2013 Report - Inditex

Inditex: Fashioning the Strongest Model
in Apparel Retail
SEPTEMBER 2013
Differentiated sourcing and supply chain will deliver sustainable mid-teens earnings growth
We rate Inditex outperform with a €115 target share price based on our view that the company
has the best business model in apparel retail, which will deliver mid-teens earnings growth
through the medium term and generate significant free cash flow
Inditex prioritizes mark-down management over lower costs in the supply chain, giving it a
sustainable margin advantage relative to peers; there are two keys to the model: proximity
sourcing, which cuts lead times vs. peers & protects against fashion misses, and product scarcity
We expect that over the medium term, Inditex will deliver sales growth at an 11% CAGR, with
c.64% of sales growth coming from new space (Inditex targets 8-10% space growth per year)
and the remainder from 4-5% LFL sales growth p.a.
While Inditex trades at a high absolute multiple (23x NTM P/E), we believe this is justified
given earnings growth sustainability and see significant upside in the share price
SEE DISCLOSURE APPENDIX OF THIS REPORT FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS
INDITEX: FASHIONING THE STRONGEST MODEL IN APPAREL RETAIL 1
Portfolio Manager's Summary

We rate Inditex outperform with a target share price of €115, based on our view
that it has the best business model in apparel retail, which will deliver low- to mid-
teens earnings growth through the medium term (c. seven years) and generate
significant free cash flow as we estimate that Inditex will add c.€850 million in
cash p.a. to its existing cash balance of €4.1 billion.
Inditex has a superior business model that prioritizes mark-down management
over lower costs in the supply chain, giving it a sustainable advantage relative to
peers. We see two keys to this model: 1. Proximity sourcing, which cuts lead times
from industry averages of six to nine months to three to five weeks, protects Inditex
against fashion misses. 2. Product scarcity: Zara produces c.20,000 items/year,
compared to 1,000 for a typical apparel retailer, thereby reducing the importance of
any one item. Without as many fashion mistakes, and with low availability per
style, Inditex can reduce the level of total markdowns, which we calculate provides
a c.800 bp margin advantage compared to the industry average.
We expect that over the medium term, Inditex will deliver sales growth at an
11% CAGR, with c.64% of sales growth coming from new space (Inditex targets 8-
10% space growth per year) and the remainder from 4-5% LFL sales growth p.a.
Although these space growth targets are not trivial given Inditex's 6,009 stores in
86 markets as of January 2012, we believe Inditex's space growth target of 8-10%
p.a. is sustainable through the medium term given that Zara and Inditex have low
market share relative to peers outside of Southern Europe. We have evaluated each
of Zara's markets in order to rank each market's potential for further sales and store
growth. Using a common sense set of metrics about each market as well as
information about Zara's relative market share and store count compared to the No.
1 apparel retailer, we estimate further store expansion in the 15 most attractive
markets alone could sustain four to seven years of Inditex's space growth targets.
Given space growth will not be isolated to these markets and Inditex will also
continue to expand its seven other brands, we are comfortable that Inditex can
achieve its space growth targets for at least the next seven years.
Finally, we believe that 4-5% LFL sales growth is achievable over the next few
years, given the geographic reach and demonstrated success of the Inditex brands in
emerging markets. Forty percent of Inditex's sales are currently from higher growth
rate emerging markets and in which we believe Inditex is delivering double-digit
LFL sales growth. Given the growth of these apparel markets generally, we expect
Inditex's LFL sales growth to outpace peers with less exposure to emerging
markets. Inditex also derives price mix benefits from sales outside of Europe.
Inditex's prices are higher in emerging markets than in Europe, and as its sales mix
has shifted away from Spain in favor of Asia and the Americas, we estimate that
the price differential in this geographic shift has provided an average 1.3% boost to
sales. Despite this price differential, sales densities in emerging markets are strong,
and above those of Europe, suggesting that the volume of sales in emerging
markets has also been high. As a result, Inditex reached a new peak sales density of
€5.31 million/1,000 square meters in 2012/13.
While Inditex trades at a high absolute multiple (23x NTM P/E), we believe
this is justified given earnings growth sustainability and see significant upside in
the share price.
Jamie Merriman jamie.merriman@bernstein.com +44-207-170-0516

Anthony Sleeman, ACA anthony.sleeman@bernstein.com +44-207-170-0584
Richard Wielechowski richard.wielechowski@bernstein.com +44-207-170-5007
September 3, 2013
2 INDITEX: FASHIONING THE STRONGEST MODEL IN APPAREL RETAIL
Table of Contents
Significant Research Conclusions 5
A Competitive Advantage in Apparel Retailing 15
Is Mid-Teens Earnings Growth Sustainable? 33
Assessing the Opportunity for Chinese Growth 53
Sales Densities by Region Reveal Inditex's Strength in Emerging Markets 69
What's Driving Sales Growth? Price or Volume? 79
Beyond Zara — A Detailed Look at the Other Brands 89
On Valuation… 125
Inditex Financial Statements 147
Index of Exhibits 149
Exhibit 1 Financial Overview

Inditex
ITX.SM
(€/c)
Recent Price (08/30/13) 100.15
Target Price 115
Rating O
52-Week High 111.80
52-Week Low 85.51
TTM Performance 15.9%

TTM Relative Performance 1%
Market Cap (million) 62,404
Earnings Per Share

FY2012 378.73
FY2013E 421.85
FY2014E 479.74
FY2015E 543.27
FY2016E 613.27
P/E Ratio
FY2012 26.4x
FY2013E 23.7x
FY2014E 20.9x
FY2015E 18.4x
FY2016E 16.3x
Note: The stock is benchmarked against the MSCI Europe Index, which had a closing price of 1238.93 on August 30, 2013.
Source: Bloomberg L.P., FactSet and Bernstein estimates and analysis.
Significant Research Conclusions

