Debt-free Zara looks beyond pain in Spain

Sun Oct 26, 2008 9:03pm EDT
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By Sonya Dowsett

ARTEIXO, Spain (Reuters) - Retail sales in Spain are down around six percent and the textile industry has lost 70,000 jobs since last year, but investors can retain some hope for Spanish clothing retailer Inditex.

Even in a climate of enormous economic uncertainty and with a slumping home market, 20 of 29 analysts polled by Reuters Estimates have a "buy" or "outperform" recommendation on the stock.

Operating in a discretionary market and with Spain in dramatic slowdown, Inditex might be expected to suffer.

But analysts cite its lack of debt, tight control of the production process, geographical diversification, long-term growth prospects and attractive valuation as reasons to invest.

"Quality and safety at a good price," Goldman Sachs called the stock in a note earlier this month which added Inditex to its "conviction buy" list.

The company is best-known for its fast-to-market Zara brand, targeting the price-conscious consumer. Its model of high-speed delivery of almost real-time designs is so famous it has been cited by Harvard Business School as a case study.

While Spanish competitors like Adolfo Dominguez book sales falls of over 70 percent and clothing manufacturers like the makers of Lois jeans go to the wall, Inditex has kept up rapid expansion abroad.

A core strength is iron-like distribution control: every piece of Zara womenswear sold in nearly 1,500 stores worldwide passes through this cavernous distribution center at the group's headquarters in the eucalyptus-clad hills of northern Spain.   Continued...

<p>Customers try on clothes inside a Zara store in central Madrid October 20, 2008. REUTERS/Sergio Perez</p>