Inditex (BME:ITX), the parent company of fashion brands such as Zara and Bershka, has reported a robust financial performance for the first half of 2024. The company saw a sales increase of 7.2%, or 10.2% in constant currency terms, reaching €18.1 billion. Net income for the period grew by 10.1% to €2.8 billion.
Notably, Inditex maintained a healthy gross margin of 58.3% and disciplined cost management, resulting in an 8.1% increase in EBITDA to €5 billion. Store and online sales combined experienced an 11% uptick from August 1 to September 8, 2024, in constant currency terms.
The company operates across 214 markets and has announced significant investments in capital expenditure and logistics as part of its growth strategy.
Key Takeaways
- Inditex's sales rose to €18.1 billion, a 7.2% increase, with a 10.1% rise in net income to €2.8 billion.
- Gross margin remained stable at 58.3%, with EBITDA climbing 8.1% to €5 billion.
- Store and online sales grew by 11% in the period from August 1 to September 8, 2024.
- The company plans €1.8 billion in capital expenditure for 2024, focusing on commercial space and technology.
- Logistics expansion includes a €900 million annual investment for 2024 and 2025, with a new distribution center testing by mid-2025.
- A final dividend of €0.77 per share will be paid on November 4, 2024.
- Sales in Asia remained stable, with efforts to enhance customer experience and online presence.
- Store productivity is expected to increase, supported by technology integration.
- No significant price increases were reported, with sales growth primarily driven by volume.
Company Outlook
- Inditex is focused on expansion and optimization in its 214 markets.
- The company plans approximately €1.8 billion in capital expenditure for 2024.
- The logistics expansion plan is on track, with the Zaragoza II distribution center set to begin test operations by mid-2025.
Bearish Highlights
- Depreciation and amortization were down 3% due to higher interest costs and renegotiated rents.
- Sustainability costs are being managed internally to maintain a disciplined cost approach.
Bullish Highlights
- Strong execution across the business model has led to sales growth.
- Online sales are thriving, with over 22 million daily visitors.
- The Zara Streaming experience is launching in key markets after a successful start in China in 2023.
Misses
- The overall store count decreased by 1.5%, although net space grew by around 2%.
Q&A Highlights
- The company emphasized the integration of online and physical sales, with the strength of online sales supported by store operations.
- The logistics investment plan is progressing as scheduled.
- Sales in Spain grew by 13% in 2023, with a 20% increase since 2019 despite a 27% reduction in stores.
Inditex (ticker: ITX) has demonstrated resilience and strategic foresight in its operations, balancing growth with cost management. The company's investment in technology and logistics, along with its emphasis on customer experience, positions it well for continued success in the competitive fashion industry. The next results presentation is scheduled for December 2024, where stakeholders anticipate further updates on the company's progress.
InvestingPro Insights
Inditex (ticker: IDEXY) has shown a strong financial performance, as reflected in its latest data. With a substantial market capitalization of $165.8 billion, the company stands as a significant player in the Specialty Retail industry. One of the notable InvestingPro Tips indicates that Inditex has been successful in raising its dividend for 4 consecutive years, which aligns with the company's announcement of a final dividend of €0.77 per share to be paid in November 2024. This is a testament to Inditex's commitment to shareholder returns and financial stability.
Investors may also take interest in the company's Price/Earnings (P/E) ratio, which stands at 27.4. While this suggests a higher valuation relative to near-term earnings growth, the company's consistent profitability over the last twelve months and its ability to maintain dividend payments for 23 consecutive years provide a counterbalance to concerns over valuation multiples.
The company's revenue growth has been robust, with a 9.12% increase over the last twelve months as of Q1 2025, indicating a strong sales trajectory. This growth is consistent with the reported sales increase in the article, underscoring Inditex's successful expansion and optimization efforts.
For investors looking for more insights, there are additional InvestingPro Tips available, which can be found at: https://www.investing.com/pro/IDEXY. These tips may further inform investment decisions by providing deeper analysis on Inditex's financial health and market position.
