(Bloomberg) -- Analysts at Citigroup Inc. think there’s money to be made on the differing fortunes at two of Europe’s biggest clothing retailers.
The bank announced a “pair trade” recommendation on Friday, advising clients buy shares of Inditex SA while selling Hennes & Mauritz AB. Fewer discounts at Zara should benefit Inditex’s profit margins, while a jump in costs at H&M is under-appreciated by the market, Monique Pollard and colleagues wrote in a note.
Inditex, based in northwest Spain, has outperformed jumping 18% this year as shoppers snapped up its summer fashion offerings. Stockholm-based H&M, meanwhile, has declined 8.4% year to date after it reported a slump in sales and warned that rising material costs and foreign-currency movements will have a more negative impact than previously expected.
That’s left the Spanish stock trading at a more than 30% premium to its Swedish rival, based on price-to-earnings ratios. The shares are “well worth the premium,” Citi said.
Inditex was up 2.2% to 46.37 euros a share on Friday, while H&M rose 1.3% to 161.65 kroner.
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