Inditex — Nobody Does It Inditex is the world's leading fashion retailer, present in 86 countries as of
Better FY12/13. We expect strong sales and earnings growth over the medium term (see
Exhibit 2), driven by a combination of a unique business model, leading to lower
markdowns, and the significant room we see for further expansion from all of
Inditex's banners, both in new geographies and within already entered countries.
Exhibit 2 We Expect Sales Growth at a CAGR of 11% Through 2016/17, in Line with the CAGR
of 11% from 2007 to 2012
25% Inditex Drivers of Revenue Growth
20%
15%
YoY Change
10%
5%
0%
-5%
03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14E 14/15E 15/16E 16/17E
Total Space LFL FX
Source: Corporate reports and Bernstein estimates and analysis.
Unique Business Model Inditex has a unique business model that we believe offers a sustainable advantage
Provides a Sustainable relative to other retailers. Higher costs of production and distribution are accepted
Competitive Advantage in return for reduced fashion risk and more full-price selling.
Fashion can be a risk to apparel retail in two ways, as retailers can carry too
much of products that are "fashion misses" and too little of products that are
popular. Fashion misses must be discounted, reducing profitability, and having too
little of popular products results in lost sales at best and frustrated customers at
worst. In our view, Inditex's apparel retailing strategy does a better job at mitigating
these risks than most competitors. There are two keys to this strategy: 1) proximity
sourcing for high-fashion-content items and 2) selling as much merchandise as
possible at full price.
Fifty percent of Inditex's product comes from proximity locations in Spain,
Portugal and Northern Morocco, with a three to five week lead time, while much of
the remaining production (c.15% of total) occurs in near-proximity locations in
Turkey with a 10-12 week lead time (see Exhibit 3). This means that Inditex's
weighted lead time is roughly 14 weeks, or half that of other apparel retailers.
The faster lead times mean Inditex has greater flexibility in its product lines.
Typical fashion retailers enter a season with 80-100% of product committed,
whereas Inditex enters a season with just 60% committed (see Exhibit 4). More
than half of Inditex's committed product (or 35% of total season product) consists
of fashion "basics" that are predominantly manufactured in Asia with longer and
more typical apparel lead times. The remaining beginning-of-season commitment
consists of the initial product sent to stores. The remaining 40% of the season's
merchandise will be produced and in many cases designed throughout the season.
Exhibit 3 Half of Inditex Merchandise Is Produced in Exhibit 4 Inditex Commits to 60% of the Collection at
Proximity Locations With Three to Five the Start of the Season and 40% Open to
Week Lead Times Buy
Open to
Buy: Committed
Proximity
designed at Start of
Asia, 35% (Spain,
and Season:
Portugal,
produced fashion
N.
in season, basics,
Morocco),
40% 35%
50%
Committed
at Start of
Near- Season:
Proximity high
(Turkey), fashion
15% content,
25%
Source: Corporate reports and Bernstein analysis. Source: Corporate reports and Bernstein analysis.
Inditex marries the greater flexibility of its supply chain to a high level of
responsiveness to store level feedback. The company utilizes the on-the-ground
knowledge and experience of its store managers to replenish successful styles and
influence the development of new merchandise. Store managers are often in daily
contact with the Product Store Teams at headquarters. The Product Store Teams sit
with the design and sourcing teams and use the feedback they receive from store
managers to help design new garments or modify existing lines. This design
process means that roughly 20,000 products are designed by Zara in a year (and
36,000 are designed at the Group level), whereas a typical competitor would design
only 1,000-2,000.
Once a design is decided upon, patterns are digitized and sent to production
factories, which may be proximity locations owned by Zara or part of Zara's
external manufacturing network, in a proximity location, a near-proximity location
or in Asia. Products are designed in small batches and more production runs are
ordered depending on sell-through. Regardless of where a garment is ultimately
produced, all products come back through the distribution center in Spain before
being sent out to stores. The company ships products to stores twice a week, with
about 70% of shipments going by truck and 30% by air, at a cost of about 1% of
full price sales for truck shipments and 2% of full price sales for air shipments.
Inditex's model is more costly than that of competitors in some ways, such as a
higher reliance on more costly geographies for sourcing and higher shipping costs,
but we believe these are offset by the benefit of a higher level of full-price selling.
According to Inditex, the company sells 80-85% of merchandise at full price,
whereas typical apparel retailers may only sell 60-70% of merchandise at full price.
In addition, because less of Inditex's merchandise is ultimately put on sale,
markdowns can be as much as half of that experienced by other apparel retailers
(typically c.30%). We find that the benefits of full-price selling far outweigh the
costs, as a sensitivity analysis suggests that if Inditex had markdown levels similar
to its competitors, operating profit margins would be as much as 8 pp lower (see
Exhibit 5 and Exhibit 6).
Exhibit 5 Total Markdown Depends on the Percent of Exhibit 6 Total Markdown Has a Much Bigger Impact
Product Sold at Full Price and the Level of on EBIT Margin Than Shipping Costs
Markdown on Non-Full-Price Items
Total Markdown Sensitivity EBIT Margin Sensitivity
% of Sales at Full Price Total Markdown
60% 65% 70% 75% 80% 85% 90% 1% 3% 5% 7% 9% 11% 12%
Level of Markdown
Shipping (% of
10% 4% 4% 3% 3% 2% 2% 1%
on Non-FP Items
1.0% 21.5% 19.9% 18.2% 16.4% 14.6% 12.6% 11.7%

15% 6% 5% 5% 4% 3% 2% 1% 1.3% 21.2% 19.5% 17.8% 16.1% 14.2% 12.3% 11.3%
Cost of
20% 8% 7% 6% 5% 4% 3% 2% 1.5% 21.0% 19.3% 17.6% 15.9% 14.0% 12.1% 11.1%
25% 10% 9% 8% 6% 5% 4% 2% 2.0% 20.5% 18.8% 17.1% 15.3% 13.5% 11.5% 10.5%
30% 12% 11% 9% 8% 6% 5% 3%
Note: Grey box signifies where we believe Inditex sits in the Note: Grey box signifies Inditex's reported EBIT margin in 2012/13,
markdown equation, while red box signifies where we believe while red box signifies where Inditex's margin would have been
the industry sits. (See online version for colors.) at industry markdown levels. (See online version for colors.)
Further Space Growth Will We believe Inditex has significant further opportunities for space growth and
Continue to Drive Sales expect this to be the major driver of sales growth going forward.
Growth Over the past seven years, 71% of Inditex's profit improvement has come from
sales growth and 75% of sales growth has come from new space. With Inditex now
present in 86 markets globally there are relatively few countries left to enter. This
might suggest that space growth will slow going forward, depressing the potential
for future sales growth. However, we believe Inditex is far from the end of its
expansion trajectory, and believe that earnings growth through 2016/17 (CAGR of
c.13%) will be broadly in line with that of the 2007-12 period. In addition, we
expect sales growth at a CAGR of 11% through 2016/17, in line with the CAGR of
11% from 2007 to 2012 (see Exhibit 2).
The reason for our confidence is that, although Inditex has entered a large
number of markets in recent years, its market share in each is typically low,
suggesting there is significant scope for expansion from growing store numbers in
countries already entered, particularly outside of Europe.
We examined the store portfolio of Zara, Inditex's biggest banner. In Europe,
90% of stores serve populations of 400,000 or less, while outside Europe, 90% of
stores serve populations of more than 400,000. In some cases this clearly reflects a
lower level of income in these regions relative to Europe, however, we believe that
as these economies grow, they will support a higher number of stores. In addition,
even the largest cities in the world show different penetration levels. Our analysis
suggests that cities in Europe such as London, Paris, Milan, Lisbon and Berlin have
twice the number of stores per person relative to cities in other parts of the world
like New York, Sao Paulo, Beijing and Shanghai. We expect that over time Zara
will increase the number of stores in these cities, such that their penetration relative
to the population is more similar to that of cities in Europe. We've seen evidence of
this already, as cities like Mexico City and Tokyo are closer to the store penetration
levels of Europe than the rest of the world.
Inditex's stated growth plans call for 8-10% space growth per year for the
foreseeable future. To examine how feasible this level of space growth is given
Inditex's already wide geographic footprint, we ranked each country where Zara
has stores based on common sense metrics we believe would likely affect the
opportunity for further growth and benchmarked Zara's opportunity relative to
leading clothing retailers in each country. Our analysis suggest Inditex's group
space growth targets could be achieved for the next four-seven years merely from
Zara expanding only in the 15 markets we consider as most attractive. However,
given that space growth will not be isolated to these 15 markets and Inditex will
also continue to expand its seven other banners, we are comfortable that Inditex can
achieve its space growth targets for at least the next seven years.
China Offers a Particularly China offers a particularly significant opportunity for Inditex and one it has already
Significant Opportunity made a point of focus.
The Chinese apparel market is, in our view, the most attractive in the world
due to a combination of positive market and competitive factors.
Positive market factors include GDP per capita, which is highly correlated with
per capita clothing spend. Given GDP growth expectations, we expect both metrics
to improve in coming years. Increasing urbanization is also attractive, as a more
urban population has higher population density in cities and potentially higher
fashion demand. As of 2011, only 47% of Chinese population was urban, but this
has risen rapidly in recent years, a trend we expect to continue.
Competitive factors also make the Chinese apparel market attractive. Firstly,
the large number of stores of leading clothing retailers, 3,724 for the market leader
as of 2011, indicates that the market can bear a high number of stores. Secondly,
the Herfindahl–Hirschman Index score of 4% for China reflects the highly
fragmented nature of the market.
Together these factors suggest that the Chinese apparel market is likely to
continue to grow strongly in the medium term, while the opportunity for further
expansion remains substantial, given the fragmented nature of the market and the
seemingly high capacity for stores.
China is already a point of significant focus for Inditex. Having initially
entered the country in 2006, as of January 31, 2013, it had 396 stores, with 25% of
group stores opened in FY 12/13 opened in China. While Zara has the most
significant presence, Inditex is looking to expand all of its banners across China,
with the other concepts representing 258 of the 396 stores at year-end 2012/13.
Inditex also launched Zara online in China in September 2012.
Going forward, Inditex has guided that it aims to open c.130 stores per year in
China across all banners over the medium term. Given the 8-10% annual space
growth Inditex guides towards, we expect store openings in China to represent
c. 20% of total group openings over the next six years.
We expect this space growth to translate into strong sales growth (see Exhibit
7). While we expect year-on-year growth to slow in the coming years, we still
anticipate c.25% constant currency sales growth to 2017/18. At present, we
estimate China represents c.7.6% of Inditex's sales, but by 2017/18, we expect
China to represent c.13.2%, making it Inditex's largest country in terms of sales.
Exhibit 7 We Expect Inditex to Continue to Grow Sales in China; at a 25% CAGR to FY 17/18
Inditex Absolute and Constant Currency Sales
4,000 120%
YoY Constant Currency Sales Growth %
3,500
100%
3,000
80%
2,500
Sales €m
2,000 60%
1,500
40%
1,000
20%
500
0 0%
06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14e 14/15e 15/16e 16/17e 17/18e
Sales Constant Currency Sales Growth
Source: Bloomberg L.P., corporate reports and Bernstein estimates and analysis.
Mix Shift Away from Europe Beyond the opportunity for expansion represented by developing markets, our
Should Help to Sustain Sales analysis also suggests that Inditex is deriving a beneficial impact from its tilt to
Growth these markets.
In 2002, 46% of Inditex's sales were derived from Spain, with the rest of
Europe representing 34% of group sales and the Americas and Asia, combined,
contributing just 20%. Much has changed in the past 10 years, with the relative
importance of its home markets and Europe diminishing and that of the Americas
and, even more so, Asia growing at pace. As of FY 2012, Spain's proportion of
Inditex sales has more than halved since 2002, while Asia's almost tripled to 20%.
In order to assess success and customer traction in emerging markets, we have
looked at the sales densities Inditex has achieved by region. We find that Inditex
has higher sales densities in emerging markets relative to the group.
Over the last 10 years, Inditex has averaged a €2.76 million sales density per
store and €5.15 million per 1,000 square meters at the group level. On a regional
basis, over the last 10 years sales densities in Spain have fallen, reaching c.29%
below group average in 2012/13 with absolute sales per square meter also
declining. Europe ex-Spain sales densities, relative to the overall group, are still
below their pre-recession highs, albeit they are still at a c.5% premium to group
average. Asian sales densities remain at a premium to the group, ranging between a
c.10-20% premium. Sales densities in the Americas have increased over the last 10
years, and are currently at all time highs relative to the group (c.47% premium).
This underlines that expansion outside of Europe has a beneficial impact for
Inditex as the company is actually seeing higher sales densities in Asia and the
Americas than it is achieving in either its home market or the rest of Europe. While
this is partly a reflection of higher price points in these regions, it also suggests that
it is maintaining good volumes in these markets, with the prices not acting as a
deterrent to customers. We believe this increased penetration in emerging markets
has been one of the main factors behind the return to strong, and improving, LFL
sales growth in the last few years.
The increasing importance of markets outside of Europe has helped to drive
sales growth in recent years due to the price premium Inditex applies in those
geographies. As markets outside of Europe continue to grow in importance, we
expect this trend to continue.
One of the key questions about Inditex's sales growth is what component is
driven by volume growth and what part of sales is driven by price. While Inditex
has said that its prices have remained flat on a like-for-like basis over recent years,
our analysis suggests that there is regional variation in pricing.
We conducted a pricing survey to assess how prices at Zara vary across the
geographical regions as reported by Inditex. Our analysis found that Spain is the
cheapest region, according to our proprietary pricing survey, with an average price
across the 22 identical items at 75% relative to Europe ex-Spain. Europe ex-Spain
is the second cheapest region with the Americas marginally more expensive (104%
relative to Europe ex-Spain), while the biggest premium is seen on goods sold into
the rest of the world region, an average of 121% relative to Europe ex-Spain (see
Exhibit 8). Price variation within regions was also observed in some cases. The
countries selected to represent Europe ex-Spain all use the euro and we found
virtually no difference in price between them across the 22 items. In contrast,
significant variation was seen in the rest of the world region, with Japan and South
Korea the most expensive countries surveyed (141% and 130%, respectively,
relative to Europe ex-Spain). Within the same geographical region this contrasts
with, for instance, China at a 9% premium to Europe ex-Spain. These results
suggest that at the group level, there is a price component of growth.
Exhibit 8 Our Analysis Suggests that Zara Prices in Spain Are the Cheapest and the Rest of
the World Region Is the Most Expensive
140
121
120
Geographic Area Relative Price

