THE WORLD’S top two fashion retailers showed the challenges of luring cash-strapped Europeans yesterday, with Hennes & Mauritz (H&M) missing sales forecasts and Inditex relying on other markets and cost-control for growth.
Inditex, the world number one and owner of the Zara brand, posted a 10 per cent rise in first-quarter net profit as its expansion into fast-growing emerging markets such as China helped to offset sluggish demand in its home market of Spain and the pressure from higher costs like cotton.
Sweden’s H&M, which makes a larger proportion of its revenues in Europe, missed forecasts with a 2 per cent rise in same-store sales in May.
The Organisation for Economic Co-operation and Development warned this week that major economies, with the exception of the US, were losing momentum, with higher prices and austerity measures hitting consumers in Europe.
Clothing chains have been hit particularly hard because they are also facing higher costs of raw materials such as cotton and rising wages in Asian. Inditex has suffered less than HM because it buys a larger proportion of its garments in Europe and north Africa, where wage increases have been much lower than in Asia.
Inditex said its gross profit margin fell 110 basis points to 58.8 per cent, broadly in line with expectations. Analysts expect a bigger fall in gross margin from H&M when it reports second-quarter profit figures on June 22nd, with extra pressure on it from adverse currency moves.
Inditex, with more than 5,150 stores in 78 countries including Ireland, said it made a net profit of €332 million on an 11 per cent rise in sales to €2.96 billion. Sales growth had continued at that rate up to June 12th, which analysts said equated to same-store growth of about 3 per cent.
Indite said it was continuing to expand into faster-growing online and new markets. Zara will launch online in the US in September, while six of the group’s other brands will move on to the internet during the same month.
H&M, with 2,300 stores in about 40 countries including Ireland, said turnover in March-May rose 2 per cent to 27.6 billion Swedish crowns excluding VAT, lagging a forecast of SK28.4 billion. – (Reuters)
PRADA PLAN TAX HURDLE
PRADA’S EFFORTS to woo retail investors to its planned $2.6 billion initial public offering in Hong Kong have met resistance, with some potential buyers put off by the prospect of having to pay Italian capital gains tax and dividend withholding tax.
The IPO is still on track because at least 90 per cent of the shares will be allotted to institutional investors, and the offer is more than four times subscribed, two people familiar with the matter said.
However, Hong Kong’s retail investment community has been wary – a factor that might put pressure on tomorrow’s pricing of the deal and discourage other Italian companies from listing on the Hong Kong exchange until the tax issue is resolved.
Phillip Securities, one of the largest securities companies offering margin financing to investors before they subscribe for shares, yesterday said only HK$18 million (€1.6 million ) in loans were taken up by its customers, out of the HK$10 billion the company had put aside in anticipation of stronger demand.
That contrasts sharply with the appetite for Milan Station, a luxury handbag retail chain, that raised HK$162.9 million last month after its shares were about 2,000 times subscribed. Prada is valued at up to 27 times forecast 2011 net income at the upper range of its HK$36.50-HK$48 indicative range. – (Copyright The Financial Times Limited 2011)