Full transcript - Industria de Diseno Textil SA ADR (IDEXY) Q2 2024:
Marcos López: Good morning to everybody. A warm welcome to all of those attending the presentation of Inditex’s results for the interim first half 2024. I am Marcos López, Capital Markets Director. The presentation will be chaired by Inditex’s CEO, Óscar García Maceiras. Also with us is our CFO, Ignacio Fernández. The presentation will be followed by a Q&A session, starting with the questions on the telephone and then those received through the webcast platform. Before we start, we will take the disclaimer as read. Please, Óscar.
Óscar García Maceiras: Good morning, and welcome to our results presentation. It’s our pleasure to join you today. In the first half of 2024, Inditex has continued its robust operating performance, driven very much by the creativity of our teams and the strong execution of our fully integrated business model. This performance relies on the 4 key strategic pillars you are all very familiar with: our unique fashion proposition, an optimized customer experience, our focus on sustainability and the talent and commitment of our people. These factors have propelled our competitive differentiation. Our Spring/Summer collections have been very well received by our customers. We have had a very satisfactory sales growth of 7.2%. Sales in constant currency increased by 10.2%. The execution of the business model has also been very robust, with a healthy gross margin and disciplined cost management. On the bottom line, net income increased 10.1% to €2.8 billion. Given the robust execution over the period, cash flow generation remains strong. This performance has continued going into the second half. Store and online sales in constant currency between the 1st of August and the 8th of September grew 11%. Our diversified presence in 214 markets with low market penetration allows us to enjoy significant global growth opportunities. We have complete confidence in our ability to grow this business, mainly because the unique model we operate continues to drive an ever-increasing level of differentiation. I’m going to hand you over to Ignacio now to go into the headline numbers.
Ignacio Fernández: Thank you, Óscar. As you have seen in our release, Inditex executed very well in the first half of 2024. Sales progress well at plus 7.2%. We have managed the supply chain actively, and it has driven a very healthy gross margin. Operating expenses have, of course, been well managed, resulting in operating leverage. As a result, EBITDA grew 8.1% to €5 billion. In any case, we have also seen very strong progress in the net income line, with an increase of 10.1% to €2.8 billion versus €2.5 billion in the first half of 2023. Let me reiterate that sales have progressed very nicely at plus 7.2%, reaching €18.1 billion. That’s 10.2% in constant currency. Sales growth was strong, both in stores and online. Furthermore, sales have been positive across all concepts. Based on current exchange rates, we expect a minus 3% currency impact on sales for the full year 2024. We enjoy a global presence, with operations in 214 markets and with a low market share within what remains a highly fragmented sector. Growth has been strong across the board. We have previously mentioned that United States is our second largest market. In the first half of 2024, gross profit increased 7.5% to reach €10.5 billion. And clearly, we stated a healthy execution of the business model. The gross margin reached 58.3%. Based on current information, we expect a stable gross margin of plus/minus 50 basis points this financial year. There has been very tight control of operating expenses across all departments and business areas. Operating expenses increased below sales growth over the first half of 2024. Including all lease charges, operating expenses grew 102 basis points below sales growth. Operating working capital remains negative as a result of the business model. The operating working capital is in line with the performance of the business. Over the first half of the year, we experienced a robust operating performance. Due to these factors, Inditex’s inventory as of the 31st of July was 2% lower. As I note, the end of the period inventory is considered to be of high quality. As you can see from this slide, we continue to generate very strong levels of cash flows. Funds from operations before corporate income tax increased 9% to €4.4 billion. Capital expenditure reached €1.3 billion, reflecting the ordinary and extraordinary investments in 2024, focused on ensuring future growth. And now over to you, Marcos.
Marcos López: Thank you. On the back of the comments made by Ignacio, I would like to reiterate that the performance over the first half of 2024 has been remarkable. We are very happy with the execution over the period. The performance has been very strong at all levels, as you can see in this table. Store and online sales continued to develop nicely for all the concepts. We have continued with the expansion of our concepts and have opened stores in 34 different markets and have progressed with optimization activities. We continue to expand our concepts into new markets, including Massimo Dutti in the United States and Bershka in India. Oysho, Stradivarius and Massimo Dutti also opened their first stores in Peru in September. In the strategy section, we will cover an extensive number of initiatives carried out in the period. Back to you, Óscar.
