Inditex (BME:ITX), the global apparel retailer, reported a strong operating performance in the interim three months of 2024, with a notable 7.1% increase in sales growth, which amounts to 10.6% in constant currency. The company's CEO, Oscar Garcia Maceiras, announced a 10.8% rise in net income to EUR1.3 billion. Store and online sales surged by 12% in constant currency during the second quarter, bolstered by the success of the Spring/Summer collections and the company's integrated business model. Inditex (ITX.MC) also revealed plans for expansion, including store openings and logistics, and a significant dividend increase.
Key Takeaways
- Inditex experienced a 7.1% sales growth, 10.6% in constant currency, during the interim three months of 2024.
- Net income rose by 10.8% to EUR1.3 billion.
- Store and online sales increased by 12% in the second quarter in constant currency.
- A dividend hike of 28% to EUR1.54 per share was announced.
- The company is expanding its live streaming service from China to Western markets.
- Inditex's growth is primarily volume-driven with no significant changes in pricing or average selling price (ASP) despite inflation.
- The logistic expansion plan for 2024 and 2025 involves an investment of EUR900 million per year.
- Sales in Spain grew by 13% in 2023, indicating strong local market performance.
Company Outlook
- Inditex anticipates a 5% growth in gross space, contributing positively to sales.
- The company's expansion includes store optimization and logistic expansion, with projects expected to be operational by the end of 2025.
Bearish Highlights
- The company has not indicated any challenges or setbacks during the earnings call.
Bullish Highlights
- Inditex plans to expand its successful live streaming service to Western markets, including the US and UK.
- The integrated business model is yielding growth in both online and physical store channels.
Misses
- There were no reported misses in the earnings call.
Q&A Highlights
- In response to inflation concerns, CEO Maceiras stated that the company has not made any short-term changes to their business model and that growth is not reliant on price increases.
- The company's logistic expansion plan is on track, with an investment of EUR900 million annually for 2024 and 2025.
Inditex's interim three months of 2024 financial report reflects a company that is not only performing well but also strategically positioning itself for future growth. With a clear plan for expansion and an emphasis on volume-driven growth, Inditex appears to be maintaining its strength in the global apparel market. The company's commitment to store optimization and logistics, alongside its innovative approach to online retail, particularly the expansion of its live streaming service, suggests a forward-looking strategy aimed at enhancing customer experience and market reach. Despite the macroeconomic backdrop of inflation, Inditex's steady performance and strategic investments indicate a robust outlook for the remainder of the year and beyond.
InvestingPro Insights
Inditex (IDEXY) continues to demonstrate financial resilience and strategic foresight in the apparel industry. With a market capitalization of $151.93 billion and a Price/Earnings (P/E) ratio of 25.52, which adjusts to 26.24 for the last twelve months as of Q1 2025, the company balances growth aspirations with shareholder value. The P/E ratio is notably high relative to near-term earnings growth, suggesting that investors have high expectations for the company's future performance.
An InvestingPro Tip worth noting is Inditex's prudent financial management, as it holds more cash than debt on its balance sheet, providing a solid foundation for its ambitious expansion plans. Additionally, the company's ability to raise its dividend for 4 consecutive years, with a remarkable 104.64% dividend growth in the last twelve months as of Q1 2025, underscores its commitment to returning value to shareholders.
InvestingPro also highlights that Inditex's cash flows can sufficiently cover interest payments, a reassuring sign of financial stability. Moreover, the company has maintained dividend payments for 23 consecutive years, which is indicative of its consistent performance and reliability as an investment.
For readers interested in a deeper analysis, there are 12 additional InvestingPro Tips available for Inditex, which can be accessed at https://www.investing.com/pro/IDEXY. These tips provide further insights into the company's financial health and market position. To enhance your investment research experience, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
Full transcript - Industria de Diseno Textil (IDEXY) Q1 2024:
Marcos Lopez: [Foreign Language]. Good morning to everybody. A warm welcome to all of those attending the presentation of Inditex's results for the Interim Three Months 2024. I am Marcos Lopez, Capital Markets Director. The presentation will be chaired by Inditex's CEO, Oscar Garcia Maceiras. Also with us is our CFO, Ignacio Fernandez. The presentation will be followed by a Q&A session, starting with the questions received on the telephone and then those received through the webcast platform. Before we start, we will take the disclaimer as read. Please, Oscar.
