Inditex, founded in 1963, operates through seven retailing formats (Zara – about 70% of EBIT, Massimo Dutti, Pull & Bear, Bershka and Stradivarius, amongst others). It has about 7,000 stores worldwide. Key to INDX’s success is the proximity manufacturing accounts for about 60% of the sales. This allows relative quick turnover times to respond to changing trends in the fashion industry.
The company is focusing on high-growth regions in Asia and other emerging markets. This strategy resulted in double-digit sales growth (in local currency) on average the last five years prior to the outbreak of COVID. We believe that this increased revenue base should also support margin improvements, given the scalability of the business. In addition, we don’t expect the ongoing channel shift to online selling to cannibalize the company’s store sales significantly since its market share outside of Iberia is relatively small.
Yet, with the market becoming more sensible to inflation threats, the company’s share price has lost almost the entire value generation achieved ever since 2014 – when the double-digit strategy started. The store management concept is highly elaborated fit and proper to face the oncoming challenges. In our view, the multi-channel retailer will continue to enjoy above average sales and EPS growth, irrelevant of economic conditions.