104
100
(Europe - ex. Spain = 100)

100
80 75
60
40
20
0
Europe - ex. Spain Spain Americas ROW
Source: Oanda, corporate websites and Bernstein analysis.
Over the last decade the sales split by region has shifted significantly, with
Spain ceding most share and Asia being the main beneficiary in recent years. In
2002, Spain represented 46% of group sales, while Asia represented just 7%. By
2012, Spain's proportion of sales had more than halved to c.21% and Asia had
increased to 20% of sales (see Exhibit 9 and Exhibit 10). We expect this mix shift
to continue going forward, in part given the higher growth rates of apparel in
emerging markets compared to Spain and Western Europe, and in part given that
Inditex is continuing to open an increasing percentage of its new space in emerging
markets.
Exhibit 9 There Was a More Even Regional Exhibit 10 ...Compared to 2002, When 80% Came from
Distribution of Sales in 2012... Europe, and, More Specifically, 46% Came
from Spain
Americas,
Americas, 13%
14%
Asia, 7%
Europe
Ex-Spain,
34%
Asia, 20%
Europe
Ex-Spain,
45%
Spain, Spain,
21% 46%
Using our analysis of price differentials by region and using the sales splits by
region provided by the company, we are able to calculate the group-level sales
growth achieved purely by geographic mix shift, essentially price-related sales
growth. Over the past five years, we believe this geographic shift has provided an
average 1.3% boost to sales.
In 2013, we expect sales growth of 1.6% will come purely from further
geographic mix shift, as we expect Asia's share of volume to increase by c.3 pp, the
Americas by 70 bp and Spain's to diminish by 3.6 pp. We expect this trend to
continue over the medium term due to further mix shift away from Spain to higher
price point regions.
Other than price-related growth, we expect sales to also grow as volumes rise
and product mix shift occurs. We estimate that volume growth remains the largest
driver of sales growth at Inditex, with the contribution from price through the
combination of geographic mix and intra-geography product mix likely accounting
for less than half of overall sales growth.
We forecast 10.9% constant currency sales growth in 2013, driven by c.8.3%
space growth but boosted by c.0.9% LFL volume growth and product mix related
sales growth and c. 1.6% from geographic price mix shift. We expect a similar top
line trajectory over the medium term, with space contributing c.8% and LFL sales
growing at c.5%, with LFL volume growth and product mix shift boosted by a
greater proportion of sales coming from higher price point countries.
Zara Remains the Key, But Inditex's various brands offer significant further opportunity for expansion and a
Other Brands Are Growing way to tap a greater proportion of the retail market.
When some investors think of Inditex, they actually think only of Zara.
However, we believe that understanding the outlook for Inditex also requires a
deeper look at the non-Zara brands and the opportunity for sales growth they
represent.
Zara remains the most significant driver of group performance, representing
c.66% of group sales and c.71% of group EBIT as of FY2012 (see Exhibit 11 and
Exhibit 12). It has more than twice as many stores as any other brand and is also
present in more countries.
Exhibit 11 Zara Still Represents Approximately Two- Exhibit 12 ...and c.71% of Group EBIT
Thirds of Group Sales...
2012 Sales 2012 EBIT
Oysho Zara
Oysho Zara Uterqüe 1% Home Uterqüe
Stradivariu 2% Home 1% Stradivariu 1%
s s 0%
2%
6% 7%
Bershka
Bershka 8%
9%
Massimo
Dutti
Massimo 6%
Dutti
7% Pull and
Bear
6%
Pull and
Bear
7% Zara (inc
Zara Kids)
66% Zara (inc
Zara Kids)
71%
In total, Inditex operates eight different brands in sectors ranging from general
apparel to lingerie to home décor. The non-Zara brands can be broadly split into
those focused on general apparel and those with a more specialized focus.
Those focused on general apparel are Pull & Bear, Massimo Dutti, Bershka
and Stradivarius.
The more specialized brands are Oysho, which focuses on women's underwear
and nightwear, Zara Home, which focuses on homewares and Uterqüe, which
focuses on accessories (see Exhibit 13).
Exhibit 13 Overview of Inditex's Brands