Óscar García Maceiras: Thank you, Marcos. We keep on strengthening these strategic pillars of our fully integrated business model. Our priority remains to continually increase the appeal of our fashion proposition. Creativity, innovation, design and quality are defining features of our collections and a key focus across all our teams. Our meticulous design process impacts every detail of our garments and collections while striving to provide the latest quality fashion to customers around the world. Our approach involves integrating the talent of our designers with highly artisanal tasks carried out by our skilled teams and the latest technological solutions to achieve the highest level of quality and sustainability. The results of this unique integrated approach through teamwork is clearly seen in all the multiple collections we offer every season and our swift response to customer demands. We continue generating a very broad range of fashion propositions for each of our differentiated concepts. The focus on an ever more enhanced customer experience comes as a result of the continuous process of upgrading stores with strong architectural features and with highly curated internal spaces. One of the recent flagship store projects this quarter has been the opening of the Zara and Zara Home store in Lisbon Rossio in an iconic historic building which stands over 5,000 square meters and 4 floors. This project is an example of our continued optimization program with 3 city-center premises transferred to other concepts once this new location has begun operations. This very unique landmark store opened last week. Thanks to our integrated store and online model, our teams have been able to take advantage of the remarkable growth opportunities we see across all channels, concepts and markets. Underpinning this growth are new openings, enlargements and refurbishments of stores in the best locations, expanding to new cities and new territories and the launch of new services that enhance the customers’ shopping experience. We continue optimizing our store presence in all concepts with key examples like Bershka London Oxford Street, Massimo Dutti Miami Aventura Mall, Zara Home Milan Palazzo Ferrania and Oysho Lima Jockey Plaza. The full implementation of the new security technology at Zara by the end of 2024 is going to plan. A significant initiative for this season will be the arrival in the coming weeks of our Zara Streaming experience in key markets such as Spain, the U.S., France, Italy, Germany, the U.K., Ireland, the Netherlands and Canada, following the launch in the Chinese market in November 2023. We will continue extending the Streaming experience on our platforms to other markets in the following months. As part of our efforts to explore alternatives for new raw materials, in July, we announced an equity investment in Galy, a U.S. start-up that has developed innovative technology for growing cotton in a lab from cotton stem cells. In August 2024, we launched our second CIRC X Zara collection designed by Zara Studio and made from textile waste. This collection is made up of garments with clean, timeless silhouettes and composed exclusively of CIRC lyocell. Our Sustainability Innovation Hub is now working with more than 350 startups. In terms of circularity, the Zara Pre-Owned platform is currently available in 16 European markets and will reach the United States by the end of October 2024. Through this platform, we will continue helping our customers to extend the life cycle of their Zara garments through donation, repair or resale. We are firmly committed to the talent of our people with the aim of remaining a benchmark employer as well as looking for a positive impact on our communities. In this line, Inditex has obtained the Top Employers seal in 12 of our most relevant markets, a distinction that certifies companies that put their people at the center, creating work environments that generate a sense of belonging in which everyone feels accepted, has the freedom to express their ideas and is heard. In terms of Woman in Tech, we have carried out initiatives such as Technovation, a global program in which more than 30,000 young women from 50 countries have participated this year, empowering them to tackle social and environmental problems in their communities through technology. We operate in 214 markets with low share in what continues to be a highly fragmented sector, and we see strong growth opportunities. To meet the current strong demand, which builds on the significant growth of the business in 2022 to 2023, we are undertaking a number of initiatives. We are investing to scale our capabilities, obtaining efficiencies and increase our competitive differentiation to the next level. The growth of annual gross space in the period 2024 to 2026 is expected to be around 5%. Over this same time period, Inditex expects space contribution to sales to be positive in conjunction with a strong evolution of online sales. For 2024, we estimate ordinary capital expenditure of approximately €1.8 billion. This investment is principally directed at optimization of commercial space, its technological integration and the improvement of our online platforms. As you already know, and in view of the strong future growth opportunities, Inditex is implementing a logistics expansion plan in 2024 and 2025. This 2-year extraordinary investment program focused on the expansion of the business, allocates €900 million per year to increase logistic capacities in each of the 2024 and 2025 financial year. A short update on this logistic expansion plan, which is on track. We expect test operations for our Zaragoza II distribution center will start in May, June 2025. A brief reminder on the dividend. The final dividend payment for 2023 of €0.77 per share will be made on the 4th of November 2024. I would like to finish with a comment on our current performance. Autumn/Winter collections continue to be very well received by our customers. Store and online sales in constant currency increased 11% between the 1st of August and the 8th of September 2024 versus the same period in 2023. Thank you all for attending this results presentation. That concludes our presentation for today. We would be happy to answer any questions you may have.
