Jefferies | ITX confirmed that it firmly belongs to the small group of consumer stocks still delivering handsomely for shareholders. Suspicion around the sustainability of sales delivery likely has been key to ITX’s derating versus relevant peers (we estimate by >25% in the past 18 months). And yet the group’s competitive moat is becoming wider, and relative revision momentum stronger. PT upped to €54 as we expect the valuation gap to reduce.0
Another strong quarter has led to an upbeat mgmt call this morning. Key snippets from the call included:
• The opening of a new DC in Zaragoza in mid 2025 will be a major milestone in the process of supply chain expansion aimed at supporting future growth;
• No incremental granularity on gross margin swing factors; frankly we are impressed with the +23bps delivered in Q2 considering the recent increase in air freight and the typically dilutive impact of EM fx devaluations on the gm mix;
• Confirmation that livestreaming (successfully implemented in China in Nov 2023) will be launched in the US, Spain, UK, France, Italy, Germany, Ireland, the Netherlands and Canada in the months to come;
• The reiteration of a full roll-out of soft tags across Zara stores in the current A/W season, even if the exact timing of the supply chain reaching 100% compliance remains unclear (in our mind this remains a critical incremental sales enabler for mature space).
…and ‘tremendously cost efficient’ new stores. Today’s call has also confirmed the shape of space dynamics underpinning the growth strategy. A 1.5% decline in store count in H1 masked a 2% increase in the selling area (and a more modest contribution to sales). This will endure in the years ahead, we think. The ongoing upgrading of the store base to fewer, larger stores (and the unquantified support from online growth to the overall top line delivery) seems to be allowing for more improved cost efficiency than was the case in the past. The by-product of that is an ongoing ability to eke out gradual margin expansion even in the absence of gross margin support (see chart attached).
More fully recognising the consistency of delivery, PT to €54. We do not expect cons estimates to change following today’s update (our own estimates are virtually unchanged, with a slightly improved ex fx growth profile netting out the greater dilution from fx headwinds). Still, we do not expect the absence of meaningful upgrades in the months ahead to preclude further outperformance. In our mind, multiples expansion should remain a positive engine for the shares. Our upgraded €54 PT assumes that the valuation gap relative to other discretionary safe havens under our coverage (in this instance RACE, ADS and EL) reduces by >10% (for context over the past 18 months ITX has relatively derated by 27% vs this group of three; this despite superior earnings revision momentum, see charts attached).
