IDEXF - Inditex: Fast Fashion Compounder With A Possible Near-Term Catalyst

2024-03-11 15:44:51 ET

Summary

• The economics of Inditex’s operating model remains as structurally attractive as it’s ever been.
• If the last trading update was anything to go by, near-term earnings momentum looks very strong as well.
• Quarterly reporting this week could yield some positive surprises.

Fashion is a fast-changing business, but Industria de Diseño Textil, S.A. ( OTCPK:IDEXY ) or 'Inditex' has seen its unique blend of speed and quality weather the cycles exceptionally well. If anything, the moat may actually be wider today, as Inditex continues to lead on inventory management, helped by an integrated supply chain and more recently, tech enhancements to product tracking. The relatively low capital intensity of its model also helps, and the net result is that Inditex uses capital very efficiently, as reflected in its best-in-class returns on capital. So even with the company pulling back on store growth over the last year, it more than makes up for this with its cash generation and long-term capital return potential....

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