2012 Sales EBIT 2012 Stores in Space SqM / Sales / EBIT/
Concept Description Founded/Acquired Geographies
(€ million) Margin ROCE 2012 (000s SqM) Store SqM SqM
Fast‐fashion.
Founded 1975 10541 21.2% 37% 1925 86 2010 1044 5245 1111
Mid‐quality.
Casual and sporty.
Founded 1991 1086 16.8% 57% 816 59 254 312 4269 715
For teen's‐20s customers.
For 20s‐30s customers.
Acquired 1991 1134 17.4% 42% 630 60 172 273 6589 1145
More expensive than Zara.
Targeted at Inditex's youngest
Founded 1998 1485 16.1% 51% 885 62 338 382 4388 706
clientele
Only women's wear.
Acquired 1999 961 21.6% 57% 780 52 207 265 4652 1007
Fashionable, but more classic.
Women's lingerie, gymwear,
Founded 2001 314 8.3% 21% 524 35 75 143 4204 348
nightwear
Textiles and home décor Founded 2003 350 11.7% 38% 357 35 93 261 3757 440
Accessories
Founded 2008 74 ‐12.2% n/a 92 18 12 134 5990 ‐729
(Limited clothing)
Source: Corporate reports and websites and Bernstein analysis.
The diversification into brands other than Zara allows Inditex to target a
broader swathe of the retail market than it could with one brand alone. All brands
utilize the Zara business model of proximity sourcing, high open-to-buy, and fast
and flexible collections, leveraging the strengths of the Zara business model. The
smaller brands also benefit from the size of Inditex when it comes to things like
real estate and rent negotiations, logistics, and IT and systems development.
Each of the non-Zara brands is developed first in Spain. To that end, each of
the non-Zara apparel brands has over 200 stores in Spain, while Oysho and Zara
Home each have more than 100 stores in Spain. That said, the other brands are
already geographically diverse. Indeed, after Spain and Portugal, some combination
of China, Russia and Mexico are in the top five countries by store numbers for each
non-Zara brand.
Looking at how Zara expanded internationally can provide an insight into the
prospects for Inditex's other brands. In general, the more developed apparel brands
average c.14-15 stores per country (calculated as total stores/total countries), which
is about the same number of stores per country that Zara had opened in the period
from 2001-04, when Zara was present in fewer than 60 countries. Since then, the
average number of stores per country for Zara has increased to around 22. The
apparel brands typically sit somewhat below the Zara trend line, indicating that
they have fewer stores per country than Zara had at the same stage of expansion.
This may indicate that these non-Zara brands have a lower potential store number
in each geography relative to Zara. The non-apparel brands are earlier in their
development, making the comparison to Zara more difficult and ultimate growth
potential more difficult to assess.
Assuming that the ratio of stores to countries seen for each brand is maintained
going forward and they all eventually expand to the 86 countries that Zara has
entered as of FY 2012 suggests that the non-apparel brands have the most absolute
potential for store growth as they are at an earlier stage of expansion. Of the apparel
brands, Stradivarius has the most potential for store growth (+510 from current
levels) and Massimo Dutti the lowest (+273 from current levels). In total, this
would suggest c.77% growth in store numbers is possible from here. However, if
the non-Zara brands are also able to increase the number of stores per country, as
Zara has done over time, store growth could be as much as 230% relative to current
levels.
Continued Strong Performance We acknowledge that Inditex trades at a high multiple, but we feel its premium
Will Support a Growth Stock pricing is justified given the advantages we think it has in apparel retail and the
Valuation opportunities for expansion we see going forward.
Inditex currently trades at a 23.3x NTM P/E, representing an 89% premium to

the MSCI Europe. Our target price of €115 is based on a combination of a 23x
target NTM P/E multiple and our DCF valuation.
Inditex is not the first retailer to trade at high multiples, many of which
subsequently de-rated. However, we do not believe Inditex will follow these "fallen
angels" and believe its premium is sustainable.
A company's NTM P/E multiple is highly correlated to its perceived earnings
growth potential (c.58% average correlation). To examine the sustainability of
Inditex's premium to the market, we examined what drove the de-rating of nine
retailers who at one point traded at similar or higher multiples than Inditex
currently trades on.
Our analysis suggests that in eight of nine cases a deceleration in LFL sales
growth precipitated the fall in P/E multiple. In close to half of the cases (four of
nine), there was a deceleration in space growth, which was associated with the
declining multiple. We find that a falling margin was only associated with the de-
rating in two of nine cases and occurred along with LFL sales deceleration.
We believe the key differentiator for Inditex relative to our "fallen angels" is
its international exposure as discussed above. Although we believe Inditex has
largely saturated the Spanish market from a market share and store numbers
perspective, we believe that Inditex is far from the saturation point internationally,
given relatively low store counts and market share. As discussed we see significant
further opportunity for expansion, notably in developing markets and thus see little
reason to fear space growth will be challenged.
Inditex's international sales mix has already shown itself to be beneficial to
results. We believe both Asia and the Americas achieved strong LFL sales growth
in FY 2012/13, helping Inditex as a whole post a 6% LFL, despite a relatively
difficult year-on-year comp of 4% (see Exhibit 14). We believe this pattern can
continue given the significant opportunity for further expansion already discussed.
We believe Inditex will be able to sustain double-digit earnings growth in the
medium term (five to seven years) and will not succumb to the fate of previous
"fallen angels" who de-rated from growth multiples.
Exhibit 14 We Believe the Americas Achieved c.9% LFL Sales Growth in FY 2012/13, While Asia
Achieved c.12%
Space Contribution 2012/13 FX 2012/13 LFL Sales Growth
Europe Ex-Spain 8.6% 0.7% 8.7% 18.1%
Spain -0.1% 0.0% -4.0% -4.1%
Asia & ROW 20.0% 1.5% 11.9% 33.5%
Americas 11.7% 0.4% 8.8% 20.8%
Total 7.6% 2.0% 6.0% 15.6%
Valuation is not just about the multiple however, with Inditex's strong cash
generation providing another support to our expectations for the stock.
Over the last several years, Inditex has built up a substantial cash position on
its balance sheet, growing reported financial net cash from €1.2 billion in 2009/10
to €4.1 billion at year-end 2012/13.
We expect the strong cash-flow generation to continue. We estimate a c.21%
FCF CAGR to 2015/16 at Inditex, largely driven by the operational strength of the
company, and further working capital reductions. We expect this to translate into
c.€850 million in incremental cash p.a. being added to the cash balance.
Given Inditex's strong record of cash generation, we believe looking at a DCF
analysis is imperative. The strength of Inditex's cash generation is reflected in our
DCF; assuming a terminal growth rate of 2.5% and an 8% WACC, our DCF
suggests a €129 share price, providing 29% upside to the closing share price on
August 30, 2013 of €100.15.
The weighted average of our DCF analysis and NTM P/E expectations leads us
to our target price of €115.
Valuation Methodology Inditex SA

