Jun 15, 2011
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Inditex Q1 profit seen up 9 pct, margins squeezed

Jun 15, 2011

June 15 - Zara owner Inditex, the world's largest clothing retailer, is expected to post a 9 percent rise in first-quarter net profit on Wednesday as growth in emerging markets compensates for a slowdown in Europe.

Spanish Inditex Group's Chief Executive Officer, Pablo Isla (Photo: Corbis)

Investors will watch for evidence of margins being squeezed by tough previous year comparisons and high cotton prices, although Inditex is seen as having coped better than competitors by passing on increased costs to customers.

"Top line growth could be eroded by increased product costs," said Anne Critchlow, analyst at Societe Generale.

Inditex, the brainchild of Spain's richest man Amancio Ortega who is still the main shareholder, has reduced the proportion of sales in its crisis-hit domestic market through expansion into new markets like Asia and eastern Europe.

Swedish rival and No.2 global clothing retailer H&M is due on Wednesday to disclose like-for-likes sales data for May and will also post quarterly sales.

Inditex, which runs a stable of brands from up-market label Massimo Dutti to underwear store Oysho, is seen as having suffered less than competitors from rising wages in China due to more of its apparel being made close to home.

The speed with which Zara can get cut-price versions of catwalk trends into stores has made it a favourite with fashionistas.

In April, Britain's Kate Middleton was snapped in a 49.95 pounds ($82) blue polyster Zara dress the day after her wedding to Prince William.

Inditex says all its brands will be online by the end of the year and web sales will grow, rather than cannibalise, revenues.

"We remain very optimistic about Inditex's e-commerce prospects where we believe that its favourable position, execution and logistics platform should lead to a boost to like-for-like sales of 1.8 percent this year and 3 percent next," said Liberum Capital in a note to clients.

Inditex is tipped to post first quarter profit of 327 million euros and an 11 percent sales hike to 2.96 billion, according to a Reuters poll.

By Sarah Morris
(Editing by David Cowell)

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