Company analysed: Inditex Group

Group Number: 31
Working Method: Group Work
Group Members:

Marziali Mauri Khattab Melatini Mastandrea Jamal

Stefania Stefano Mostafa Micaela Miguel Angel Jana
ID: 10620938 ID: 10667193 ID: 10776282 ID: 10744651 ID: 10641592 ID: 10832902

Subject: Accounting, Finance & Control (AFC)

Supervisors: Prof Emanuele Lettieri (PhD), Dr Yulia Sidorova (PhD)
University: Politecnico di Milano, School of Management
Via Lambruschini, 4b – 20156 Milano, Italy
Study Programme: MSc in Management Engineering

Page amount: 13 + Title Page + Table of Content + Annex + References

No. of words: 4048
Project period: September 15th, 2021 – December 10th, 2021
Project hand in date: December 09th, 2021

Declaration of Authorship

“I hereby declare that the present report about “Inditex Group” has been carried out at Politecnico di Milano under the
supervision of Prof Emanuele Lettieri and Dr Yulia Sidorova. The work is original and has not been submitted in part
or full for any degree or another purpose at POLIMI or any other University. I further declare that the material obtained
from other sources has been duly acknowledged in the report.”

_________________ _________________ _________________

Marziali Stefania (1) Mauri Stefano (2) Khattab Mostafa (3)

_________________ _________________ _________________

Melatini Micaela (4) Mastandrea Miguel Angel (5) Jamal Jana (6)
1. COMPANY OVERVIEW ...................................... 1

2. STRATEGIC ANALYSIS ...................................... 1

2.1. External Analysis................................................... 2

2.1.1. Porter’s Five Forces Model – PESTE Analysis .... 2

2.2. Internal Analysis.................................................... 3

2.2.1. Value Chain Model ................................................. 3

4. FINANCIAL ANALYSIS ...................................... 4

4.1. Profitability Analysis............................................. 4

4.1.1. Shareholders’ Perspective...................................... 4
4.1.2. Overall Company’s Perspective ............................ 6
4.1.3. Stakeholder’s Perspective ...................................... 6

4.2 Liquidity Analysis................................................... 8

4.2.1. Asset-Liabilities Perspective .................................. 8
4.2.2. Cash-Flow Perspective ........................................... 9

4.3. Leverage Analysis ................................................ 10

4.3.1. Risk & Operational Efficiency Matrix................ 11

5. SUSTAINABILITY ANALYSIS.......................... 12

6. CONCLUSION & FUTURE DEVELOPMENT 12

7. ANNEX................................................................. 14

8. REFERENCES .................................................... 15
1. COMPANY OVERVIEW
“Inditex is more than a job, a position, a role, or a brand”
Inditex Group is one of the biggest companies operating in the B2C fast fashion industry, listed in
all the four Spanish Stock Exchanges.
Born as a small family business making women’s clothing in 1963, Industria de Diseno Textil is
now present in more than 200 markets all over the world, with 8 apparel, footwear, accessories,
and home textiles commercial formats.

Low-end

High-end

2. STRATEGIC ANALYSIS
In order to identify the Opportunities and Threats of the firm, we decided to adopt both the Porter’s
Five Forces Model and the PESTE Analysis as tools. On the contrary, we focused on the Value
Chain Model - since the Group is a company with a successful implementation of an integrated
supply chain strategy - to pinpoint its Strengths and Weaknesses. We report here the Business
Model of the company, which helped us to find out about Inditex’s competitors.

1
2.1. External Analysis
2.1.1. Porter’s Five Forces Model – PESTE Analysis
Internal rivalry
The competition is intense, there are multiple companies with similar products and styles at the
same price and quality. Brand loyalty is not a concept to be relied upon since any slight price
variation could cause a major shift within the customers.

Potential new entrants

Despite the high levels of saturation, it is not a difficult task entering the fashion market, reaching
a small group of customers, and expanding from there; obviously, challenges come up when trying
to establish connections on a big corporate level, in this case, there are also cost associated with
different services like shipping, logistics, and return of items management.

