RPT-UPDATE 2-Zara owner Inditex marches on in China

Wed Dec 12, 2012 8:55am EST

* Plans to keep up rate of expansion in China

* Nine-month net profit up 27 pct, broadly in line

* Reduces exposure to crisis-hit Spain, Europe

By Sarah Morris and Sarah White

MADRID, Dec 12 (Reuters) - Zara owner Inditex plans to keep up the pace of expansion in China and strengthen its global online business as the Spanish home market becomes ever less important for the world's largest clothing retailer.

The brainchild of Spain's richest man, Amancio Ortega, Inditex has more than 6,000 stores across some 86 countries and has been opening them at a pace of about five per month in China since 2006 to serve the rapidly growing middle class.

"We see that continuing for a few years," Capital Markets Director Marcos Lopez told Reuters in a telephone interview on Wednesday after Inditex posted a 27 percent rise in nine-month net profit to the end of October.

Inditex still makes 20 percent of its sales in Spain, but customers are being squeezed by the second recession in three years with one in four workers jobless. Inditex said it would not put up prices in response to the rise in value added tax from September, potentially affecting profitability.

Meanwhile, Inditex has already opened 72 stores in China in the nine-month period, bringing its total there at the end of October to 347 and helping to lift net profit to 1.65 billion euros.

"The combination of accelerated store openings in the higher-growth Asian and emerging markets and the rollout of the group's online capability should continue to deliver GDP-plus Inditex like-for-like sales growth," said Citi in a note.

China's upper middle class, with average household earnings of $40,000 a year, could grow by 2020 to 280 million people - nearly six times Spain's current population, according to Boston Consulting Group.

Inditex opened 360 stores globally in the nine-month period, increasing sales by 17 percent to 11.4 billion euros.

Inditex only ventured online in 2010. It launched its flagship Zara brand online in China in September and said on Wednesday it would start internet sales in Canada in the first half of 2013.

Without the debt of many Spanish companies, Inditex has fared better than many rivals in the downturn and analysts widely believe it has taken market share locally from more expensive brands and independent stores forced to shut.

Lopez said Spanish market share was as high as 12 percent for its eight brands, ranging from flagship Zara to teen brand Bershka. A production model that can turn designs from sketchbook to store within a fortnight has given it another edge.

Core profit - or earnings before taxes, interest, depreciation and amortisation (EBITDA) - rose 25 percent to 2.78 billion euros.

Inditex trades at 23 times forecast 2012 earnings compared with rivals H&M at 19 times and GAP at 12.

H&M's sales for November are expected to shrink again after a surprise drop in October, a Reuters poll showed.

Inditex shares, which have risen 65 percent in 12 months, were up 0.2 percent at 1349 GMT to 103.8 euros.

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