ITX’s Q1 results (in-line) and current trading (amply ahead) confirm the by- now-well-recognised investment narrative. One that sees the group continue to deliver ample market share gains. It is true that gross margin progress is now much more measured, and in turn the benefits to EBIT margin expansion more modest. Still, the net output in terms of earnings growth and TSR offered to shareholders remains impressive in a broader consumer discretionary context (with >10% of mkt cap in cash). This ahead of the potential for a more supportive European macro backdrop emerging in the months ahead (and with the full benefit of RFID soft tags to come through in the upcoming A/W season). A cal 2025 P/E of 21.0x, or 19.4x ex cash, allows us to remain constructive on one of the best performing mega-cap discretionary names. We expect modest upgrades to consensus on the back of the current trading beat likely more than offsetting the slight cut to fx guidance (and a reiterated flat GM view).
Detail
Q1 broadly as expected.
ITX today reports Q1 (Feb-Apr) sales/EBIT/EPS of €8,150m/€1,636m/€0.42 versus cons of €8,148m/€4,955m/€0.42. Ex fx sales growth came in at 10.6% for the period (inc calendar +ves likely of between 1% and 2%), versus cons of 9.6% and after +11% between 1 Feb and 11 Mar (ex calendar).
Gross margin came in at 60.6%/+14bps year-on-year, vs cons of 60.8%/+33bps and after 53.8%/+93bps in Q4. With EBIT mgn also expanding by +59bps to 20.1% (vs cons 19.9%/+46bps and after 15.6%/+53bps last Q). Strong cash generation drove ex IFRS16 net cash of €11.6bn (+€1.1bn year-on-year). Whilst inventory remained tightly controlled, growing well below sales at -3.1% year-on-year
An impressive start to Q2.
The group reports ex fx current trading of 12% for the period 1-May to 3-Jun, versus
cons of 6.7% for Q2 as a whole (this against the +16% seen in the corresponding period of 2023). FY 24/25 guidance for flat gm (cons +16bps, within the usual ITX -50bps and +50bps tolerance range) is maintained. However, guidance for FY fx impact is increased to -2% from -1.5% (cons -1.4%). Stepped-up capex guidance of €1.8bn (plus €900m/pa ‘extraordinary’ capex) for the FY is reiterated.
Company Description
Inditex
Inditex is one of the world’s largest fashion retailers, welcoming shoppers at its eight store formats – Zara, Pull & Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home, and Uterque – and boasting nearly 7,500 stores in c.100 markets. The group is made up of more than 100 companies operating in textile design, manufacturing and distribution.
Company Valuation/Risks
Inditex
Valuation: Buy on a calendarised 2025E EPS of €2.09 and target P/E 23.5x. Price Target: €49.
Risks: Competition/consumer headwinds, inflationary pressures in proximity sourcing, inability to deliver on store openings.