Substitute products and services

In the near future, some sustainable textile could emerge, changing the actual situation. About the
services, due to the Covid-19 pandemic, companies focus on reaching out through digital means,
rather than the conventional ones, and boosting up e-commerce.

Bargaining power of buyers

Customers can easily switch between brands without facing additional costs. On the other hand,
they usually don’t have the privilege of negotiating for a better price or asking for a price reduction.

Bargaining power of suppliers

There is a high number of suppliers, so big companies spend a lot of time evaluating both the
textiles and the manufacturing process to ensure high levels of quality. Usually, long-term
relationships are stipulated.

2
2.2. Internal Analysis
2.2.1. Value Chain Model
Integration, Sustainability, and Innovation are present in all phases of Value Chain, in order to
meet customers’ expectations and offer them quality fashion.

3
3. COMPETITORS’ CHOICE
There are many companies that are part of the fast fashion industry and can represent potential
competitors for Inditex. The ones considered initially, like the Italian group Percassi, were not
chosen because they also have different cash-generating activities, or Uniqlo that operates
primarily in the Asian continent, therefore with diverse geographical distribution.
For an objective comparison, we considered many factors. First, we focused on the
company’s revenues and structure: Inditex1 is a group that expands in many brands
so, in this optics, we chose H&M2 and PVH3. This factor, indeed, is strongly related
to the business model used by them, customer-centered and focused on sustainability
and innovation. PVH was preferred over GAP, even if smaller, as the first company is
much more appreciated in Europe. The second factor taken into consideration was the
fiscal year and the accounting methods used in the annual report drafting; among the two
companies mentioned above, slight differences were found but fiscal years closure differs within
a margin of two months, so we decided to look at them in our benchmark analysis.

4. FINANCIAL ANALYSIS
Two noticeable situations largely influenced this analysis, which is focused on the triennium 2018-
2020, these are:
 IFRS16: The New Leases Standard. This new accounting policy, introduced to provide a
more transparent picture of the companies to the shareholders, from our side introduced
problems both comparing indexes throughout years and for different companies. While
Inditex and PVH introduced it in their annual reports in 2019, H&M did it in 2020.
 Covid-19 Pandemic. This extraordinary situation had a significant impact on the industry
from the end of 2019; in particular, it involved a lot of challenges such as the reduction of
sales, store closures and shifting towards e-commerce.

4.1. Profitability Analysis

4.1.1. Shareholders’ Perspective
The Return on Equity, measuring the remuneration on the investments made by shareholders, is
followed by the investigation of the Net Profit Margin, to clarify how Inditex and its competitors
managed their costs throughout the years.

1 Zara, Pull&Bear, Massimo Dutti, Bershka, Stradivarius, OYSHO, Zara Home, Uterqüe
2 H&M, H&M Home, Weekday, COS, & Other Stories, Monki, ARKET, Afound, Sellpy, Treadler
3 Calvin Klein, Tommy Hilfiger and Heritage Brands.

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 ROE
Return On Equity
Along the triennium, Inditex is able to maintain the highest
40,00%
20,00% ROE, sharing a similar trend of H&M as a whole. For both
0,00% companies the uppermost value was in 2019, but according
-20,00%
-40,00% to different reasons. Notwithstanding a slight increase of
2018 2019 2020
the equity meaning higher stability of the group, Inditex
Inditex 23,53% 24,46% 7,60%
obtained a higher ROE, because of operating expenses
H&M 21,61% 23,56% 2,28%
PVH 12,81% 7,18% -24,05%
reduction (-12.4% respect to 2018), along with a steady rise
in revenues, positively affecting the net profit. This result
has been achieved despite the D&A growth of 157% (partially due to IFRS16), diversely ROE
would have been even higher. Regarding H&M, the result is the consequence of a slight decrease
in the equity and a rise in revenues, which led to a higher net profit, even considering the growth
of D&A and taxes4.
Moving to 2020, there’s evidence that all groups’ performance was inferior if compared to
previous years’ one and, especially, Inditex closed the period with a sharp -69% decline in the
ROE, mainly due to the net profit variation5, as only a minor decline has been stated for equity.
On the other side, H&M and PVH showed less stability, as their equity diminished from 2018 to
2020, respectively of -7% and -19%. Inditex generally had a better response to such a difficult
year, particularly if compared to PVH, which ended 2020 with considerably negative net profit.

