Inditex Holdings: A Look at Growth Potential

Inditex (BME:ITX), the parent company of Zara, is recognized for its strong growth potential and has been dubbed “best-in-class” by analysts at BofA.

Investment Overview

Reinstating coverage of Inditex, BofA analysts issued a “buy” rating with a price target of €61 per share ($34.2 for American Depositary Receipts). Analysts cite multiple growth drivers and strategic realignments that position Inditex for sustained outperformance.

Strong Business Model

BofA analysts expect Inditex’s model to promote growth 2-3x above market levels and foresee an improvement in sales density (sales per square meter), further facilitating expansion.

• Gross Margins: Forecasted to grow to 58.1% by FY25.
• EBIT Margins: Expected to climb to 19.7%.

Market Performance

Inditex shares trade at a 24x price-to-earnings ratio, aligning with historical averages. Expectations include a 12% compound annual growth rate (CAGR) in earnings per share over the next three years along with a robust 4% dividend yield.

Strategic Store Management

Inditex’s rationalization of its store base over the last four years prioritizing fewer, larger stores led to a 50% sales density growth, which BofA analysts predict will continue.

• U.S. Market Potential: With only 0.75% market share in the U.S., this sector is seen as a major growth opportunity.

Capital Investments

BofA anticipates a 9% organic revenue CAGR through 2027, supported by capital expenditures of approximately €5.4 billion over FY25-26, aiming for a new distribution center in Spain.

Financial Health

Inditex’s balance sheet shows a 1.2x net cash-to-EBITDA ratio, giving it the ability to support growth ambitions in upcoming years.

• EPS CAGR: Forecasted at 12% over the next three years.
• FY24 Performance: €36 billion in sales and €6.8 billion in operating profit across seven retail concepts, including Zara and Massimo Dutti.

While Spain remains its largest market, the U.S. has emerged as a key growth driver, with both markets reporting their highest growth rates in FY24. BofA emphasizes Inditex’s shift from expanding its store count to maximizing sales density in existing locations.

By reducing its store count by 24% and transitioning to larger, more profitable stores, Inditex is strategically poised for continued growth.