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UPDATE 2-Zara owner's profit leaps clear of Spanish crisis
June 13, 2012 / 6:31 AM / 5 years ago

UPDATE 2-Zara owner's profit leaps clear of Spanish crisis

* Q1 net 432 million euros vs f‘cast 383.4 million

* Sales 3.4 bln euros vs f‘cast 3.3 bln

* New markets fuels growth

* Takes market share in Europe (Adds detail, analysts, share reaction)

By Sarah Morris

MADRID, June 13 (Reuters) - Spain’s Inditex SA, the world’s largest clothes retailer, bucked Europe’s financial crisis with a sharp rise in quarterly earnings by pleasing fashion-hungry shoppers in Asia and cash-strapped consumers on its home continent.

The owner of Zara stores and seven other brands including upmarket Massimo Dutti beat forecasts on Wednesday with a 30 percent rise in first-quarter net profit to 432 million euros ($538 million) and sales of 3.4 billion. A Reuters poll had forecast net profit of 383.4 million euros and sales of 3.3 billion.

“When you think of what is going on with the euro crisis, it’s amazing,” said Societe Generale analyst Anne Critchlow. “It highlights the lack of Inditex’s reliance on southern Europe.”

At 0937 GMT Inditex shares were up 8.02 percent at 73 euros, making it the most valuable company on the Spanish stock exchange, overtaking established heavyweights Telefonica and Banco Santander.

Inditex, which runs more than 5,600 stores across 84 markets, still makes about a quarter of sales in its home country and three-quarters in Europe, but Societe Generale estimates this year it will reduce its sales in Spain to about 22 percent, increasing those from emerging markets such as China to 45 percent.

Inditex opened 91 new stores between February and April, with a new store every three days in China, where it will launch its flagship Zara label online in September.

Back in Europe, there are signs Spain’s largest listed retailer is taking market share from more expensive rivals through its fast production model, which allows it to get new designs into stores within two weeks if necessary.

Inditex’s fortunes are in stark contrast to those of rival Esprit Holdings, which makes about 80 percent of its sales in Europe. Esprit is in the middle of a restructuring plan to revive a brand it said last year had “lost its soul”, a task made harder on Wednesday when its chief executive resigned.

Like-for-like sales at Swedish competitor Hennes & Mauritz are expected to have fallen 1 percent in May, according to a Reuters poll, after the firm posted its worst figures for more than two years in April.


Some analysts estimated Inditex’s like-for-like sales, which strip out new stores, rose 5-6 percent in the quarter, and the trend continued into the first six weeks of the second quarter since the company said sales in constant currency climbed 14 percent from Feb. 1 to June 10.

Spending in austerity-wracked Europe is being curbed by high employment, salary cuts and VAT hikes. Spanish retail sales fell 9.8 percent in April, the 22nd month in a row of falls and a record since data was kept in 2003.

Consumer confidence is being further hit by continuing uncertainty in the euro zone pending Greek elections that could lead to its leaving the currency union and doubts about whether a bailout of up to 100 billion euros to Spain’s banks will be enough.

On a conference call, Inditex Chairman and Chief Executive Pablo Isla declined to give further details of individual market performance but expressed his confidence in reforms undertaken in Spain to control public finances, especially in the regions.

The firm has started a 70,000 square-metre extension to its Galician headquarters in northern Spain, costing 100 million euros and creating 400 new jobs.

“I would say that I have full confidence in the future of the Spanish economy, and I firmly believe that the effect of the reforms being adopted will start to become evident in the coming quarters,” Isla said.

While the blue-chip Ibex-35 index has shed about a quarter of its value this year as investors take a wary view of Spain, Inditex shares have risen by 6.6 percent. ($1 = 0.8028 euros) (Editing by Will Waterman)

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