Inditex

(ITX:BME) €43.6

Market cap: €136 billion

A 15% year-to-date share-price decline presents a buying opportunity at Inditex (ITX:BME), the Spanish clothing colossus with a strong long-run track record and the balance sheet strength to tough out what should prove a short-term growth slowdown.

While the Zara brand owner faces intense competition from H&M (HM-B:STO), Next (NXT) and Shein to name a few rivals, Inditex has shown resilience in tricky periods past and management remains confident the company can continue to deliver growth and take share in a fragmented apparel industry.

Inditex is trading on a forward price-to-earnings ratio just north of 20 times, cheap relative to this compounder’s own history and suggesting scope for reversion to the mean with the retailer lapping softer sales comparatives and margin-enhancing COGS (cost of goods sold) deflation still to come.

Galicia-based Inditex opened its first store in La Coruña fifty years ago and in the intervening half-century has morphed into a global retail titan with 5,562 stores at last count and a portfolio of brands including Bershka, Massimo Dutti, Pull & Bear and Stradivarius.

Inditex is renowned in retail circles as a master of efficiency, able to leverage its scale and agility to win market share. Having fine-tuned its operations, the €136 billion (£118 billion) cap is able to get new designs onto the shop floor rapidly so it can stay on top of the latest fashion trends.

This reinforces its unique market position and has translated into dependable earnings growth, robust cash generation and rising dividends over time.

Admittedly, a recent sales growth deceleration spooked investors, yet this moderation was not entirely unexpected, since it followed an exceptional post-pandemic spending boom buoyed by consumers’ Covid-19 savings and a shift towards affordable brands during the cost-of-living crisis.

In the first quarter to 30 April 2025, sales rose by a slower-than-expected 1.5% to €8.3 billion, pre-tax profit came in flat at €1.7 billion, and investors were disappointed by news of a slower start to the summer selling season, not helped by weather-related disruption in Spain and tariff-related noise draining shopper confidence in the group’s second-biggest market, the US.

Nevertheless, Inditex insisted its Spring/Summer collections continued to be ‘very well received’ by customers, while analysts noted the company should benefit from weaker comparatives and an accelerated store refurbishment programme. 

Inditex also guided for stable gross margins this year, which implies management will stay disciplined in terms of promotions, and unusually for a retailer, Inditex was flush with €10.8 billion in net cash at the end of the quarter, lending it the balance sheet strength to weather any downturn in consumer spending. 

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