By Sonya Dowsett
LA CORUNA, Spain (Reuters) - The world's biggest clothing retailer, Zara-owner Inditex (MC:ITX), reported a 10 percent jump in annual net profit on Wednesday as strong growth in emerging markets and increased online presence outweighed negative currency effects.
Sales in the first six weeks of the new financial year tapered off slightly after a period of exceptional growth during which the Galicia-based company moved brands to bigger stores in prime retail locations. They beat expectations, however.
Sales at constant exchange rates rose 13 percent in the first six weeks of the new financial year as customers snapped up items from spring collections like double-breasted jackets, palazzo trousers and embroidered tulle tops from flagship brand Zara.
By contrast, rival fashion retailer H&M (ST:HMb) on Wednesday reported a 1 percent drop in local-currency February sales, substantially lagging analysts' expectations for a 6 percent increase.
Inditex, known for speeding the latest trends from runway to stores in a matter of days, reported net profit of 3.16 billion euros (2.7 billion pounds) in the year to end-January, in line with analysts' expectations.
Negative currency effects stripped 3 percentage points from annual sales growth, the company said.
Inditex reports in euros but makes more than half of its sales in other currencies, meaning falls in value of currencies like the Mexican peso and the Russian rouble against the euro affect earnings and profit margin.
Gross profit margin was 57.0 percent in the 2016 financial year, down from 57.8 percent in 2015.
Concerns on lagging profit growth relative to aggressive sales growth at the retail behemoth whose stable of brands includes homewares chain Zara Home and teen label Pull and Bear have weighed on Inditex shares.
They have underperformed European stocks (STOXX) by around 3 percent over the past year. Shares were 1.6 percent lower on Wednesday.
However, analysts expect currency effects to swing in Inditex's favour over the next 12 months with a consequent boost to profit margins.
"We are very keen buyers of Inditex for 2017," said Anne Critchlow, analyst at Societe Generale (PA:SOGN).
The company opened stores in 56 countries during the year, including first openings in New Zealand, Vietnam and Paraguay, bringing its total store count to over 7,200. It launched online sales across its stable of brands in Turkey and said on Wednesday it would start online sales in India in 2017.
Cash-rich Inditex proposed on Wednesday a 13 percent increase in dividend to 0.68 euros per share.