In the fight to reclaim lost sales, H&M behind Inditex, which owns Zara

14th September 2021, Mumbai:

When the world's two biggest fashion conglomerates release quarterly sales numbers on Wednesday, No. 1 Inditex is expected to return to pre-pandemic levels as stores reopen and customers yearn to update their wardrobes, but H&M still has a long way to go.

Although the recent emergence of the Delta strain of the coronavirus has forced the return of certain restrictions, fashion stores have been rebounding from the pandemic's blow in 2020 as economies reopen and restrictions relax.

Analysts believe Inditex's recovery in the quarter was aided by remaining best-in-class in terms of speed and a strong overall recovery in its core market of Spain, as well as better sales in China, where H&M has suffered since it expressed concerns in 2019 about alleged human rights abuses in the Xinjiang region.

"Inditex is expected to have had a higher summer sales performance, thanks to its more premium positioning, fashion offers, and improved success in China. H&M's margin and cashflow development, on the other hand, should be robust "According to RBC analyst Richard Chamberlain.

According to Refinitiv SmartEstimates, analysts expect Inditex's revenues to be 7.02 billion euros ($8.27 billion) in the three months through July, up 48 percent from the same time last year and 2 percent higher than in the same period last year.

In a report, analysts at JP Morgan, who have an "overweight" recommendation on Inditex's stock, predicted "a good quarter." "This should be supported by fewer store closures and a slightly improved backdrop: the Spanish clothing market improved noticeably in June, though it appears to have taken a step back in July; data from elsewhere in Europe shows that France improved significantly; and (a) still the strong U.S.," they said.

As customers went on post-lockdown buying sprees, Inditex's sales in May and early June were twice as high as a year before. The Spanish group's net profit is expected to be 872 million euros, up 307 percent and 7%, respectively.

The easing of travel limitations, the unwinding of remote working, and the reintroduction of social gatherings, according to analysts at Alantra Equities, should all stimulate demand for designer items. There are still obstacles to overcome. Primark, a British low-cost apparel store with no internet presence, reported on Monday that sales in the most recent quarter fell short of management forecasts.

According to Refinitiv SmartEstimates, H&M's sales for the June-August period, its fiscal third quarter, were up 14% year over year but down 9% from 2019. The company's sales data was released on Wednesday, ahead of its full-year results announcement on Sept. 30.

A scarcity of shipping containers and other global supply chain bottlenecks have caused delays and skyrocketing transportation costs across industries throughout the world, but H&M and Inditex look to be safe from empty shelves for the time being.

"Neither will be immune from it," RBC's Chamberlain said, "but currency (a weaker US dollar) should more than balance the impact of increased raw material and transportation costs on margins for the rest of the year, while both businesses are good at ensuring a sufficient supply of inventories."

After expressing concerns over alleged human rights violations in the Xinjiang area in 2019, H&M's sales were impacted in China, where it was removed from Tmall and local phone makers app shops in March.

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