Andrea Felsted is a Bloomberg Gadfly columnist covering the consumer and retail industries. She previously worked at the Financial Times.

Inditex SA has once again left rivals green with envy.

The much-admired Spanish retail giant on Wednesday reported earnings that beat analyst estimates in the third quarter, and gave an update on sales for the six weeks from Nov. 1. Analysts at Bernstein reckon this implies same-store sales growth of 10.5 percent in the period, which is a spectacular place to be as Inditex heads into the crucial Christmas trading period.

In Pole Position
Inditex's same-store sales surged in the past six weeks, a good sign for the all-important holiday sales
Source: Bloomberg Intelligence, Bernstein
Q4 is Bernstein's estimate from Nov. 1 to Dec. 12

This wasn't reflected in the shares, which fell 2.7 percent. Investors haven't fully given up their concerns on Inditex's gross margins, something that's dogged the company for the past few years.

The latest financial statement shows its gross margin fell to 59.7 percent in the three months to Oct. 31 from from 60.1 percent in a year earlier.

Inditex blames the most recent pressure on margins on adverse currency movements. The company sources about 55 percent to 60 percent of products close to Spain, paying in euros. While that means it's not as exposed to exchange-rate gyrations as rivals such as Hennes & Mauritz AB, which buys about 80 percent of products from Asia and pays in dollars, Inditex can't escape a currency squeeze entirely.

In addition, a higher proportion of franchise and online sales, which are likely to be less profitable, may also be weighing on margins, says Bloomberg Intelligence's Charles Allen.

Turning a Corner
A pickup in Inditex's gross margin needs to last for its stock premium to continue to be deserved
Source: Bloomberg Intelligence

Inditex forecasts that the gross margin will be broadly stable in the second half. And with Wednesday's report showing a pickup in the margin on a quarterly basis, perhaps it's on the verge of leaving the issue behind.

The company trades on a forward price to earnings ratio of 28 times, a premium to H&M's 21 times. The stellar sales support that. But as Gadfly has argued, such a punchy rating means that when it comes to margins, Inditex can't afford a fashion faux pas.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Andrea Felsted in London at

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