NPM
Inditex significantly detaches its competitors, showing its
Net Profit Margin
ability in managing costs and succeeding in maintaining
20,00%
the highest value. 2020 ended with a net income decrease
of -70% with respect to 2019, firstly related to lower 0,00%
revenues, whose contraction was contained at -28%, thanks -20,00%
2018 2019 2020 to Inditex leading position
2018 2019 2020
6 Inditex H&M PVH
Vertical analysis of Inditex
in online fashion retailing .
Looking in-depth at the
Revenues 100% 100% 100%
vertical analysis of Inditex, we underline better handling of
Operating costs 83% 83% 93%
operating costs, which is translated into a final higher net profit.
Net Financial costs 0% 0% 1%
Analyzing Inditex in 2020, we can see that the incidence of cost of
Taxes 4% 4% 1%
sales remained stable7, while there was a rise in operating
expenses8 and D&A9. For H&M, the impact of D&A on revenues was even greater, moving from
5% in 2019 to 14% in 2020 with a 135% increase of the costs, annulling the good efficiency level

4
Taxes represented 23% of EBT, compared to 19% of EBT in 2018.
5 Due to the contraction in revenues, as a result of the pandemic.
6 Online sales registered a strong growth of 77%, partly due to RFID and SINT adoptions, which made possible to react to

governments’ restrictions, such as the closure of physical stores.

7 Gross profit always equal to 56% of revenues from 2018 to 2020.
8 As a consequence of the drop in revenues, the cost is lower than in 2019, but in 2020 it has a higher impact on revenues.
9 Increase of 8% is related to a variation in impairment losses and loss on assets.

5
 2018 2019 2020
showed until EBITDA10, which was higher than in
Impact of Operating Costs on Net Sales
2019. In the end, PVH obtained the worst result, with
Inditex 83% 83% 93% an impact of selling expenses and D&A on revenues
H&M 93% 93% 98% equal to 51% and 18% respectively, and an increase of
PVH 91% 94% 115% the cost of 289%.

4.1.2. Overall Company’s Perspective

With this section, we’re trying to comprehend how middle-line managers exploit the resources
available to generate EBIT. As payables represent almost 75% of current liabilities, we stayed with
Return on Investments, instead of Return on Assets and Return on Capital Employed. Return on
Sales is not included because of the considerations already mentioned for NPM, while Asset
Turnover Ratio is part of the following leverage analysis.

ROI
All the companies show a remarkable decreasing trend
in the triennium, but PVH, with a negative EBIT is not Return On Investments
comparable to the others. Between 2018 and 2019, 40,00%
30,00%
Inditex’s ROI diminished by -26%, even if this 20,00%
reduction is mainly associated with the total assets' 10,00%
0,00%
increase of 31%, since the group continued its growth, -10,00%
thus obtaining a better EBIT. In the following year, the -20,00%
2018 2019 2020
shrinkage of the EBIT11 at a higher pace than the Inditex 29,40% 21,85% 7,27%
reduction of resources available to the company, caused H&M 19,78% 23,20% 2,30%
the significant ROI’s drop. Different situation for H&M, PVH 10,30% 5,34% -10,58%
that reached the best index performance in 2019 as a Inditex H&M PVH
consequence of EBIT growth and stable assets, while in
2020 was affected by Covid-19 and new leasing policies causing a sharp cut of the index (-90%).

4.1.3. Stakeholder’s Perspective

Firstly, we compared ROI to WACC12 to understand whether the return from the investment made
by the company is sufficient to cover the cost of debt and equity capital. Then, we chose Debt-to-
Equity ratio to have an idea about the origin of the company’s funding sources. To conclude, we
looked into Residual Income to measure the firm’s leftover, after meeting all of its financial
obligations.

