March 17, 2010 / 6:50 AM / 10 years ago

UPDATE 4-Zara-owner Inditex sees strong sales start to year

* Sales up 14 pct in current year starting Feb 1

* Year net profit 1.314 bln euros, beats forecasts

* Awards special dividend of 0.10 euros per share

* Share price up 3.5 pct (Adds closing share price)

By Sonya Dowsett

MADRID, March 17 (Reuters) - Zara owner Inditex (ITX.MC), Europe’s biggest clothing retailer, reported strong sales growth in the last few weeks, pushing its share price higher as its fast-to-market business model allowed it to respond quickly to an uptick in demand. The company announced a 5 percent rise in its net profit for last year, beating analysts’ forecasts, and said sales at constant exchange rates are up 14 percent since the start of the company’s new financial year on Feb. 1.

“The big thing about these results is that suddenly you’ve got like-for-like sales popping back into positive territory,” said Anne Critchlow, analyst at Societe Generale.

Inditex shares closed up 3.47 percent on the Madrid bourse, outperforming a 0.97-percent gain by the benchmark 35-share Ibex .IBEX index. Inditex trades at 23.86 times estimated 2010 earnings, which compares with arch rival, Sweden's H&M (HMb.ST), which trades at 23.41 times 2010 earnings, according to Reuters data.

Critchlow reckoned Inditex had like-for-like sales growth of 6 percent in the fourth quarter of last year and up to 5 percent growth in the first six weeks of the new financial year, improving on a 3 percent drop in the third quarter.

SPECIAL DIVIDEND

Inditex does not break out like-for-like sales. The company, whose other brands include youth label Bershka and homewares store Zara Home, is opening more than a store a day with more than 40 percent of new store space in 2010 slated for Asia.

Retailers worldwide are seeing improved demand after a grim economic slowdown.

H&M (HMb.ST) posted forecast-beating fourth-quarter results earlier this year as a pick-up in retail spending helped to reverse a trend of declining sales, and got 2010 off to a good start. [ID:nLDE6290TM]

Germany’s Metro MEOG.DE, the world’s third-biggest retailer, lifted its mid-term earnings target on Wednesday and said it expected results to improve this year on the back of further expansion in Eastern Europe and Asia. [ID:nLDE62G0I2]

Inditex’s fast-fashion business model that speeds catwalk designs to its stores worldwide allowed it to respond quickly to recovering demand, Critchlow said.

Although a third of Inditex’s sales come from Spain, one of the few major economies still in recession, analysts believe it is gaining market share on its home ground as smaller, independent retailers go bust.

Inditex said it would pay a special dividend of 0.10 euros per share on Nov. 2 this year, less than some analysts had expected.

“The cash position was fantastic at the year end and that will probably raise a few questions as to why the dividend wasn’t increased by more,” said Fraser Ramzan at Nomura.

Nomura had expected an end-year cash position of around 1.6 billion euros against the 2.4 billion euros booked, he said. (Reporting by Sonya Dowsett; Editing by Rupert Winchester, Greg Mahlich)

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