Zara owner Inditex and H&M report strong sales growth

MADRID (Reuters) - The world's two top fashion retailers Zara owner INDITEX (ITX.MC) and Hennes & Mauritz reported strong sales growth on Wednesday, benefiting from a recovery in consumer spending in their core markets in Europe.

Inditex, whose brands also include upmarket Massimo Dutti and teen label Stradivarius, said sales rose 11 percent in local currencies between Feb. 1 and June 8, accelerating from the 8 percent it recorded in the year to Jan. 31.

First-quarter sales grew 4.3 percent to 3.75 billion euros ($5.11 billion). Net profit fell 7.3 percent to 406 million euros, the biggest decline in five years due to the strong euro, but beating the average forecast from analysts.

Inditex is benefiting from the start of a recovery in its home market Spain where it still makes about one fifth of sales. Spanish retail sales rose 0.7 percent year-on-year in April, the first increase in three months.

Sweden's H&M said sales rose 19 percent in May, its fastest growth in six months and easily beating analyst forecasts. However, H&M said the figures were helped by calendar effects of about 3-4 percentage points, which would be reversed in June.

H&M shares rose 1.8 percent by 0819 GMT, while Inditex was up 1.6 percent, outperforming the European retail sector <.SXRP> which was up 0.4 percent.

Inditex's gross margin slipped to 58.9 percent in the first quarter from 59.6 percent a year ago, but still beat forecasts due to cost control and stayed well ahead of the 54.9 percent H&M reported for the three months ended Feb. 28.

Inditex said it would launch online sales in South Korea and Mexico in September in addition to the 25 markets where it already has an e-commerce presence, and will start a store in China's Tmall online marketplace in the autumn/winter season.

FOREX HIT SEEN WANING

"Inditex continues to deliver strong operational performance," said Bernstein analyst Jamie Merriman, adding she expected a lower impact from foreign exchange effects in coming quarters.

Over a third of Inditex's sales are made outside Europe and currencies like the Japanese yen, Turkish lira and Russian rouble have lost between 14 and 21 percent against the euro in the last year.

The translation effect was particularly significant for Inditex in markets like Russia where the retailer has more than 386 stores and where it charges higher prices than home market Spain.

Zara saves on the expense of traditional advertising, relying on free media coverage of celebrities wearing its clothes, such as the Spanish queen-to-be Princess Letizia.

The retailer founded by Spain's richest man Amancio Ortega said it would propose a 5-for-1 share split at its annual meeting, a move often taken by companies when their share price is very high. Shareholders will receive five shares for every share they own at the close of business on 25 July. The new shares will begin trading on 28 July.

Inditex shares first hit the 100 euro mark around 18 months ago and have been at or around this level since then, reaching a record high of 121.8 euros at the end of October.

(Additional reporting by Mia Shanley in Stockholm; Editing by Erica Billingham)