Zara can cope with the rising cotton and oil prices better than H&M and Gap can. While Gap has released a profit warning and H&M only achieved a minimal (2%) growth, the Spanish brand saw its owner Inditex grow a huge 11% over the past quarter.
Inditex leads the way in 2011
The main victim of the ever rising raw material prices is American GAP, whose profit warning last week predicted a drop in profits of 22% this year. Swedish H&M’s turnover did grow by 2%, but that was not enough to match the predicted 5.4%.
With 27.6 billion Swedish crowns (3.03 billion euro), H&M’s monthly turnover was 80 million euro shy of what the analysts had estimated. The news from Spain is significantly better: Inditex’s net result for this financial quarter reached 332 million euro (well better than expected), while their turnover soared to 2.96 billion euro (+11%).
Higher costs, higher salaries: lower margins
Inditex too suffered from the rising costs and saw its bruto margin drop from 59.9 to 58.8%, but the situation for the two others is far worse. Especially the rising salaries in China are causing these bad results – while Inditex produces mainly in Europe and Northern Africa, where salaries have grown less than in China.
Another factor is threatening all three chains: the European and American consumer, hit hard by the global crisis and inflation, is spending less – and this reinforces the influence of higher prices for raw materials and energy. Again, the Spanish empire, who have just announced the opening of a Zara web shop for America, is better off: it has a strong presence in markets like Eastern Europe, that are still growing fast.