December 11, 2014 / 6:32 AM / 5 years ago

Zara owner Inditex says winter sales brisk after warm autumn

MADRID (Reuters) - Zara-owner Inditex (ITX.MC) posted a 14 percent rise in sales for November and early December as its fast-changing fashion collections helped it cope better with mild weather than many European rivals.

A man walks past a Zara retail store, with its shutters drawn, at a mall in Caracas September 30, 2014. REUTERS/Carlos Garcia Rawlins

The strong sales performance, coming after a better-than-expected rise in revenues during the nine months to the end of October, boosted Inditex shares more than 3 percent despite a small decline in margins during the period.

Fashion sales in Europe were hit by an unusually warm autumn, hurting demand for more profitable items such as winter coats and boots.

The Spanish group is nimbler than rivals as it orders more small collections with lead times of a few weeks from suppliers close to home, rather than the millions of garments that many retailers source from Asia six months in advance.

“The strong and positive third-quarter like-for-like sales ... reflects the strength of the business model and the speed with which Inditex can respond to adverse conditions like mild weather,” said Bernstein analyst Jamie Merriman.

Inditex sales for the nine-month period ending October rose 10.5 percent to 12.7 billion euros ($16 billion) while net profit was flat at 1.69 billion euros. Stripping out the negative impact of currency moves, sales rose 7 percent.

By 5:03 EST, Inditex shares were up 3.6 percent to 23.2 euros, outperforming a 0.8 percent rise in the European retail index .SXRP. Its shares trade at 26 times forecast 2015 earnings compared to 23 times for Swedish rival H&M (HMb.ST).

Inditex, founded and controlled by Spain’s wealthiest man Amancio Ortega, is implementing a microprocessor-based tagging system on its garments to improve its ability to respond to shifts in demand for popular clothes.

It said the technology should be fully operational in 1,000 Zara stores by the end of 2014 and in all Zara stores by 2016.

Gross margin, a closely-watched measure of profitability, fell to 58.9 percent from 59.9 percent a year ago, with 40 basis points of that decline due to a change in accounting criteria, the company said.

Barclays analyst Chris Chaviaras, who has a “negative” rating on Inditex, said the slippage reinforced his view margins would stay under pressure due to potential wage inflation in southern Europe and more pressure on prices in emerging markets.

Inditex has suffered due to weak currencies in markets such as Russia and Japan in recent years, but that trend is turning as the euro falls, in turn hurting H&M which makes a bigger portion of its sales in Europe and reports in Swedish crowns.

H&M is due to report sales for November next week. It suffered from the mild weather in September but sales growth accelerated in October. [ID:nFWN0T40BV]

“We see a more positive outlook for Inditex than for H&M in 2015,” said Societe Generale analyst Anne Critchlow.

Additional reporting by Emma Thomasson in Berlin; editing by David Clarke

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