-for-one stock split as it reported first quarter sales of 3.75 billion euros, or $5.16 billion, a gain of 4.3 percent in reported terms.
It noted sales in local currencies advanced 11 percent between Feb. 1 and June 8, implying a 5 percent gain in like-for-like sales and momentum going into the second quarter, according to a note from Bernstein Research’s Jamie Merriman.
“We believe e-commerce is underappreciated and may cause sales growth to accelerate in the near term relative to our and market’s expectation,” she added. “Given the cost structure, we also believe a mix-shift to e-commerce would help to boost margin.”
Inditex rival H&M, which is to report fuller results on June 18, said sales including value-added tax in the quarter ended May 31 advanced 16 percent in local currencies to 44.18 billion Swedish kronor, or $6.78 billion.
Sales at the high-street behemoth are accelerating in local currencies, having jumped 17 percent in April, 13 percent in March and 11 percent in February.
H&M’s store count stood at 3,285 as of May 31, versus 2,908 a year prior.
Dollar figures are converted from euros and Swedish krona at average exchange rates for the periods to which they refer.