Inditex – Zara Owner’s Recovery Overshadowed By Inflation Jitters

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Inditex – Zara Owner’s Recovery Overshadowed By Inflation Jitters
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In the third quarter, Inditex (BME:ITX)’s net income rose to historic highs as sales adjusted for currency changes increased 21% over 2020 levels and 10% compared to 2019.

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The group said the Autumn/Winter collection has been “very well received” with sales between 1 November and 10 December 10% above pre-pandemic levels. Management expects full year gross margins to be around 57.5%, beyond both 2020 and 2019 levels.

The group paid a final dividend of €0.35 per share on 2 November.

The shares fell 2.7% after the announcement.

Inditex Reports Strong Sales

Laura Hoy, Equity Analyst at Hargreaves Lansdown:

“Zara owner Inditex should have been riding high this morning after confirming that sales are firmly in front of pre-pandemic levels. Add to that strong growth in online, a more concentrated store estate, and the near completion of efforts to migrate to a new online platform, and the group’s in a strong position heading into the new year.

Inditex boasts impressive operating leverage, so once fixed costs have been covered a higher proportion of each additional sale drops through to profits. Now that sales have recovered, this has become a key competitive advantage.

But shares failed to rally following the rosy report as inflation-related worries cast a shadow over the entire sector. The latest figures out of the UK show yet another increase. If it persists, it will take a bite out of Inditex customers’ disposable income. The group’s not in an ideal position during an inflationary period—its moderate price point means it could suffer more than peers at the luxury or discount ends of the spectrum.

Shoppers have been resilient so far with sales between 1 November and 10 December up on both 2020 and 2019 levels. But we can’t blame investors for wondering whether this will continue in 2022.”


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Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver
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