Inditex Earnings: Steady Double-Digit Sales Growth and Margin Improvement; Shares Fairly Valued

We are maintaining our EUR 35 fair value estimate for narrow-moat Inditex as the company reported continued solid growth momentum in the second quarter. Sales in the first half grew by 16.6% at constant currency versus 15% in the first quarter. Sales from Aug. 1 to Sept. 11 were up 14%, continuing on a strong double-digit trajectory that has been observed since 2021. We believe at current levels shares are approximately fairly valued as we expect the company to return to high-single-digit revenue growth (in line with the last 5-year average trend), achieved largely through market share gains as in prior years, but with less of a pricing impact compared with 2022-23. We also don’t expect significant margin expansion as efficiency improvements are likely to be reinvested in customer offerings in a competitive and fragmented apparel industry.