Oscar Garcia Maceiras: Good morning and welcome to our results presentation. It's our pleasure to join you today. In the first three months of 2024, Inditex has continued its very 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 four key strategic pillars you are all 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 7.1%. Sales in constant currency increased by 10.6%. 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 10.8% to EUR1.3 billion. This performance has continued going into the second quarter. Store and online sales in constant currency between the 1st of May and the 3rd of June grew 12%. 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 Fernandez: Thank you, Oscar. As you have seen in our release Inditex executed strongly in the interim three months of 2024. Sales have progressed well at plus 7.1%. We have managed the supply chain actively, and this 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% to EUR2.4 billion. In any case, we have also seen very strong progress in the net income line with increase of 10.8% to EUR1.3 billion versus EUR1.2 billion in the first quarter 2023. Let me reiterate that sales have progressed very nicely at plus 7.1%, reaching EUR8.2 billion, that's 10.6% in constant currency. Based on current exchange rates, we expect a minus 2% currency impact on sales for the full-year 2024. In the first quarter of 2024, gross profit increased 7.3% to reach EUR4.9 billion and clearly illustrated a healthy execution of the business model. The gross margin reached 60.6%. 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 quarter of 2024. Including all lease charges, operating expenses grew 110 basis points below sales growth. Over the first quarter of the year, we experienced a robust operating performance. Due to these factors in the (inaudible) inventory as of the 30th of April was 3% lower. As a side note, the end of the period inventory is considered to be of high quality. And now over to you, Marcos.
Marcos Lopez: Thank you. On the back of the comments made by Ignacio, I would like to reiterate that the performance of the first quarter 2024 has been remarkable. We are very content with the execution over the period. We have continued with expansion and have opened stores in 28 different markets and have progressed with optimization activities. The store and online sales continued to be robust. The performance has been very strong at all levels. A key priority remains to continue increasing our differentiation. In the strategy section, we will cover an extensive number of initiatives carried out in the period. Back to you, Oscar.
Oscar Garcia Maceiras: Thank you, Marcos. We keep on strengthening the strategic pillars of our fully integrated business model. Firstly, our priority remains to continually increase the appeal of our fashion proposition. Creativity, innovation, design and quality are the defining features of our collections and a key focus across all our teams. Our meticulous design process impacts every tiny detail of our garments and collections while striving to provide quality fashion to customers around the world. 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. Thanks to our unique 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 our concepts to new cities and new territories and the launch of new services that enhance the customer shopping experience. The full implementation of the new security technology at Zara [ph] by the end of 2024 is going to plan. 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 and 2023, we are undertaking a number of initiatives. We are planning investments that will scale our capabilities, obtain 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 a 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 EUR1.8 billion. This investment will be principally directed at optimization of commercial space, its technological integration and improvement of our online platforms. As you already know, and in view of strong future growth opportunities, Inditex has designed a logistic expansion plan for 2024 and 2025. This two-year extraordinary investment program focused on the expansion of the business, allocates EUR900 million per year to increase logistic capacities in each of the 2024 and 2025 financial years. As already announced for the financial year 2023, the Board of Directors will propose at the annual general meeting a dividend increase of 28% to EUR1.54 per share. The dividend will be made up of two equal payments. On the 2nd of May 2024, Inditex made a payment of EUR0.77 per share. The remainder EUR0.77 per share will be payable on the 4th of November 2024. I would like to finish with a comment on our current performance. Spring/Summer collections continued to be very well received by our customers. Store and online sales in constant currency increased 12% between the 1st of May and the 3rd of June 2024 versus the same period in 2023. Thank you all for attending this results presentation. That concludes our presentation for today. We will be happy to answer any questions you may have.
Operator: The telephone Q&A session starts now. (Operator Instructions). The first question goes to Richard Chamberlain from RBC. Go ahead, Richard.
Richard Chamberlain: Thank you, James. Good morning everybody. I wondered if I could ask a question on the net space contribution to Q1 sales. Maybe you can comment on that. Is that -- if you give us the number? And is that in line with your expectations? And how is that sort of panning out in terms of sort of store openings versus further store absorptions? Thank you.
Oscar Garcia Maceiras: Thank you for your question, Richard. Very much so. You know, we -- our target for the next three years is to grow space by 5% gross. And obviously, optimization activities, as we have described in the presentation are ongoing enlargements, refurbishments and relocations. So this remains a key feature. So you should assume that, yes that the net contribution is very similar to our long-term target. We have mentioned that for the next three years, we expect positive space contribution. And we are very much -- we're very satisfied with the way we are executing on this.
Operator: The next question goes to Geoff Lowery from Redburn. Go ahead, Geoff.
Geoff Lowery: Yeah. Good morning, everyone. Could you talk a little bit more about inventory, please? I appreciate the balance sheet position is just a snapshot in time and doesn't indicate commitment. But you've done an amazing job of managing inventory growth below sales growth. And I wondered if that journey was done now or whether your logistics investments and the operation of the model could yield even bigger benefits? Thank you.
Oscar Garcia Maceiras: Thank you very much, Geoff. As you have mentioned inventory at the end of the period is 3% lower than in the same period last year. In the presentation, we have mentioned that we've had a very strong execution. Over last year there was a normalization in the supply chain conditions. And despite this year there have been some issues, as you know with the Red Sea, we continue managing the inventory on the supply chain in a very, very efficient way. Execution has been very, very strong. This is reflected not only in the inventories, also in the gross margin, in the sales performance of the first quarter and the trading update. So I would say that execution is one of the key focus of our business, and clearly we have a very strong advantage there is our business model right on the fact that proximity sourcing is a key element. And this is what I would like to add on this.
Operator: The next question goes to Sreedhar Mahamkali from UBS. Go ahead, Sreedhar.