10 Earning Before Interest and Taxes and Depreciation & Amortization.

11 Covid-19 related.
12 WACC = Weighted Average Cost of Capital.

6
ROI vs WACC
The ROI-WACC trend is negative, even if the company proved itself able to cover the cost of the
capital with earnings generated by invested
capital. This is true principally for 2018 and ROI vs WACC
2019 because the difference between ROI and 30%
25%
WACC is important, meaning that Inditex 20%
15%
could increase its leverage since nobody 10%
5%
expected the pandemic. On the contrary, as 0%
-5% 2018 2019 2020
already mentioned, ROI had a relevant fall in -10%
2018 2019 2020
2020. Moving to ROI - Inditex ROI - H&M ROI - PVH
H&M and PVH, WACC - Inditex WACC - H&M WACC - PVH
ROI - WACC
the reduction of
Inditex 0,232 0,139 0,009
ROI-WACC difference is mainly referred to ROI’s decline in the last
H&M 0,133 0,174 -0,029
year for the first company and both in 2018 and 2019 for the second
PVH 0,002 -0,046 -0,203 one13, whereas WACC remained almost stable.

D/E
The extremely low D/E ratio characterizes Inditex’s capital structure and is the result of being
financed mainly through equity, relying on wholly-owned funds to leverage its finances14.
In 2019 there has been an increment of 92% in total
liabilities compared to 2018, due to the application of IFRS Debt-to-Equity Ratio
and the large volume of leases, which Inditex takes place. 3
2
On the other side, 2020 is signed by a reduction of the 1
0
company’s indebtment (-11.72% of liabilities), according to 2018 2019 2020
Inditex 0,48 0,9 0,82
greater uncertainty Covid-19 related. Turning to H&M, it
H&M 1,03 1,11 2,19
follows the similar trend of major indebtedness of PVH, but
PVH 1,04 1,35 1,81
with higher values of leverage, especially in 2020 as a result
of more liabilities accounted.

Residual Income RI
Regardless of the negative path, Inditex once more exceeded the
3000,00 performance of H&M15. In fact, between 2018 and 2019 RI’s
2000,00
1000,00 reduction is not so significant since EBIT increased by 10%, but
0,00
-1000,00 total assets grew more (+31%) due to new accounting policies. On
2018 2019 2020
the contrary, the downturn of EBIT by 68%, consequence of Covid-
Inditex H&M 19, triggered the shrinkage of RI by 68% in 2020, with less

13
Despite the worse financial situation of PVH compared to H&M, a portion of the different results in the last biennium is a
consequence of different times of IFRS16 application.
14 Unusual because D/E is typically higher than 1, as the liabilities’ cost is lower than the one of equity considering that the risk

for shareholders is higher respect to the one for stakeholders, so the company prefers to rely on money provided by bank.
15 The comparison with PVH is not relevant, considering the absolute indicator and the difference between the two firms’ scale.

7
availability to the enterprise. A different story for H&M, the slight increase in the first biennium,
was entirely canceled by the reduction in EBIT and the increment in assets, causing some
difficulties to this corporation, indeed, probably RI wouldn’t have been negative excluding the
new IFRS16 effect, but almost nothing would have remained to the group.

4.2 Liquidity Analysis

4.2.1. Asset-Liabilities Perspective
At first, we excluded Net Working Capital and Net Operating Working Capital as they don’t
represent a fair picture of the company’s short-term solvency.
In fact, Inditex exhibits a negative NOWC, but this indicator Inditex - Current Assets
doesn’t take into account the voice “Cash and Cash 100%
Equivalent” – main component of current assets16 used by the 0%
firm to repay its payables17 – and we preferred Current Ratio 2018 2019 2020
over NWC, as the second one is an absolute indicator, so it Other curr ass Inventories
loses relevance in the benchmark analysis. Secondly, we chose Receivables Cash and Eq
to analyze the Inventory Turnover Ratio, understanding the
importance of keeping low levels of inventory for companies operating in the fast fashion industry,
since the consumers preferences are constantly switching. Finally, we went through DSO18 and
DPO19 to discover more about the bargaining power of Inditex.

