Inditex Profit Rises on Store Openings

Inditex SA (IDEXF), which displaced Gap Inc. (GPS) as the world's largest clothing retailer in the past year, posted an unexpected increase in third-quarter profit, helped by openings of Zara stores in Japan and China.

Net income rose 4.3 percent to 456 million euros ($671 million) in the three months through October, from 437 million euros in the year-earlier period, according to calculations based on nine-month results published today. The average estimate of seven analysts compiled by Bloomberg was 432 million euros.

Arteixo, Spain-based Inditex has surpassed estimates for two quarters as foreign expansion offsets a slowdown in its home market. The retailer got 32 percent of sales from Spain in the first half, down from 35 percent in the year-earlier period, after adding outlets in countries where it charges more for clothes and has higher profit margins.

"Inditex continues to gain market share from independents in its home market" and "to expand its footprint in profitable Asian markets," wrote Richard Chamberlain, an analyst at BofA Merrill Lynch in London. He rates the stock "underperform."

Inditex rose 64 cents, or 1.6 percent, to 41.91 euros at 9:15 a.m. in Madrid trading. The stock has gained 34 percent this year, beating the 29 percent advance at Hennes & Mauritz AB (HMRZF:US). Gap has gained 56 percent.

The retailer's third-quarter sales rose 3.8 percent to 2.9 billion euros, missing the 2.97 billion-euro average of nine analysts' estimates. Inditex aims for second-half same-store sales to improve from the first half's 2 percent decline, Chief Executive Officer Pablo Isla said on Sept. 16.

Surpassing Gap

Same-store sales probably fell 3 percent in the third quarter and rose 3 percent in the first five weeks of the fourth quarter, Societe Generale analyst Anne Critchlow estimated.

"Current trading looks quite exciting," Critchlow said by e-mail, adding that same-store sales might have grown for the first time in a year.

Sales, excluding currency fluctuations, rose 9 percent between Aug. 1 and Dec. 6 from the year-earlier period.

Inditex in March reported higher annual sales than Gap for the first time, based on the average euro-dollar exchange rate during the companies' fiscal years. The Zara owner added 266 stores in the first nine months, taking the total to 4,530.

Inditex said in March it plans to add 370 to 450 outlets this fiscal year, with 95 percent of the openings outside Spain. That's fewer than the prior year, and marks the first time that has occurred since the company's 2001 initial public offering.

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