Tale of Two Giants: H&M and Inditex Sales Reports

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Stockholm and Arteixo, Spain—While H & M and Inditex, rivals in fast fashion retail, both reported today increases in their most recent sales periods, currency fluctuations and the costs of expansion are giving analysts cause for scrutiny on the two retail giants.

As reportedly the two largest apparel fashion retailers on the globe, the two European based companies face similar challenges this year: rapid expansion internationally, increased costs as cotton prices are at more than double the 10-year average and cautious-spending consumers who are worried about inflation and employment. And both, retail analysts note, say they are unwilling to raise prices to pass on rising costs to their consumers, “which is slowly nibbling away at both companies’ margins.”

H&M, “the world’s second-biggest clothing chain,” reported 12% growth from March 1 to May 31.On the other hand, Inditex, owner of the Zara fashion chain, recorded 11% sales growth in the period from February 1 to June 12. That’s in each retailer’s local currencies, however.

Adjusted for currency fluctuations, however, H&M’s sales rose only 2% to 27.6 billion krone (excluding VAT), missing analysts’ average estimates expecting a 5.4% increase on sales of 28.4 billion krone.

H&M blamed gap on the strong krona and the fact that 95% of its operations are outside of its home country and most of its apparel is sourced in U.S. dollars and sold in euros.

H&M explained that this is a mere translation effect, as earnings are brought home to Sweden. Also, 95% of its operations are outside Sweden, with most of its clothes sourced in dollars and most of its apparel sold in euros.

Still, with Sweden’s central bank expected to keep pushing interest rates higher in 2011 and the krona set to keep on climbing, H&M shareholders face the gloomier future.

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However, Inditex, “the world’s biggest clothing retailer,” outperformed expectations in the quarter, delivering a 10% rise in profit as demand increased from its expansion into emerging markets.

Inditex said net sales rose 11% to 2.96 billion euros in its fiscal first quarter, and continued at that rate up to June 12.

Since Inditex  buys a larger proportion of its apparel in Europe and North Africa–where wage increases have been much lower than in Asia–and because of a presence in fast-growing emerging markets, the company appears to be faring better this year.

The company, which also owns retail brands including Massimo Dutti, Pull and Bear, and Bershka, continued its expansion with another 110 stores opening during the period, bringing its total portfolio to 5,154 outlets at the end of the quarter.

The new stores included Zara’s first shop in Australia, with plans for Inditex to open its first outlets in South Africa, Taiwan and Peru before the end of 2011.

Meanwhile, Inditex announced that a number of its fashion retail brands, including Massimo Dutti, Bershka, Stradivarius, Pull and Bear, Oysho and Uterqüe, would begin e-commerce operations on September 6 in selected European markets.

Zara, which already has e-commerce operations in 16 European countries, will begin operating in the United States on September 7, the company also said.