CR
Current Ratio Nowadays, the fashion industry requires businesses to
2,50 respond rapidly to the fast-changing customer demand,
2,00
1,50 so the risk of obsolescence in the sector is very high.
1,00
0,50 Still, we decided to go deeper into CR instead of Quick
0,00
2018 2019 2020 Ratio, as one of the pillars of Inditex's business model
Inditex 1,97 1,56 1,73
regards the attempt to maintain low level of inventories.
H&M 1,39 1,30 1,16
Moreover, since the company reached a 100% and 80%
PVH 1,71 1,44 1,53
implementation of SINT20 & RFID21, and IOP22
technologies respectively, and optimized the store network, we expect that it will be capable to
convert inventories into cash in the short-term.

16 Almost 70% of it in 2020.

17
Those are the primary voice of current liabilities, according to vertical analysis.
18 Days Sales Outstanding.
19 Days Payable Outstanding.
20
SINT = Integrated stock management system allows to fulfil custmers’ online orders both from store warehouses and online
stockrooms (website).
21 RFID = Radio Frequency Identification Systems to help customers find items instantly in-store, nearby or online (website).
22 IOP = Inditex Open Platform, this digital architecture allows Inditex to adapt to customers in real time.

8
Even if CR dropped between 2018 and 2019, as current assets increased at a slower pace than the
current liabilities, this can be mainly referred to the transition to IFRS16, causing a growth of lease
liabilities. Differently, from 2019 to 2020, this ratio increased, almost reaching the value of 2018,
thanks to a cutback of current liabilities more evident than the one of current assets. Overall,
Inditex shows an optimal ability to pay off its short-term debt obligations with its current assets,
unlike competitors, which have a lower capability to manage the liquidity in the short-term,
however CR is always higher than 1 meaning good potential of liquidity availability.

ITR
Inditex has very high values of ITR, demonstrating its 2018 2019 2020
ability to have high revenues, maintaining low level of Inventory Turnover Ratio
inventories, particularly if compared to its competitors. Inditex 9,63 12,47 8,79
This is a promising result, showing the company’s H&M 5,58 6,15 4,89
expertise to align production to sales, especially PVH 5,57 6,13 5,03
considering that stocks represent amounts of capital trapped. Of course, the increasing trend was
interrupted in 2020 due to lower revenues.

DPO vs DSO
DSO values for all these companies are pretty similar and consistent with the industry’s average.
2018 2019 2020 These values remained pretty stable over
DSO DPO DSO DPO DSO DPO the years, regardless of the Covid-19
Inditex 11,45 35,51 10,07 36,31 12,79 38,57 situation, proving a good bargaining
H&M 10,98 25,08 9,22 26,07 6,02 37,92 power towards customers.
PVH 29,34 77,57 27,31 71,28 32,83 122,28 Moving on supplier’s side, DPO23 is
around 37 days for Inditex. This number leads us to two possible coexisting conclusions: firstly,
this period time for the firm is concise, so suppliers are attracted to work with it, the second one,
paying suppliers often means higher outgoing cash flows. Hence small investments in short-term
are reduced. Both these results are coherent with the attention placed by the enterprise in the
relationship with its suppliers and customers and its commitment to its supply chain that are critical
points of Inditex’s strategy.

4.2.2. Cash-Flow Perspective

To better examinate the financial position of Inditex, we decided to analyze the Capital
Expenditure Coverage and the Cash Flow-to-Debt Ratio (CFDR), by evaluating if the cash
generated through operating activities is enough to cover the one employed in investing activities
and financial liabilities, respectively. We focused on CFDR rather than Short-term Debt Coverage
because the most interesting variations regard the total debt liabilities.

23 DPO found on Inditex Annual Report.

9
 CAPEX Coverage
CAPEX Coverage For all three companies, the Cash Flow from Operating
8,00 activities is more than double the CAPEX24 in each year
6,00
4,00 (except H&M in 2018): in particular, the exceptionally
2,00
0,00
high value of CAPEX Coverage shown by Inditex until
2018 2019 2020 2019 shows the group strength and its organic growth25;
Inditex 2,49 6,05 4,23
then, this trend has been locked in some way by the
H&M 1,66 2,39 4,76
pandemic, though remaining high. So, the integration
PVH 2,18 2,96 3,08
between physical and online stores allowed Inditex to
keep its strong cash position in the last year analyzed. On the other hand, H&M and PVH are the
ones that, despite the lower numbers than Inditex, and Covid-19 spread in 2020, have a constant
improving trend, offering an optimistic perspective.

