By Geoffrey Smith
Investing.com -- Fashion is back in fashion.
Europe’s two largest fast-fashion names, Zara owner Inditex (MC:ITX) and H & M Hennes & Mauritz (ST:HMb), have both returned to profitability after a chaotic six months that has seen two successive seasons of new catalogues disrupted by Covid-19 and its associated lockdowns.
After rising some 15% over the last 30 hours, both stocks are now trading at their highest levels since early June.
As with so many other sectors, Covid-19 sharpened the need for both Inditex and H&M to improve their online distribution, given the closure of their physical stores. Both have, eventually, risen to the challenge, with Inditex’s online sales rising 74% in the six months through July. H&M didn’t break out its online sales numbers in preliminary numbers for the three months through August, but they rose at a 40% clip in the first half, from a higher base.
The pandemic has also been a severe test of the two companies’ ability to manage inventory. Zara attributed its online performance to the success of its ‘single inventory platform’ and noted that unsold stock levels had actually fallen 19% from a year earlier. “The closing inventory is considered to be of high quality,” it added.
H&M’s inventories won’t be known until it releases its full results in another couple of weeks, but it had warned at the six-month mark in June that it expected inventory levels to rise again. However, it seems that the company managed to outdo its own expectations handily, with a pretax profit of some 2 billion Swedish kronor and a reference to “higher-than-expected full-price sales” in the quarter.
Both companies boasted of their stringent cost control, a phrase that tallies with reports of drastic and sudden stops of orders to suppliers in emerging markets earlier in the year. In addition, H&M in particular has been able to use the pandemic as a way of accelerating an overdue program of store closures after an ill-judged expansion over recent years.
Inditex chairman Pablo Isla told an analyst call on Wednesday that he’s confident Inditex has turned a corner. His optimism – and H&M’s numbers – have pepped up other fashion stocks in sympathy: Next (LON:NXT), ASOS (LON:ASOS), boohoo.com (LON:BOOH) and Zalando (DE:ZALG) are all up by more than 5% over the last two days.
The more interesting question is: if apparel retailing, a central pillar of discretionary consumer spending and a bellwether of ‘animal spirits’ in the economy, is back on the up, will there be a broader read-across for consumer-focused stocks in Europe? The Stoxx 600 has traded sideways in a ‘summer box’ for the last three months. If – if – the current rise in Covid-19 numbers can be contained, then the spring in fashion’s step could be a herald of better times all round.