In valuing Inditex over the next 12 months, we set a target price of 23x NTM EPS
and equally weight this with our DCF analysis, for which we apply a 2.5% terminal
growth rate and 8% WACC, to give us a target price of €115. We rate Inditex
outperform.
Risks Our 12-month price targets are contingent on companies achieving our forecast
earnings and valuation multiples matching our targets.
We base our forecasts on stable economic environments in domestic markets,
and stable macroeconomic and political conditions and exchange rates in
international markets — any adverse impacts would impact our forecasts.
We assume that companies in our coverage will remain independent, and that
they will keep broadly similar capital structures. Significant change in ownership,
bids for the companies or recapitalizations would impact our price targets.
Inditex SA
Significant global economic slowdown or considerable further downgrades in
Spanish and Portuguese growth could cause downgrades to our estimates.
Fashion misses that cause a major step-up in markdowns or any change in
customer acceptance of the product that limited Inditex's ability to sell at full price
would also lead to lower earnings growth.
Investment Conclusion We expect Inditex to expand revenue by c.11% per year over the next four years,
given the mix of space growth (c.10%), new space contribution to sales (75%),
LFL sales of c.4.5% and slight FX headwinds. Our analysis suggests that Inditex
would be able to achieve this level of space growth over the next four to seven
years purely by expanding the Zara fascia in the 15 markets our analysis has
deemed most attractive.
Realistically, space growth will not be confined to these 15 markets and
Inditex will also continue to expand its seven other brands. Moreover, we expect
space growth to be supported by LFL sales growth, driven both by the good volume
growth seen in non-European markets and price, which is typically higher outside
of Europe. In our view, Inditex's differentiated business model and focus on full-
price selling will deliver margins that gradually tick up. As such, we expect double-
digit earnings growth p.a. over the next four years. We believe this level of
earnings growth, combined with strong cash-flow generation, on an already
attractive c.€4.1 billion net cash position, makes Inditex an attractive investment
opportunity.
We rate Inditex outperform, with a target price of €115.
A Competitive Advantage in Apparel

Retailing
Has Inditex Discovered a Fashion can be a risk to apparel retail in two ways, as retailers can carry too much
Sustainable Competitive of products that are "fashion misses" and too little of products that are popular.
Advantage in Apparel Both leave money on the table, as fashion misses are discounted, reducing
Retailing? profitability, and having too little of popular products results in lost sales at best
and frustrated customers at worst. In our view, Inditex's apparel retailing strategy
does a better job at mitigating this risk than most, given its focus on full price
selling, even if this comes at the expense of operating and manufacturing cost
efficiencies.
While the specifics and idiosyncrasies of Inditex's business model have been
well documented by analysts and academics (including at least four Harvard
Business Review cases), we think some discussion of Inditex's strategy and the
resulting cost structure are essential to understanding the model (see Exhibit 15).
There are two keys to the strategy: 1) proximity sourcing for high-fashion-
content items and 2) selling as much merchandise as possible at full price. Inditex
considers itself a fast follower of trends, and has designed its model to support this
positioning, minimizing the time spent between designing and producing apparel
before selling it. While a typical apparel retailer may begin the design and
production process six to nine months in advance of selling this season's clothing,
Inditex can go from design to store in three to five weeks. This gives Inditex a
significant advantage in getting the fashion "right," as it reduces the amount of
guesswork that goes into a collection. Typical fashion retailers enter a season with
80-100% of product committed, whereas Inditex enters a season with just 60%
committed (see Exhibit 16). More than half of the committed product (or 35% of
total season product) consists of fashion "basics," which are predominantly
manufactured in Asia with longer and more typical apparel lead times. The
remaining beginning-of-season commitment consists of the initial product sent to
stores. The remaining 40% of the season's merchandise will be produced and in
many cases designed throughout the season, as Inditex responds to customer
demand and emerging trends. Fifty percent of Inditex's product comes from
proximity locations in Spain, Portugal and Northern Morocco, with a three to five
week lead time, while much of the remaining production (c.15% of total) occurs in
near-proximity locations in Turkey with a 10-12 week lead time (see Exhibit 17).
In total, this means that Inditex's weighted lead time is roughly 14 weeks, or half
that of other apparel retailers.
A key part of Inditex's in-season response is driven by the company's reliance
on store level feedback, as the company utilizes the on-the-ground knowledge and
experience of its store managers to replenish successful styles and develop new
merchandise. Unlike most retailers, who design the collection centrally and feed
product to stores without a systematic way of collecting information from stores or
store employees, Inditex has a team of former store managers work as part of the
Product Store Team, who are in weekly and sometimes daily contact with stores in
a given region. Managers order product twice weekly and are expected to order
enough product for the next three to four days. While each store has a suggested
product order, managers have discretion over what product to select and stock,
based on their own views about demand. Incentives are aligned across the
company, as store managers receive incentive compensation, which can be up to
half of total compensation, based on store level like-for-like sales. Given that prices
are set centrally, this means that managers are incentivized to choose the right
products in the right amounts.
Production is designed so that there is often more demand for products than
supply and the Product Store Team is responsible for allocating the ultimate orders
to each store based on each manager's order, the track record of the manager's
ability to correctly pick product, and overall supply and demand. Each Product
Store Team member is responsible for 30-40 stores in a given region and many
team members are former store managers from the region with which they work.
Within headquarters, the physical layout of teams is also designed to put store
feedback at the forefront. Teams for each concept and for Zara, each of Zara
Woman, Zara Man and Zara Kids, are co-located in a large open hall. In the center
of the hall sits the Product Store Team, with the sourcing team on their left and the
design team on their right. As ideas and styles are developed by designers or
suggestions come from store managers, all three groups work together to modify
and build the garments. In order to facilitate the process, the teams create mocked
up designs, which are sewn from basic fabric in order to debate the fine details of
how a garment will drape, what materials should be used for trim, etc. The sourcing
team will give feedback on potential cost, lead times, and suggest modifications
that might either speed up production or cut cost. Once a design is decided upon,
patterns are digitized and sent to production factories, which may be proximity
locations owned by Zara or part of Zara's external manufacturing network, in a
proximity location, a near-proximity location or in Asia. This design process means
that roughly 20,000 products are designed by Zara in a year (and 36,000 are
designed at the Group level), whereas a typical competitor would design 1,000-
2,000.
Regardless of where a garment is ultimately produced, all products come back
through the distribution center in Spain before being sent out to stores. In some
cases, this may mean that garments are produced in Asia, sent to the Spanish
distribution center and then distributed to a store in Japan. In addition, products are
designed in small batches and more production runs are ordered depending on sell-
through. These are just a few examples of the efficiency sacrifices that Inditex is
willing to make in order to cut lead times and boost full-price selling.
Exhibit 15 The Zara Business Model Is Replicated Across Each Inditex Concept
Manufacturing
Proximity Sourcing Near-Proximity Non-Proximity Sourcing

(Spain, Portugal, Northern Morocco) Sourcing (Turkey) (Asia)
c. 15% of c. 35% of production with
50% of production with 3-5 weeks lead time
production with 10- long lead times
highest fashion content items
12 week lead time mostly fashion "basics"
Zara HQ Floor Plan - Team Diagram

Product Mock-up
Potential products are mocked-up in an area perpendicular to the product store
team/sourcing/design areas, so that the new garment can be seen, either on a model or a
mannequin in actual fabric. In this way, designers, product store teams and sourcing teams can
agree to all specifications. Approved garments then have digitized patterns created and sent to
manufacturing.
Sourcing Product Store Team Design

1 of 3 Zara Distribution Centers (Spain)
Ships to each store 2x per week
Primarily former store managers,

brought to HQ, with commercial
and local expertise, collect data
from 30-40 stores in their former
region.
Provides expertise
Collects daily data from stores
on how to source
and synthesizes this information,
garments, and from
in order to understand emerging Provides aesthetic
which geography,
trends from the ground up. If the guidance for
advises on changes
Product Store Team determine garments, design
which may lower
that a garment needs tweaking,
production cost or
or there is a trend that has
cut lead time
emerged that should be
addressed in new designs, they
then bring this design to the
Design and Sourcing teams so
that they can collectively develop
the new design.
Stores send ideas to the

Receives product
Store 1: Store 2: Store 3: product store teams and
24-48 hrs after
Zara in Spain Zara in Mexico Zara in Japan managers choose which items
distribution
in the collection to stock
Source: Corporate reports and Bernstein analysis.

