Jun

13

Inditex Is Biggest Diamond in the Rough

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  • By
    William Kemble-Diaz

Galicia is one of Spain’s most rural regions, better known for its seafood and meat, but it is also the home of one of the world’s biggest commercial success stories: Inditex.

While the rest of the Spanish economy burns in the wake of a massive real estate-driven boom and bust and consumers globally rein in spending, the owner of fast-fashion pioneer Zara is going from strength to strength.

On Wednesday, the company reported a 30% year-over-year jump in first quarter earnings that not only beat analysts’ expectations hands down but also confounded the darkening economic backdrop.

“This was a particularly strong quarter for Inditex, proving to us that the group is a world class retailer that knows how to weather the significant macro crisis,” said Chris Chaviaras, who tracks the stock at Barclays and was blown away by the results given the heavy slide in Spanish retail sales seen so far this year.

But then Inditex now has almost 6,000 stores in 85 countries, with Bosnia and Georgia among its newest markets. It is also expanding rapidly in China, where it expects to launch online sales in September and where it expects to have 425 stores across China by the end of the year.

Spain, where almost one in four of the working population is currently out of work, now only accounts for around a quarter of Inditex’s overall sales.

Inditex also seems to have found a magic formula for succeeding in the flighty world of fashion retail.

Due to its complex logistics system and heavy use of information technology to track changes in consumer tastes, the company is able adapt faster to the ebb and flow of demand than its rivals.

That’s partly why the stock is currently trading at a 35% premium to its peers, according to analysts at BernsteinResearch.

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