A - James O’Shaughnessy: [Operator Instructions] The first question goes to Georgina Johanan from JPMorgan.
Georgina Johanan: I just had a question on the Asian business, please. I think growth there was sort of flattish ex FX in the half. And of course, we’re all aware of some of the difficulties being faced by the Chinese consumer at the moment. And I was just wondering if you could give a little bit of color on your performance in that market specifically and whether you expect Zara could sort of continue to outperform in that sort of environment. Any comments would be really helpful, please.
Óscar García Maceiras: Thanks, Georgina, for your question. Well, as highlighted in previous conference calls, we remain considering China as one of our core markets. Our fashion proposition has always been well received by our Chinese customers, and we keep on executing important projects to enhance their experience, both through physical stores and online. This 2024, we are in the process of reaching additional degrees of optimization in our physical footprint with some emblematic projects to come in the following quarters. For instance, an important refurbishment of our flagship store in Shanghai East Nanjing Road or the opening of a new store in [Nanjing’s Fambao]. Additionally, we keep on improving our presence in the online space. Our stream service through Douyin remains with very good feedback from our customers. So we see a continuous positive progress of our operations in the market going forward. Marcos, if you would like to add something, please go ahead.
Marcos López: Thank you, Óscar. Yes, Georgina, as you have mentioned, our sales in Asia is -- when you just take them into constant currency, were almost stable, which we believe is quite remarkable in the current context. The fact that we had quite a number of currencies in that area that depreciated explains that. But we can say we are pleased with the global performance for the group.
James O’Shaughnessy: The next question comes from Monique Pollard from Citi.
Monique Pollard: I just had a question on the sales productivity in the stores. You obviously mentioned that you expect that to continue to increase going forward and just in the context, clearly, of the productivity in the stores having already seen a major uplift over the past few years. So I just wondered if you could call out what you would attribute the further opportunity to. Is it the rollout of the flagship stores and the larger stores? Is it more around the security technology and the RFID rollout, improving checkout times, et cetera? Any color we could get would be great.
Marcos López: Thank you, Monique. I think that the question that you made is very, very important. Over recent years, our productivity in general has increased significantly. The main reason for this is the business model, right? That’s very, very clear. We believe that a fully integrated store and online platform provides the better way to address our market. Secondly, there are a number of specific initiatives that we have been carried out, specifically all that refers to optimization. We have put some examples into our presentation. This idea of having the most exciting, the best stores in the best locations while absorbing other units that we can then hand over to other concepts remains very, very strong. In this presentation, we have put a number of examples. The first one is Lisboa Rossio, of course, but for example, it’s the same situation in other geographies that we have done recently. You will have heard from us what we did in Bilbao, what we did in Seville, that we did in Valladolid, where we’re going to do in Zaragoza. So this is a constant effort. Then also to help productivity, there are a number of very, very clear factors like RFID, like self-checkouts, like all the projects we have to include technology into our stores because a store today looks completely different to what it was 5 to 10 years ago. So it’s a number of initiatives that create a very, very significant differentiation, and this is why we keep providing very strong productivity in our stores, and we believe this is sustainable.
James O’Shaughnessy: The next question comes from James Grzinic from Jefferies.
James Grzinic: I had 2 very quick ones. The first one, factual. Store count was down 1.5% for the group in half 1 year-on-year. What is Phases 2 relative to the change in store numbers? And secondly, at what stage of the current Autumn/Winter season will the Zara offer be fully compliant on the soft tag RFIDs, please? Will it be later in the Autumn/Winter season?