Exhibit 16 Inditex Commits to 60% of the Collection at Exhibit 17 Half of Inditex Merchandise Is Produced in
the Start of the Season and 40% Open to Proximity Locations With Three-to-Five-
Buy Week Lead Times
Open to
Buy: Committed
Proximity
designed at Start of
Asia, 35% (Spain,
and Season:
Portugal,
produced fashion
N.
in season, basics,
Morocco),
40% 35%
50%
Committed
at Start of
Season: Near-
high Proximity
fashion (Turkey),
content, 15%
25%
Why Is Full Price Selling So Inditex's model is clearly higher cost relative to competitors' models in some ways,
Important? but as long as these costs enable more full-price selling, we believe they are
appropriate. According to Inditex, the company sells 80-85% of merchandise at full
price, whereas typical apparel retailers may only sell 60-70% of merchandise at full
price. In addition, because less of Inditex's merchandise is ultimately put on sale,
markdowns can be as much as half of that experienced by other apparel retailers
(typically c.30%).
In order to achieve this, half of Inditex's merchandise is manufactured in
relatively high cost Europe and only 35% of products are manufactured in Asia. In
addition, the company ships products to stores twice a week from a Spanish
distribution center, with about 70% of shipments going by truck and 30% by air, at
a cost of about 1% of full price sales for truck shipments and 2% of full price sales
for air shipments. While it is possible that Inditex would save money by shipping
product less frequently, potentially to a regional distribution center, if you believe
that fashion is a perishable good and the longer it exists, the less likely it is to sell at
full price, this strategy would increase the likelihood and level of markdowns. We
find that the benefits of full price selling far outweigh the costs, as a sensitivity
analysis suggests that if Inditex had markdown levels similar to its competitors,
operating profit margins would be as much as 8 pp lower. In contrast, we estimate
that the benefit gained from cutting shipping costs, given Inditex's model, would
only provide 100 bp of EBIT margin uplift (see Exhibit 18 and Exhibit 19).
Exhibit 18 Total Markdown Depends on the Percent of Exhibit 19 Total Markdown Has a Much Bigger Impact
Product Sold at Full Price and the Level of on EBIT Margin Than Shipping Costs
Markdown on Non-Full-Price Items
Total Markdown Sensitivity EBIT Margin Sensitivity
% of Sales at Full Price Total Markdown
60% 65% 70% 75% 80% 85% 90% 1% 3% 5% 7% 9% 11% 12%
Level of Markdown
Shipping (% of
10% 4% 4% 3% 3% 2% 2% 1%
on Non-FP Items
1.0% 21.5% 19.9% 18.2% 16.4% 14.6% 12.6% 11.7%

15% 6% 5% 5% 4% 3% 2% 1% 1.3% 21.2% 19.5% 17.8% 16.1% 14.2% 12.3% 11.3%
Cost of
20% 8% 7% 6% 5% 4% 3% 2% 1.5% 21.0% 19.3% 17.6% 15.9% 14.0% 12.1% 11.1%
25% 10% 9% 8% 6% 5% 4% 2% 2.0% 20.5% 18.8% 17.1% 15.3% 13.5% 11.5% 10.5%
30% 12% 11% 9% 8% 6% 5% 3%
Note: Grey box signifies where we believe Inditex sits in the Note: Grey box signifies Inditex's reported EBIT margin in 2012/13,
markdown equation, while red box signifies where we believe while red box signifies where Inditex's margin would have
the industry sits. (See online version for colors.) been at industry markdown levels. (See online version for
colors.)
Reducing Complexity — How The rate of Inditex's international expansion has been nothing short of incredible,
to Think About Revenue going from just 10 countries in 1996 to 86 by the end of 2012, a rate of nearly five
Growth Across 80+ Countries new countries per annum (see Exhibit 20 and Exhibit 21). In addition, Inditex has
and Eight Concepts never exited a country it has entered. It is this sales growth that has propelled
earnings, which have grown 190% over the last six years (see Exhibit 22).
Due to the global nature of the company (see Exhibit 23), the sub-2% company
share of the apparel market in the vast majority of countries where Inditex has a
presence (see Exhibit 24), the diversity and respective sizes of the different
banners, and the relatively limited company disclosure (e.g., LFL sales growth is
only provided bi-annually and, even then, at the group level), forecasting revenue
growth is a complex business.
However, given the company's plans for continued space expansion, potential
apparel market growth and our views about potential market share gains, revenue
growth expectations form an integral part of our thesis on the stock. We believe the
best approach to forecast top-line growth is to deconstruct the underlying
components, produce space, FX and LFL forecasts by banner, and re-assemble the
jigsaw to form an overall, by banner, estimated revenue growth figure.
Exhibit 20 Inditex Is a Global Retailer With Stores on Six Continents

(Blue = Inditex Store Present)
Source: Corporate reports, www.ammap.com and Bernstein analysis. (See online version for color.)
Exhibit 21 Inditex Has Entered New Countries at an Impressive Rate Over the Last 16 Years
Inditex Global Presence 1996-2012

100
86
90
Countries with Commercial Presence
82
80 77
14.4% CAGR 73 74
68
70 64
62
60 56
48
50 44
39
40 33
30
30
21
20 14
10
10
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Exhibit 22 Sales Has Been the Biggest Driver of Earnings Growth Over the Past Six Years
2005 to 2012 Drivers of Net Profit Growth

350
+65 €2367.0m
-10
300
250 +137
2005 Net Profit = 100
200
150 292
€810.9m
100
50 100
0
2005 Sales Margin Other 2012
Exhibit 23 Europe ex-Spain Provided the Lion's Share of Revenue Growth Between 2005 and
2012
2005 to 2012 Drivers of Sales Growth by Geography

250 €15,946m
+15
+43
200
+8
+70
2005 Sales = 100
150
€6,741m 237
100
50 100
0
2005 Europe Ex-Spain Spain Asia Americas 2012

Exhibit 24 We Estimate That Inditex Has Less Than 2% Apparel Market Share in Five of Its Top
13 Markets
Rank by Rank by Store 2012 Est. Inditex 12/13
Sales Count Market Share Sales (€m)
Spain 1 1 14.6% 3,351

China 2 2 0.6% 1,210
France 3 6 2.3% 971
Italy 4 5 1.8% 881
Portugal 5 3 20.6% 859
Russia 6 4 1.4% 754
Mexico 7 7 3.2% 607
Japan 8 14 0.6% 529
Poland 9 8 6.1% 479
Germany 10 13 0.7% 464
UK 11 12 2.9% 450
Greece 12 9 9.8% 434
Source: Euromonitor, corporate reports and Bernstein estimates and analysis.
The Easy Bit — Space Growth Space growth has been the key driver of revenue growth since 2005 (see Exhibit
25) and it is, in theory, the simplest of the three components of revenue growth to
forecast, as it is the one with the greatest level of company control: Inditex plans
for 8-10% space growth through FY 2014. Based on historical run rates and
guidance, we expect an 80% store growth to contribution efficacy rate. While this
is informative for the top line, it is also important to forecast where Inditex will
expand.
We expect net space growth to be above average in Asia, at company average
levels in non-domestic (Spain and Portugal) Europe and the Americas, and zero in
Spain and Portugal.
 We do not expect Inditex to increase space in Spain or Portugal, except for the
odd store closure and re-opening in a more attractive retail setting, as the
company is already the market share leader and would run the risk of
cannibalization through further saturation.
 Most other markets where Inditex is present represent areas of greater possible
penetration. Inditex's market share is generally very low, apart from in Spain and
Portugal. We estimate that the company holds less than 2% market share in five
of its top 13 markets. As such, we see further room for expansion without much
risk of cannibalization.
 We also expect Inditex to enter new countries, particularly with non-Zara
concepts that currently have smaller footprints. Given that shipping costs to any
store represent, at most, 2% of sales and new merchandise can be provided to any
store within 48 hours, each store is assessed on a stand-alone basis. As such, the
company is able to pick and choose where it wants to expand its footprint based
on likely profitability of the individual store — i.e., geographic location is not a
barrier to entry in and of itself.
 As such, we believe Inditex will aim to increase space in the highest growth
regions, which means we expect space in Asia to increase at c.20% p.a., with a
continued emphasis on expanding its footprint in China, and at c.8-10% in Europe
and the Americas.
This is also consistent with the regional breakdown of sales over time for
Inditex as a whole (see Exhibit 26); the proportion of sales derived from Spain has
clearly been declining, while those for Europe (ex-Spain) and Asia — in particular
— have grown. Taking this a step further, we would expect sales to largely follow
the trend seen at Inditex's most mature banner Zara, where, according to our
estimates for regional sales breakdown, we believe Europe (ex-Spain) and the
Americas have more or less maintained their share of sales over the last several
years, while Spain's has declined in proportion to the gain in Asia's (see Exhibit 27
and Exhibit 28).
In terms of how the annual projected space growth is divvied up between the
banners, we have found that the year-on-year allocation has been remarkably
consistent since 2007 and so we have taken an average of the last three years to
derive our future estimates (see Exhibit 29).
Our forecast of c.10% space growth per annum is slightly above guidance, yet
we believe there is definite potential for increased space growth in the coming
years, based on three points:
 The space growth CAGR between 2004 and 2012 was 15.6% and the guidance of
8-10% through 2015 represents a significant slowdown (see Exhibit 30). While
some slowdown is possible, as Inditex increases the number of smaller format
non-Zara stores and a higher store base means that each incremental store equates
to lower incremental growth, we believe that there is still ample room for space
growth given Inditex's low penetration in markets outside Spain and Portugal.
 Inditex has no obvious cash constraints. Inditex has a net cash position, virtually
no debt and a model which, we forecast, will see them add an extra c.€900 million
to its cash balance annually from 2013. Inditex appears to have deep pockets with
which to fund expansion and, as the purchase of the properties on Fifth Avenue
and Corso Vittorio Emanuele for €333 million suggests, when an attractive
opportunity presents itself, Inditex is not reticent to part with cash.
 Historically, Inditex has tended to open more stores than guided; during the
10-year period between 2002 and 2012, Inditex opened more stores than the
maximum of the guided range five times and on average has opened c.20 stores
more than the midpoint of the range per year (see Exhibit 31).
Exhibit 25 Space Growth Has Been the Largest Contributor to Revenue Growth Since 2005
2005 to 2012 Drivers of Sales Growth

