(Updates with company comments throughout.)
June 15 (Bloomberg) -- Inditex SA, the world’s largest clothing retailer, reported first-quarter profit growth that beat analysts’ estimates as it opened stores from the Netherlands to Australia and expanded online sales.
Net income in the three months ended April 30 rose to 332 million euros ($479 million) from 301 million euros a year earlier, the Arteixo, Spain-based company said today in a statement. The average estimate of 10 analysts compiled by Bloomberg was 316 million euros.
Inditex, whose dresses are worn by Prince William’s wife Kate Middleton, is adding outlets in emerging countries such as China to compensate for weaker consumer spending in its domestic market. The Spanish retailer reported a 7 percent rise in first- quarter earnings before interest, taxes, depreciation and amortization amid “tight” control of operating expenses. That compares with the 27 percent decline reported by Swedish rival Hennes & Mauritz AB in March after its costs increased.
“It’s fairly self-evident which business model is working best at present,” said Simon Irwin, an analyst at Liberum Capital. He doesn’t plan to change his “buy” rating on Inditex.
Inditex shares rose 12 cents, or 0.2 percent, to 61.87 euros as of 11:28 a.m. in Madrid. H&M, which today reported May sales that missed estimates, fell as much as 3.4 percent and traded 3.1 percent lower at 11:28 a.m. in Stockholm.
Inditex’s gross margin narrowed to 58.8 percent of sales in the quarter, from 59.9 percent a year earlier. The retailer’s “best estimate” for 2011 is that it will retain a minimum of 50 percent of the gross margin gains achieved in 2010, Marcos Lopez, capital markets director, said on a conference call, reiterating comments made in March.
Clothing retailers face higher expenses as cotton prices increase and manufacturing wages rise in Asia. Gap Inc. last month cut its full-year profit forecast by 22 percent as costs to make clothing rose faster than expected.
Inditex’s first-quarter revenue rose 11 percent to 2.96 billion euros, matching the average estimate. Store sales in local currencies gained 11 percent between Feb. 1 and June 12.
Sales growth was “respectable, but not impressive, bearing in mind the strength of April for clothing retailers across Europe and the boost that Inditex should be seeing” after introducing online sales, Anne Critchlow, an analyst at Societe Generale in London, said by e-mail. She calculated that same- store sales growth was 3 percent in the period.
H&M, which sells bikini tops for less than 7 euros, today said sales in stores open at least a year rose 2 percent in May, missing estimates of some analysts including Bank of America Merrill Lynch’s Richard Chamberlain.
Inditex, which has 5,154 stores in 78 countries, said it would introduce Zara in South Africa, Taiwan and Peru in coming months and start online sales of the brand in the U.S. Sept. 7.
In China, the company is likely in coming years to open more than the 120 stores it has planned for this year, Inditex Chief Executive Officer Pablo Isla said on the call.
Inditex’s performance in Spain is “stable” and it doesn’t plan to raise prices, Lopez said on the call.
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