Marcos López: Okay. Regarding your first question about store count and then space, the usual. You see that the process has been through optimization to reduce the number of stores, but we have a much larger stores. And this means that while the space keep on growing at around 2% net as we did last year, this is something you should continue to expect probably a lower number of stores while we keep on growing net space. And in the trading update, nothing we want to comment because, as you know, this is a short period of time, and the most important part of the season is September and October. So nothing to comment on that.
James O’Shaughnessy: The next question comes from Sreedhar Mahamkali from UBS.
Sreedhar Mahamkali: Really just a technical one, if you don’t mind, please. If you could just help us understand the trend in depreciation and amortization in the quarter, which was down 3%. I think, Marcos, you just said space, we’re still positive 2% next phase. Is that something that could reverse in the second half in terms of D&A could be down as CapEx is also coming through? So how should we think about D&A for the full year? That would be very helpful.
Marcos López: Thank you very much for that question, Sreedhar. As you know, depreciation relates to the -- mainly to the depreciation of the asset base, the depreciation of the right of use, impairment changes and accounting write-off of assets. So this means that we cannot provide guidance under any circumstance. However, it’s true that in the first half, D&A growth was almost flat. This is partially due to higher interest costs impacting the IFRS 16 accounting on the right of use. The renegotiation of rents and the flexibilization of contracts has also helped. But also bear in mind that the right-of-use asset has decreased 3% for the first half 2024 to €4.8 billion from €4.9 billion in the first half of 2023. So there are a number of moving parts, and obviously, we cannot provide guidance on this. Thank you.
James O’Shaughnessy: The next question comes from Richard Chamberlain, RBC.
Richard Chamberlain: Yes, another question on costs, if that’s all right. You’ve mentioned -- you talked about sustainability initiatives and so on. And I just wondered if you can comment on the costs of those. Is Inditex pushing a lot of that cost on to its suppliers, and that’s helping with its efficiency there? Or is it incurring more of those sustainability costs itself these days? And then I guess linked to that and also on costs, it looks like Inditex showed a particularly strong performance on rentals in the first half. I just wondered if you can give any more or color on what’s happening to rental costs.
Marcos López: On your second question, not very significant changes. Obviously, we keep on renegotiating rents and trying to do our best on that. And as you can imagine for any retailer to -- is a constant effort to try to combine very disciplined cost approach with sustainability, but to try to transfer sustainability costs to other parties, we believe is not sustainable in the long term. So the effort to try to obtain efficiency is constant. You see it in many things. You do it through organizational measures but also through technology. We keep on improving things. Obviously, the new stores are tremendously effective, as you can imagine. But nothing to measure on that. Obviously, the gross operating expenses below sales is -- for us, it’s like a mantra that we try to convey to all the organization extremely disciplined execution. And this you see -- something you see quarter after quarter. Thank you.
James O’Shaughnessy: The next question comes from Fernando Abril from Alantra.
Fernando Abril: Just on sales. So regarding your 10% sales growth in H1, could you please break it down slightly into price -- like-for-like price increases, product mix and volume changes?
Marcos López: Fernando, very much the same as in previous periods. There is no significant price increase at all, with the exception of those markets which are inflationary. But again, it’s all volume driven. And then it’s the usual combination of very strong store and online platform and some space growth, very much in line with what you saw last year in net terms. But I think that what explains clearly the performance is very much the execution of the model, the creativity of the teams, the execution at store level, online and then the opening of very selective, extremely high-quality stores through the optimization program. So nothing has changed in the fundamentals of our growth algorithm.
James O’Shaughnessy: The next question comes from Warwick Okines from Exane BNP.
Warwick Okines: Just wondering if you could comment on anything you’re seeing in external sourcing factors. You’ve left your full year gross margin guidance unchanged, which I suppose at the bottom end, it implies quite a lot of weakness. Is there any reason for this? Or you just don’t like to adjust your guidance at this year? So just anything on the external sourcing factors will be very helpful.
