The early-year lull has been quickly forgotten about now, as Inditex once again proves its ability to progress in a market disrupted by competition and consumer purchasing power.
In Q3 (ended late October), the Spanish group posted revenue of €9.8bn, up 5% y-o-y and up 8.4% at constant exchange rates. The performance is all the more remarkable as it was achieved despite a significantly negative FX effect (-3.5%). Margins also showed solid results, with gross margin up 80 basis points and operating profit up 9%.
The year-end outlook is just as encouraging. Between November 1 and December 1, store and online sales rose by 10.6%.
This acceleration shows that the autumn/winter collections have been welcomed. Consequently, the group manages to balance its full-price selling strategy with discipline on promotions (such as Black Friday), despite a context that is marked by rapid fashion changes and competition from players such as H&M or low-cost pure players such as Shein and Primark.
Buoyed by this momentum, the group has launched an investment plan of €1.8bn over two years. In particular, these investments aim to strengthen digital capabilities (26% of revenue) while the group continues its strategy of reducing the number of stores, offset by enlarging those that remain. Over ten years, the average store size has jumped 48%, while productivity per square meter (sales density) has improved by 28% versus 2019.
These investments will certainly pose a medium-term risk to margins. Although this argument seems modest given that debt is light (net cash of €11.3bn) and returns on investments in the supply chain have historically been a strength for the company. It is largely this supply chain that explains why the company is continually able to respond rapidly to trends while keeping control over design, in-store presentation, and online marketing, which enables it to maintain solid positions in its domestic Spanish market (around 20% of sales) and internationally (the US is its second market).
The competitive landscape could nevertheless evolve if, in 2026, the exemption of customs duties on small parcels in Europe (from which Shein has greatly benefited) were to disappear. Inditex currently does not gain an advantage from this regime given that it imports in volume. But it could benefit if the end of the exemption led to higher prices for products from other chains whose strategy differs.
Thus it is quite logical that Inditex is trading at a P/E of 23.5x, very close to its 5-year average (23x) and its 10-year average (24x). The Spanish group offers a rare combination in the sector with its strong organic growth, solid margins and ample liquidity.
