Fast fashion and internet drive Inditex past forecasts

MADRID Wed Sep 19, 2012 9:52am EDT

1 of 2. A customer grabs her purchase at a Zara store in Madrid September 19, 2012. The world's largest clothing retailer, Zara owner Inditex, posted a 32 percent jump in first-half year profit on Wednesday, beating expectations, boosted by rapid expansion to fast-growing emerging markets.

Credit: Reuters/Susana Vera

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MADRID (Reuters) - Fast-changing fashion ranges and a drive to win new customers online and in emerging markets helped Spain's Inditex, the world's biggest clothing retailer and owner of the Zara brand, to beat first-half profit forecasts on Wednesday.

Inditex, which runs eight brands including upmarket Massimo Dutti, youth label Bershka and underwear store Oysho, said net profit rose by a third as market share gains largely offset lower spending in its recession-hit home market.

Retailers across Europe are mostly struggling as shoppers' disposable incomes are squeezed by rising prices, muted wage growth and austerity measures.

But those tapping into growth areas like online shopping, emerging markets and "fast fashion" - where affordable versions of new styles can be brought from the catwalk into stores in as little as a fortnight - are still able to thrive.

British online fashion retailer ASOS also posted a surge in quarterly sales on Wednesday.

"The drivers are certainly there - the rapid rollout of online sales and fast fashion - but even so it's a spectacular performance," said Societe Generale analyst Anne Critchlow of Inditex's results.

At 1025 GMT, Inditex shares were up 1.9 percent at 93.84 euros. The stock has risen 45 percent this year, far outperforming the European retail sector which is up 6.6 percent and the Spanish blue-chip index, down 4.9 percent.

Inditex, whose founder Amancio Ortega is now Spain's richest person and the world's fifth-wealthiest according to the Forbes list of billionaires, was one of the pioneers of fast fashion.

The model is now widely copied and things are still speeding up. On Tuesday British fashion chain Topshop streamed fashion models live from the catwalk via social media, allowing shoppers to make immediate purchases.

Zara's Spanish website features 92 products that are new this week, including a black lace dress with long sleeves for 49.95 euros, a black fur coat for 399 euros and a box-shaped red and black clutch bag for 49.95 euros.

ONLINE AND EMERGING MARKETS

Inditex said it made a first-half net profit of 944 million euros ($1.2 billion), beating a forecast of 905 million in a Reuters poll of banks and brokerages.

Sales at stores open over a year were up 7 percent from the start of the third quarter through to September 17, it added.

Hennes & Mauritz, the world's second largest fashion retailer, said earlier this week unusually warm weather in Europe dented demand for autumn clothes and led to an unexpected drop in sales in August.

With more than 5,600 stores across 85 countries, Inditex plans to open between 480 and 520 new retail outlets this year, many of them in the world's second-largest economy China, where it launched a website at the start of this month.

Despite its global reach Inditex's market penetration remains at low levels in most countries outside Spain and Portugal, with initial openings focused in key cities.

That has reduced the risk that its entry into online sales would simply drag existing customers out of its stores.

"Online is allowing Inditex to access customers that wouldn't be near one of its concept stores," said Critchlow.

Inditex has given no guidance on its online performance, but internet sales could be boosting growth to the tune of at least 2 percentage points, Societe Generale calculates.

REDUCING RELIANCE ON SPAIN

Inditex continues to have a loyal following in its home country, dominating many Spanish shopping streets with its different offerings, which include Lefties - where shoppers can buy last-season Zara clothes - and the pricier Uterque, which specializes in luxury accessories.

Nevertheless, Inditex has reduced its reliance on its home market to 22 percent of sales from 26 percent a year ago, opening 166 new stores in 39 markets during the first half.

The latest Spanish retail sales figures for July showed a 7.3 percent year-on-year fall, the 25th consecutive drop, and shoppers there were dealt a further blow at the beginning of this month when the government hiked value-added tax.

Inditex told analysts during a conference call it had a 12 percent market share in Spain, with half belonging to flagship chain Zara. The company has never given details of its market share but analysts think it must be taking business from rivals like department store group El Corte Ingles, helping to compensate for falling consumption.

Analysts calculated Inditex's sales in Spain were probably down in the first half by about 1 percent.

Since Spain entered its first recession in 2008, a large number of independent stores have closed as Spanish banks withhold financing.

($1 = 0.7660 euros)

(additional reporting by Rodrigo de Miguel and Robert Hetz; Editing by Mark Potter)

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