Cash Flow-to-Debt Ratio

Except for 2018, the situation is pretty similar for all the
companies analyzed, which seem able to pay off both long and Cash Flow-to-Debt ratio
40,00
short-term debts with their CFO in less than 10 years.
30,00
Inditex presents such a high value in 2018 because debt
20,00
liabilities were almost worthless that year, especially if
10,00
compared to 2019 and 2020, due to IFRS16. Covid-19 0,00
situation caused 2018 2019 2020
Inditex - CFO and Debt Liabilities the closure of
2020 around 1200 physical stores, giving rise to a
2019 reduction of CFO. This, combined with almost
2018 stable debt liabilities, caused an increase in the years
0,0 € 2.000,0 € 4.000,0 € 6.000,0 € 8.000,0 € needed to pay for Inditex26. Regardless the negative
Debt liabilities Operating cash flow trend for the firm, it remains with a high CFDR
compared with competitors.

4.3. Leverage Analysis

We decided to use the DuPont approach to break down ROE into its three components and catch
how this indicator is mainly formed:
 Net Profit Margin: represents the return that shareholders receive from each monetary unit
sold, decreasing in time erodes ROE. The NPM had a huge drop in 2020, which could have
represented even lower ROE values if the EM didn't remain stable during the years. It is
mainly responsible for the ROE's value variation between 2019 and 2020 for all the three
companies.
24 CAPEX computed as payments relating to investment in intangible assets + in PPE + in companies.
25 CAPEX needs financed substantially in full with the funds generated by the business.
26 From zero in 2018 to two years in 2020.

10
  Asset Turnover Ratio: its downward trend is due to a higher increase in the assets than
revenues in 2019, while a significant shrinkage of revenues over assets in 2020. For apparel
retailing industries, this value fluctuates around 1.00 due to less expensive fixed assets and
relatively higher revenues.
 Equity Multiplier: it grew between 2018 and 2019 because assets increased and equity
remained nearly the same, instead in 2020 for mitigating part of pandemic negative effects,
assets were lowered, but equity remained the same, resulting in a lower value.
Despite the optimal Inditex H&M PVH
value of ROE, Inditex 2018 2019 2020 2018 2019 2020 2018 2019 2020
is not practically using ATR 1,21 0,99 0,77 1,77 1,93 1,07 0,82 0,73 0,54
the financial leverage, EM 1,48 1,90 1,81 2,03 2,11 3,19 2,04 2,35 2,81

this is probably due to NPM (%) 13,19 12,89 5,41 6,01 5,78 0,67 7,73 4,21 -15,93

high level of liquidity ROE (%) 23,53 24,46 7,60 21,61 23,55 2,28 12,80 7,18 -24,05
that the firm generates, allowing it to self-finance proving itself as a non-risk level reality and able
to sustain its business thanks to high margins on sales, fast warehouse rotation and credit payments.

4.3.1. Risk & Operational Efficiency Matrix

To add more details about Inditex’s competitors in our leverage analysis, we included this matrix.
Covid-19 spread impacted market averages and the overall path, so 2020 was not considered for
this part of the analysis.
 Inditex: is the company with the best position among the three, moving within the happy face
area until 2019. It is evident that the firm is not leveraging much, as explained before, and
the reduction of ROA in that period is not
significant as it’s mainly due to the IFRS
transition.
 H&M: it remains in the happy face area in the
two years, even if shifting towards the thunder
area as a consequence of D/E slight increase,
although remaining under the average27, and of
a small growth of ROA.
 PVH: it is the firm performing worse, in fact,
even before the pandemic, it’s in the foggy area,
proving itself not so profitable as it could potentially be. As well as the other two, the
company is not leveraging much, while ROA’s decline is mainly due to new accounting
standards.

