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* Net profit up 8 percent, beats forecasts
* Rivals H&M and Next missed forecasts last week
* Analysts expect currency impact on profit to lessen
* Shares down 0.9 percent (Adds analyst comments, details, share price)
By Angus Berwick
MADRID, Sept 21 (Reuters) - Zara owner Inditex reported better than expected first-half sales and profit onWednesday as the world's biggest clothing retailer outperformedrivals thanks to quick production times that allow it to reactto changing weather and fashions.
Inditex has reported consistently better figures than itsnext biggest rival H&M in recent years, helped by itsability to get the latest trends to stores in a matter of daysfrom factories in Europe and North Africa rather than Asia.
Items such as floral dresses, jumpsuits and over-sizedsweaters helped push sales up 16 percent in local currencies inthe six months to July 31. Net profit was up 8 percent at 1.26billion euros ($1.40 billion), above a Reuters analysts' pollwhich forecast a 7 percent rise.
Mirabaud analyst Gonzalo Sanz Martin, who rates the stock"sell", said Inditex's lead over rivals was now priced in toshares that trade on 31 percent forward earnings compared with ahistorical average of 24.6 times and 19 times for H&M.
"We harbour no doubts as to the group's quality orvisibility as well as its ability to generate recurrent cashflow or its cash position at this time. The problem is that allof this comes at too high a price," he said.
Inditex shares, which have opened up a big premium to othermajor fashion retailers, dipped 0.9 percent, reacting to news ofa slowdown in sales in the Aug. 1 to Sept. 18 period.
In the first weeks of its second half to Sept. 18, salesgrowth slowed slightly to 13 percent, but was still ahead ofmost analysts expectations after H&M blamed a hot second half ofAugust for missed forecasts last week.
The figure implies growth of at least 7 percent once theeffect of new store openings is stripped out, according toSociete Generale analyst Anne Critchlow, well ahead of animplied fall of 2 percent for H&M in August. H&M reports thirdquarter results on Sept. 30.
"There are very few short-lead time retailers. Inditex isone of them, and that makes it stand out from commoditised valuefashion retailers like H&M, which are all about price andlong-lead times," said Critchlow.
Inditex, whose other brands include younger fashion chainPull&Bear and upmarket label Massimo Dutti, is known for itsfast turnover by keeping its manufacturing bases close to itsdistribution centre in northern Spain. This allows its brands toreact to trends immediately, reducing in-store markdowns andboosting profitability.
Societe Generale estimates that Inditex sources 65 percentof its products from Spain, Portugal, Turkey and North Africa,whereas most other retailers source around 80 percent of theirproducts from Asia.
About 40 percent of Inditex's sales come from outsideEurope, denting sales as emerging market currencies have fallenof late. It has also been hurt by the strong dollar, which haspushed up sourcing costs from Asia, albeit less than H&M.
Chief Executive Pablo Isla told an analyst call he expecteda stable gross margin in the second half, after the measureslipped to 56.8 percent in the first half from 58.1 percent ayear ago.
He said Inditex's expansion would continue to be driven byits plan to better integrate its over 10,000 stores around theworld with its online operations. Inditex plans to have apresence in all European countries and Turkey by the end ofJanuary. ($1 = 0.8972 euros) (Additional reporting by Emma Thomasson; Editing by AmruthaGayathri and Louise Heavens)
