Inditex closes in on top spot

    Inditex closes in on top spot

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    , owner of the Zara fashion chain, is on the brink of overtaking Sweden’s Hennes & Mauritz to become the world’s most valuable listed fashion retailer, highlighting the companies’ divergent performance over recent months.

    The Spanish retailer’s market capitalisation briefly surpassed H&M’s on Tuesday before closing a fraction below its rival’s, with both valued at about €38.8bn ($56bn).

    The landmark came as investors braced for second-quarter results from H&M on Wednesday, which are expected to underline the companies’ contrasting fortunes.

    Analysts are expecting H&M to report an average 16 per cent drop in net profits, which would mark the third consecutive quarter of year-on-year earnings decline.

    Inditex, by contrast, last week announced a 10 per cent increase in first-quarter profits, highlighting its faster growth in emerging markets and greater resilience to rising input costs.

    Shares in Inditex have gained almost 6 per cent over the past six months, while H&M’s have fallen by a similar amount.

    Galicia-based Inditex has in less than 40 years grown from a bathrobe factory in La Coruña to become the world’s biggest fashion retailer by revenues, with more than 5,000 stores around the globe.

    Analysts have interpreted Inditex’s ability to shrug off soaring prices and rising Asian labour costs as a consequence of a production model where almost half the company’s clothes are produced in Spain, Portugal and Morocco.

    H&M, in contrast, sources most of its clothes from Asia and relies more heavily on cotton.

    H&M could receive a boost this autumn from a one-off range of clothes designed by Versace, the Italian fashion house.

    The deal, announced on Tuesday, is the latest in a series of high-profile collaborations between the chain and haute couture labels.

    Anne Critchlow, analyst at Société Générale, said H&M’s troubles highlighted weakness at the more price-conscious end of the fashion market, compared with Zara’s higher-end offering.

    However, she stressed that unfavourable currency movements had been one of the main factors in H&M’s poor financial performance.

    Source : Financial Times