€15,946m
250
+103
200
2005 Sales = 100
150 +36 -2
€6,741m
236
100
50 100
0
2005 LFL FX Space Growth 2012

Exhibit 26 Inditex Sales by Geography 2002-12 Exhibit 27 Zara Sales by Geography 2002-12
Inditex Sales by Geography Zara Sales by Geography

100% 100%
90% 90%
80% 80%
70% 70%
60% 60%
50% 50%
40% 40%
30% 30%
20% 20%
10% 10%
0% 0%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Spain Europe (ex-Spain) Asia Americas Spain Europe (ex-Spain) Asia Americas
Exhibit 28 Since 2005, We Believe c.68% of Inditex's Share of Sales Lost by Spain Has Been
Taken by Asia
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2005 vs. 2012
Spain 46% 46% 46% 43% 40% 38% 34% 32% 28% 25% 21% -2210bps
YoY Share 10bps -60bps -240bps -350bps -210bps -360bps -210bps -380bps -300bps -400bps
Europe (ex-Spain) 34% 36% 37% 39% 41% 42% 45% 46% 45% 45% 45% 630bps
YoY Share 140bps 180bps 140bps 190bps 180bps 240bps 90bps -70bps 0bps 0bps
Asia 7% 7% 7% 8% 9% 9% 11% 12% 15% 18% 20% 1250bps
YoY Share -10bps 0bps 80bps 140bps 50bps 110bps 170bps 280bps 300bps 200bps
Americas 13% 12% 11% 11% 11% 11% 11% 10% 12% 12% 14% 330bps
YoY Share -150bps -120bps 20bps 30bps -20bps -10bps -50bps 180bps 0bps 200bps
Exhibit 29 Space Growth Allocation by Banner

2007 2008 2009 2010 2011 2012 2007-12 Range
Zara 59% 59% 56% 61% 64% 64% 8%
Pull & Bear 9% 9% 10% 9% 8% 8% 2%
Massimo Dutti 3% 4% 4% 2% 5% 5% 3%
Bershka 11% 11% 12% 12% 11% 11% 2%
Stradivarius 8% 7% 10% 9% 6% 7% 3%
Oysho 5% 5% 2% 2% 2% 2% 3%
Zara Home 5% 3% 4% 3% 3% 3% 3%
Uterqüe n/a 2% 2% 1% 0% 0% 2%

Exhibit 30 Inditex Has Guided Towards Dramatically Exhibit 31 Actual Store Openings vs. Guided Store
Lower Levels of Space Growth Through Openings
2015
Space Growth CAGR Old vs. Future (e) Actual Store Openings vs. Guidance
18%
16%
700
14%
600
Store Openings
12%
8‐10%
YoY Growth
Guidance 500
10%
2%
8% 15.6% 400
6%
300
4% 8%
200
2% 02 03 04 05 06 07 08 09 10 11 12 13e 14e 15e
0% Guidance (Low-Mid-High) Actual SCB Estimate

CAGR 2004-2012 CAGR 2012-2015E
Source: Corporate reports and Bernstein analysis. Source: Corporate reports and Bernstein estimates and analysis.
Using forecasts for GDP and market growth in Inditex's various regions, we
forecast LFL sales of 3-6% through 2017 (see Exhibit 32).
 Historically, Inditex has only disclosed group level LFL sales. However, given
the different market characteristics of various geographies as well as our view that
Inditex will grow space fastest in Asia, followed by Europe ex-Spain and the
Americas, we believe that examining LFL sales on a regional basis is also useful.
In addition, our own estimates of regional LFL sales suggest that the group level
figure can often mask regional performance differences (see Exhibit 33).
 Given the ongoing euro crisis, many investors have questioned whether weakness
in Inditex's largest market Spain could derail the company overall. We estimate
that LFL sales in Spain bottomed in 2H:08, when Spain was c.34% of the group,
at -8%, but total company sales were down only 1%. We estimate that Spain has
recovered from the lows of 2008 with an estimated -1.3% LFL decline in 2012.
As of 2012, Spain represented just 21% of sales and we expect it to decline as a
percentage of total at c.2 pp per year, suggesting that any future weakness will
have less impact on the company overall (see Exhibit 34).
 Based on our estimates for current geographic exposure by banner, our LFL
estimates derive from a combination of our expectations for company-specific
geographic growth and, from a more macro perspective, the likely apparel market
and GDP growth for each particular region. The two factors are intrinsically
linked, as Inditex's business model is not built on the premise of increasing
market share in predetermined and already established locations, but rather on
opening stores in streets (not even countries) where they will prove profitable; as
such, we believe growth is likely to be focused on those locations that show good
apparel market and GDP growth potential (see Exhibit 35 to Exhibit 38).
 Inditex has only just begun the rollout of the online business, currently present in
23 of its total 86 markets. While Inditex does not disclose online sales separately,
they are included in reported LFL sales. Given Inditex's low market share in most
markets and low country by country store base, we generally expect the online
business to be incremental to sales and not cannibalistic.
 We believe it is worth noting that Inditex's definition of LFL sales is very

conservative. While many retailers include stores open for 12 months in their LFL
definition, Inditex only includes stores open for an entire fiscal year. For example,
if a new store was opened on March 1, 2008, this would not appear in LFL sales
until 2010, while many retailers would include this store on its one year
anniversary (any period after March 1, 2009). The same principle applies to the
inclusion of online sales in the LFL figures; internet needs to be in place for a full
fiscal year before sales are incorporated into the LFLs. As such, LFL sales are
more representative of true performance rather than space maturation.
Exhibit 32 We Forecast LFL Growth of 3-6% Through 2017…
Inditex LFL Forecast

10%
8%
6%
4%
2%
0%
03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14E 14/15E 15/16E 16/17E
Exhibit 33 …Though Our Estimates Suggest LFL Exhibit 34 We Estimate That LFL Sales in Spain
Performance Varies Markedly by Bottomed in 2H:08 at -7%, When Group LFL
Geography Sales Were -1%
SCB Estimated LFL by Geography SCB Estimated Spanish LFL

20% 20%
15% 15%
10% 10%
5% 5%
0% 0%
-5% -5%
-10% -10%
-15% -15%
03 04 05 06 07 08 09 10 11 12 H1 H2 H1 H2 H1 H2 H1 H2 H1 H2
'08 '08 '09 '09 '10 '10 '11 '11 '12 '12
Europe (ex-Spain) Asia Americas
Spain (est.) Group
Exhibit 35 The BRIC Countries Are Expected to Have a Combination of High GDP and Apparel
Market Growth in the Coming Years…
10% Nominal Apparel Market Growth vs. Nominal GDP Growth LC 2012-2016e
Nominal Apparel Market CAGR 2012-2016e
BRIC
8%
Mexico
6%
Sweden UK
(LC)
4% Romania
Germany
Australia
Portugal
2%
France Poland
0%
Italy
Spain USA
Japan
-2% Netherlands
-1% 1% 3% 5% 7% 9% 11%
Nominal GDP CAGR 2012-2016e (LC)
Note: Size of bubble indicates size of apparel market in 2012 in euros.