27 It is not so high, so having this value higher than the average doesn’t mean being risky.

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5. SUSTAINABILITY ANALYSIS
According to a survey conducted by McKinsey, nowadays, more than 3 out of 5 customers
consider environmental impact as an important factor when making purchasing decisions,
acknowledging some trends like the annual garment production growth of 2,7%, or the 1% or less
of products recycled, can lead to irreversible and dramatic consequences for the planet.
Sustainability and awareness are some of the guidelines of Inditex, which
adopted several policies and strategies, such as the 2030 Agenda for
Sustainable Development, to contribute to the Sustainable Development
Goals defined by the European Commission. Its sustainable approach
characterizes all the activities along the value chain, from the choice of raw
materials and suppliers to the respect for human rights and safety standards while preserving the
relationship with the stakeholders.
According to the ESG28 rates – computed by different agencies and based on Alphavalue29 – the
average industry scores30 is 5, while Inditex obtained 5.8 and H&M 7.5 so, both are better
positioned than the average.
To preserve coherence with the whole report, we decided to have a more economical approach to
2018 2019 2020 sustainability by analyzing investments in
Investments 46,2 49,2 71,8 sustainable projects and, particularly, the recycling
EBITDA 5457 7598 4552 and utilization of used clothes by comparing how
% 0,85% 0,65% 1,58% much money Inditex invest in sustainability
projects with the EBITDA values. We can conclude that, regardless of Covid-19 negative impact
on revenues, the percentage of investments grew from 2019 to 2020, confirming the firm’s
commitment to its sustainability goals.

6. CONCLUSION & FUTURE DEVELOPMENT

In the end, the pandemic also laid its burdens in 2021, leading companies to reshape their business
model to respond to the critical themes related to global economy and customers’ shifts. It is
anticipated31 that the first real sign of recovery for this sector would be observable during the
second semester of 2022, with a revert to 2019 profit levels by the end of 2023. However, more
optimistic horizons are disclosed by the measures to control the pandemic’s spread. Inditex, with
a highly flexible business model, proved itself able to take advantage of opportunities offered by
new technologies requirements, not just improving the online stores, following the e-commerce
positive trend, but also increasing the social initiatives and, therefore, the number of followers to
190M on social media. Digitalization and optimization of the online experience have been key
aspects for e-commerce players like Zalando, Asos and Farfetch, but also for Inditex. These factors

28 Environmental, Social and Governance

29 Leading provider of Independent European Equity and Credit Risk Research
30
This score aims at providing a sense of sustainability on a scale from 1 to 10, and it’s based on energy, CO2 emissions, waste,
water withdrawal (emission or consumption per € of capital employed).
31 By BOF with McKinsey&Company, The state of fashion 2021.

12
certainly had a positive impact on the firm’s reputation, confirming its position as one of the market
leaders with high levels of competition with H&M.
Besides, one of the few threats that can damage this company is the environmental impact. The
market of new clothes could be influenced by emerging companies that benefit from circular
economies, such as Vinted and Wallapop taking place on the used clothes market, which
effectively raises a market value of around 500 million €. Inditex, already moving in this direction,
should add the reduction of environmental impact to its main target in order to counteract the threat
of being overshadowed by emerging markets, keeping on maximizing profits.
Summing up, Inditex presents itself as a profitable and stable company capable of self-financing
through its high levels of available cash and practically no need to use the financial leverage.
It is perfectly aligned with the needs of the fast fashion industry, just thinking to the policy of
maintaining low levels of inventories or its strong bargaining power along the supply chain.
Compared to its competitors, it is a company with potential to keep on growing – excluding 2020’s
adversities - and presenting leadership in this sector, with the capability to increase enterprise value
and to generate profit.

13
7. ANNEX
Link to the excel spreadsheet
The tables with the indicators calculated and further analysis can be found on the excel file:
https://polimi365-
my.sharepoint.com/:x:/g/personal/10667193_polimi_it/EddG_Ie1jgRFgNultpeCO_sBid9QVRb
QDX-49d8IWIcTGg?e=zKk97F&wdLOR=c62B48C57-C1A9-6B4C-8C64-4AF2C8B21E41

IFRS16 management
These new policies changed the way financial statements were structured, so from their utilization
some voices presented variations. We decided to consider these variations in the calculation of our
indexes and, at the same time, we explained whether the change of the index was due to this new
accounting policies or according to different reasons. There is also a comment at the beginning of
the financial analysis explaining when these changes took place.