Sreedhar Mahamkali: Hi, good morning. Thank you, James. Thanks for taking my question. Really just wanted to check if you were able to call out anything either in Q1 or current trading, in terms of regional color, US, Europe, online stores, anything you can help will be super helpful. Thank you.
Ignacio Fernandez: Not really. As you have seen execution has been very, very strong, 10.6% sales growth over the first quarter. Our trading update remains very strong at 12%. Obviously, we have a more demanding comp for the rest of the period, but we continue executing according to what we say. And in quarters we prefer not to make any regional comments, but I would say a very strong execution across the board.
Operator: The next question comes from James Grzinic from Jefferies. Go ahead, James.
James Grzinic: Good morning, everybody. Thank you, James. Just a quick one, would you be able to add more color on how live streaming is helping in China? And I've been reading about plans for you to extend live streaming into Western markets. Any more color you could give on that front would be very helpful? Thank you.
Oscar Garcia Maceiras: Thanks for the question. Well we are very happy with the performance of live streaming in China. We started that service before the year-end. And we are working to expand that service through our own platforms to different markets, including the US and UK. And the expectation is to start with this new service in the coming weeks.
Operator: The next question comes from Warwick Okines from Exane. Go ahead, Warwick.
Warwick Okines: Hi, good morning, everyone. Thanks for taking my question. So I was just wondering whether or not you could comment on whether online is outperforming stores at the moment, if that mix is changing during the quarter, and whether you expect that to happen during the year? Thank you.
Oscar Garcia Maceiras: Thank you for the question. Well, we -- the performance of the company is -- the company is performing very well in both the channels. Bear in mind that we have a fully integrated business model. It's not possible to understand the strength of the evolution of our physical store sales without taking in consideration the potential in terms of prescription coming from the online platforms. And at the same time, it's not possible to explain the strength of our online sales without taking in consideration the operational support coming from the physical store. Both channels are performing -- performing very well in a very positive trend and we are very happy with the execution of the fully integrated model. Thank you.
Operator: The next question comes from Nicolas Champ from Barclays. Go ahead, Nicolas.
Nicolas Champ: Good morning. Thanks for taking my question. There is currently high inflation in some countries, such as Argentina and Turkey. Would it be possible to provide the sales growth at constant currency stripping out this market where inflation is particularly high? And a follow-up question also regarding the high inflation, cost inflation in Turkey, how has it impacted your sourcing strategy? I mean, did you change, did you reduce your sourcing in Turkey because of the significant inflation and increase in operating costs, for instance, in this country? Thank you.
Oscar Garcia Maceiras: Well, what I can say is that we have continued to execute according to a business model and we have not made any short-term changes to the model based on the inflation we have seen. Our growth is mainly volume-driven, as you know, and clearly we keep on executing according to our expectations. So I don't think I should highlight any market or any part of the operations that are massively impacted by that factor.
Operator: The next question comes from Georgina Johanan from JP Morgan. Go ahead, Georgina.
Georgina Johanan: Hi, thanks for taking my question. And just to follow up on the previous one actually, where you talk about growth [Technical Difficulty] hello, can you hear me?
Ignacio Fernandez: Can you repeat, please? Can you repeat your question?
Georgina Johanan: Sorry. Sorry about that. Yes, sure. And just a follow-up to the previous question, where you talk about growth being mainly volume driven, has there been any change at all in the pricing or ASP contribution into the new year versus last year, please, i.e., is any of that sort of acceleration that we're seeing in current trading driven by higher prices in any markets, please?
Ignacio Fernandez: Still very, very stable. Nothing significant there, Georgina. No, nothing significant.
Georgina Johanan: Great. Thank you.
Marcos Lopez: That concludes the questions. We'll move on to webcast now. We've had a couple of questions. The first of which is, can you update us on the EUR1.8 billion logistics investment plan, please?
Oscar Garcia Maceiras: Thanks for the question. Well, to put some context and just to remind, we have had a very strong growth these last two years as we referred during the presentation. And we keep on seeing growth opportunities going forward. And for our business model is key to keep on enhancing the experience of our customers. That relates of course to having the best stores and the best online platforms, but at the same time, the best customer experience also requires to have the capabilities needed to provide them what they are looking for, where, when and how they want. We are executing within this context, our logistic expansion plan for '24 and '25, these EUR900 million each of these two years and the different projects of the plan are on track. And as announced in March, most of them will be gradually operational by the end of 2025.
Marcos Lopez: The next question on the webcast platform relates to Spain. Can you provide any comment on your growth in Spain, your largest market, please?
Ignacio Fernandez: Well, 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, remain being active with our store optimization program. One example of this has been Seville where in 2023 we closed a few of the smaller stores at the city center to open a larger store at Plaza del Duque. Our newest store not only allows us to better showcase Zara full collection, but also has improved customer experience with self-checkouts, automated online pickup and return points et cetera, et cetera. We continue to find opportunities for our profitable growth in Spain with all our concepts.
Marcos Lopez: That concludes the webcast questions for today. Thank you.
Oscar Garcia Maceiras: Thank you to all of those participated 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 September for the first half 2024 results.
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