Inditex outgrowing H&M with inventories clouding the outlook

The main points

• Inditex still grows against difficult times: +2,7%

• H&M declining slightly: -1,3%

• For the Last Twelve Months (LTM) Inditex with a strong +13,5%

• Gross profits back to pre-pandemic levels (Inditex: 55% vs H&M 52%)

• Operating margins for H&M below pre-pandemic, Inditex back to normal levels

The big story in fashion has been the strong recovery of H&M and especially of Inditex. The recovery from the pandemic was especially strong during 2021. In 2022, the growth figures have normalised closer to long term average of 2-3% growth per quarter.

In contrast to 2021, gross margins of Inditex have continuously risen from the lows in 2020. Q3/2022 saw a slight dip in margin growth with a 1%-point decline to 55,1%.

With the stronger growth from Inditex, the company has stretched its lead as the biggest fast fashion retailer. In the pre-pandemic Q3/2019, Inditex was 30% bigger than H&M.

In Q3/2022 Inditex had grown to be 55% bigger than its Swedish rival.

Gathering inventory clouds

As with most non-food retailers, inventories have been the hot topic in 2022. Same applies to Inditex and H&M. Inditex managed to decrease its inventories relative to sales (inventories/sales) before the pandemic. The pandemic forced both companies to have more inventories per sales (as sales plummeted). In 2021 this plateaued for Inditex and H&M managed to decrease its inventories.

However, 2022 saw both companies have significant increases in inventories. Inditex has increased its inventories by 50% since 2021. One has to note that the Q3 inventories have traditionally been heightened for Inditex with the run up to Christmas.

You can read Inditex Q3/2022 report here.