Calculations for Risk/Operational Efficiency Matrix

The first ten companies – Inditex, H&M, PVH, Uniqlo, GAP, American Eagle Outfitters,
Abercrombie & Fitch, L Brands, Ralph Lauren, Espirit – with the highest revenues values were
considered for calculating the threshold of the averages for this sector, using different weights
based on their revenues. As some of them presented distorted values compared to the other nine
companies, this information was considered as outlier so excluded from the calculation. The
average was calculated considering the same horizon of time analyzed in this report: from 2018 to
2020.

Calculations for WACC

WACC values were taken from a website, therefore the link is available in the references.

Comment
All the images have been generated by the team members.

14
8. REFERENCES
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from https://www.pvh.com/-/media/Files/pvh/investor-relations/PVH-Annual-Report-
2018.pdf.
 Chirico, N. . PVH Annual Report of 2019. PVH Annual Report of 2019. Retrieved 2021,
from https://www.pvh.com/-/media/Files/pvh/investor-relations/PVH-Annual-Report-
2019.pdf.
 Chirico, N. . PVH Annual Report of 2020. PVH Annual Report of 2020. Retrieved 2021,
from https://www.pvh.com/-/media/Files/pvh/investor-relations/PVH-Annual-Report-
2020.pdf.
 Gestal, I. (2019, December 13). Inditex sells more with less: Reduces its inventory for the
second quarter in a row. Retrieved November 28, 2021, from
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for-the-second-quarter-in-a-row.html.
 Gurufocus.com. 2018-2020. Hennes & Mauritz AB WACC [online] Available at:
<https://www.gurufocus.com/term/wacc/OSTO:HM%20B/WACC-/Hennes--Mauritz-
AB> [Accessed 15 November 2021].
 Gurufocus.com. 2018-2020. Industria De Diseno Textil SA Financial Data [online]
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 Gurufocus.com. 2018-2020. PVH WACC [online] Available at:
<https://www.gurufocus.com/term/wacc/NYSE:PVH/WACC-Percentage/PVH>
[Accessed 15 November 2021].
 Inditex. (2020, June). Inditex 1Q20 Sales Drop Limited to 44% Despite up to 88% of
Stores Closed (Rep.). Retrieved 2021, from
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s+tiendas+cerradas%2C+la+ca%C3%ADda+de+ventas+se+limita+al+44%25
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from
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aa68e3-d7b2-bc1d-3dab-571c0b4a0151
 Isla, P. (n.d.). Inditex Annual Report of 2019. Inditex Annual Report of 2019. Retrieved
2021, from
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aa68e3-d7b2-bc1d-3dab-571c0b4a0151
 Isla, P. Inditex Annual Report of 2020. Inditex Annual Report of 2020. Retrieved 2021,
from
https://www.inditex.com/documents/10279/645708/2019+Inditex+Annual+Report.pdf/25
aa68e3-d7b2-bc1d-3dab-571c0b4a0151

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 Lunden, Ingrid. “Vinted Raises $303M for Its 2nd-Hand Clothes Marketplace, Used by
45m and Now Valued at $4.5B.” TechCrunch, TechCrunch, 12 May 2021,
https://techcrunch.com/2021/05/11/vinted-raises-303m-for-its-2nd-hand-clothes-
marketplace-used-by-45m-and-now-valued-at-4-5b/?guccounter=1.
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promise in perilous times. Retrieved November 28, 2021, from
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 Redacción, L., & says, B. J. (2020, November 4). The marketing and advertising strategy
of Zara: Telling advertising. Noticias de Marketing y Publicidad | Eslogan Magazine.
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advertising-strategy-of-zara/

 Rates of currency conversion were adopted using https://www.x-rates.com/ at the day of

writing this report.

 Value investing: Market insight of investment gurus. (2021). Retrieved November 28,
2021, from https://www.gurufocus.com/new_index/

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