Marcos López: No, we’re not seeing any significant change in our operations on that field. Clearly, the gross margin has evolved in a very natural way. The gross margin is very much the result of the execution, not something that we build ex ante. And we’re not seeing anything significant. This is why we remain guiding for a broadly stable gross margin, plus minus 50 basis points for the year. I mean, as you know, our results have never been reflecting an expansion -- significant expansion or reduction of margins, is very much the top line, and then the gross margin is the final outcome of our execution during the period. Thank you.
James O’Shaughnessy: The next question comes from William Woods from Bernstein.
William Woods: Just on Stradivarius and Bershka, they seem to be performing pretty well at the moment. What do you think is really driving their performance over the last year or so?
Marcos López: I think that, first of all, thank you for the question. Basically, we are happy with the performance of the group as a whole. I think that all the concepts have performing a very, very significant way. It is true that some of the younger concepts are performing at a very, very significant pace because they are very, very successful and they’re executing very, very well. But I think that the most important message from our side would be the consistency of the different concepts will keep on growing because they share the same business model. They focus on different parts of the market. Some of them have specificities in terms of product. But in all, you can see that the growth has been very healthy across the board. Thank you.
James O’Shaughnessy: We’ll now move over to webcast questions. We’ve had a few questions today. The first of which relates to online sales, perhaps you could provide us some color on the performance of online.
Óscar García Maceiras: Thanks for the question. Well, we are very satisfied with our performance through our online platforms. The evolution remains very positive throughout first half 2024, and we keep on seeing strong evolution of our online sales going forward. On a daily basis, we are receiving more than 22 million visitors in our platforms. For the customers that visit us, we are implementing new initiatives that could contribute to improve their experience. As an example of this, in the coming weeks, as we mentioned during the presentation, we will launch our Zara Streaming experience in some key markets, including Spain, Italy, France or the U.K. or the U.S. following the initiative launch in China in 2023 that I have previously mentioned. It’s important to highlight something that we have reiterated in previous calls. Our results are a consequence of our fully integrated model in which is not possible to understand the strength of our online sales without taking into consideration the operational support provided by our stores. And of course, it’s also not possible to explain the positive evolution of our sales in physical stores without bearing in mind the strong prescription capacity of our online platforms.
James O’Shaughnessy: Thank you. The next question on the webcast platform relates to logistics. Perhaps you could give us an update on the logistics investment plan, please?
Óscar García Maceiras: Thank you. Well, I guess that we mentioned that during our presentation. The logistics investment plan we announced at fiscal year 2023 results is on track. The different projects are being executed as planned. In the case of the new distribution center for Zara Zaragoza II, this new distribution center will begin test operations in May, June 2025. Just a quick reminder, this plan is consistent with the evolution of our business and builds on the significant growth that we experienced recently. And with our new capabilities, we will be in a position to keep on offering our customers what they are looking for, where, when and how they want.
James O’Shaughnessy: The next question on the webcast platform relates to Spain. Perhaps you could provide us some color on the performance of Spain. Thank you.
Óscar García Maceiras: Thank you. Well, as we mentioned in previous calls, we are very happy with our performance in Spain. As a reminder, in 2023, sales in Spain grew 13%, the fastest-growing region for the group, alongside Europe ex Spain. Another data to be considered from 2019 to 2023 in Spain, we have had 27% fewer stores at sales have been 20% higher. Our store optimization program remains on track, following another successful projects such as Sevilla or Bilbao mentioned by Marcos. At the end of August 2024, we opened a flagship store in Valladolid Constitution, absorbing 3 former stores. These type of initiatives that has also been executed in another markets, I would say, Spain, such as Portugal with our new flagship store in Lisbon Rossio, not only allowing us to better showcase Zara full collection but also are improving the experience of our customers with self-checkouts, automated online pickup or return points. So we continue to find opportunities for profitable growth in Spain with all our concepts.
James O’Shaughnessy: Those conclude the webcast questions for today.
Óscar García Maceiras: Thank you to all of those participating in the presentation today. For any additional questions you may have, please get in touch with our Capital Markets Department. And we will welcome you back in December for the 9 months 2024 results.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.