Source: Global Insight, Euromonitor and Bernstein analysis.
Exhibit 36 …Though, Even Within the BRICs, China and India Stand Out from the Crowd in
Terms of Growth Prospects
16% Nominal Apparel Market Growth vs. Nominal GDP Growth LC 2012-2016e (inc. BRIC)
Nominal Apparel Market CAGR 2012-2016e
14%
Russia
12% India
10% Mexico
China
8%
Brazil
(LC)
6% Sweden
4% UK
Germany
2%
USA
0% Spain
-2%
France
-4%
-2% 0% 2% 4% 6% 8% 10% 12% 14% 16%
Nominal GDP CAGR 2012-2016e (LC)
Note: Size of bubble indicates size of apparel market in 2012 in euros.

Source: Global Insight, Euromonitor and Bernstein analysis.
Exhibit 37 In 2013, We Expect Apparel Growth in the Emerging Markets to Be Significantly

Above the Levels in Western Europe…
2013e Apparel Market Growth

Asia Pacific: 7.3%
Latin America: 5.9%
Eastern Europe: 8.8%
16%
14%
12%
Western Europe: 1.6%
10%
8%
6%
4%
2%
0%
-2%
-4%
Source: Euromonitor, Haver analytics, Global Insight and Bernstein estimates and analysis.
Exhibit 38 …Which Should Benefit Inditex, Which Has the Largest Emerging Market Exposure
Out of the Apparel Names Under Coverage
Sales Split by Geography

100%
80%
60%
40%
20%
0%
Inditex H&M M&S Next
W. Europe E. Europe Americas

Asia UK International
Rebuilding the Jigsaw Combining our space growth and LFL assumptions and factoring in FX on a
country level basis (using our country by country historical sales assumptions), we
arrive at an average revenue growth forecast of 11% to 2017, composed of an
average 8% space growth contribution, 4% LFL and small FX headwinds (see
Exhibit 39). Our forecasts for the coming years are below the 2005-12 average of
15% annual revenue growth due to our expectations for lower contribution from
space (12% average 2005-12).
Exhibit 39 We Expect Space Growth to Continue to Be the Most Significant Contributor to

Revenue Growth in the Coming Years
20%
15%
YoY Change
10%
5%
0%
-5%
03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14E 14/15E 15/16E 16/17E
Total Space LFL FX
The Margin Story Over the past five years, sales growth has been responsible for c.78% of earnings
growth, while margin expansion has been a relatively small contributor to the story.
While we expect this to continue to be the case, we believe it's worth highlighting
the resilience of Inditex's margins, even in periods of significant cost inflation.
We expect gross margin to tick up slightly over the medium term, as it has
over the past several years given Inditex's structural shift away from Spain and
Portugal (see Exhibit 40 and Exhibit 41).
 Since 2003, Inditex's gross margins have, typically, slowly increased. In 2006 and
2011 they were flat year on year, while it saw significant margin expansion in
2004 when Inditex recovered from product and sourcing missteps in 2003 and in
2010 when the mix of higher margin, proximity-sourced, high-fashion-content
product increased, leading to 220 bp of margin expansion. In 2012, Inditex was
able to expand gross margin by c. +50 bp.
 Spain and Portugal, which Inditex considers to be its domestic market, enjoy
lower prices than most international locations. Using Zara's country websites, we
performed a price check across Zara's largest markets countries and found that
prices in Spain were c.25% less than those in the rest of Europe, with the rest of
the world at a further premium. Structurally, this suggests that as Spain and
Portugal decline as a percentage of group sales, gross margins for the company
will increase.
We expect the cost base to increase with space, though the sales contribution
of new space tends to be 80%. This suggests that Inditex needs positive LFL sales
growth in order to leverage expenses (see Exhibit 42 and Exhibit 43). Over the past
six years, Inditex has held SG&A largely flat as a percentage of sales, apart from in
2008 when a step down in LFL led to SG&A de-leverage.
Exhibit 40 Inditex's Gross Margin Was Fairly Stable from 2004-09, Increasing at an Average of
34 bp per Year
64%
59.3% 59.3% 59.8% 59.6% 59.9% 59.9%
60% 56.7% 56.8% 57.1%
55.4% 56.2% 56.2%
Gross Margin
56%
51.9% 51.5%
52% 50.1%
48%
44%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013e 2014e 2015e
Exhibit 41 Our Pricing Survey Shows Spain Is c.25% Cheaper Than the Rest of Europe, With the
Rest of the World at a Further Premium
160
141
140 130
Europe - ex. Spain = 100
120 106 109 106

103
Relative Price
99 100 100
100
75
80
60
40
20
0
France Germany Italy Spain Mexico USA China Japan South Saudi
Korea Arabia
Europe ‐ ex. Spain Spain Americas ROW
Source: Bloomberg L.P., corporate websites and Bernstein analysis.

Exhibit 42 EBIT Margins Tend to Move With LFL Sales Exhibit 43 Inditex EBIT Margins Have Not Always
Retained Gross Margin Improvements
25% 24%
20.0%
19.9%
19.5%19.5%
20% 20% 18.3%
17.5%
16.6% 16.5% 18.3%
16.6% 16.2% 15.6%
15.9% 15.5%
16%
15%
13.6%
Percent
EBIT Margin
12%
10%
8%
5%
4%
0%
2013e
2014e
2015e
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
0%
2013e
2014e
2015e
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
EBIT margin LFL
Is Mid-Teens Earnings Growth

Sustainable?
We Believe Inditex Merits a Over the past seven years, 71% of Inditex's profit improvement has come from
Premium Multiple Given sales growth and 75% of sales growth has come from new space (see Exhibit 44
Sustainable Sales and Profit and Exhibit 45). Over that time period, Inditex has expanded across the globe, and
Growth Zara stores are now present in 86 countries. A look at country exposure on a world
map suggests that there are relatively few countries left for Zara to enter (see
Exhibit 46). As such, understanding the potential future space growth of Inditex is a
key factor to understanding the level of sustainable earnings growth and how to
value the stock.
We believe that Zara and Inditex are far from the end of their expansion
trajectory, and believe that earnings growth through 2016/17 (CAGR of c.13%)
will be broadly in line with that of the 2007-12 period. In addition, we expect sales
growth to continue at a CAGR of 11% through 2016/17, in line with the CAGR of
11% from 2007 to 2012.
Exhibit 44 Sales Growth Has Been the Major Driver of Exhibit 45 …and New Space in Turn Has Been the
Profit Growth for Inditex Since 2005… Major Driver of Sales Growth
350 250 +102
+65 -10
300
200
2005 Net Profit = 100
250 +137
2005 Sales = 100
150 +36 -2
200
236
150 292 100
100
50 100
50 100
0 0
2005 LFL FX Space 2012
2005 Sales Margin Other 2012 Growth
Exhibit 46 Inditex is a Global Retailer With Zara Stores on Six Continents
Note: As of 1H:12/13 reporting. Blue = Inditex store present. (See online version for colors.)
Source: Corporate reports, www.ammap.com and Bernstein analysis.
Exhibit 47 We Expect Sales Growth to Continue at a CAGR of 11% Through 2016/17, in Line
with the CAGR of 11% from 2007-12
20%
15%
YoY Change
10%
5%
0%
-5%
03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14E 14/15E 15/16E 16/17E
Total Space LFL FX

How to Think About Space A look at Inditex and Zara's market share in Spain and Portugal, effectively its
Growth When Zara Is Already domestic market, compared to its market share in other countries, suggests that
Present in 86 Countries most markets remain underpenetrated (see Exhibit 48 and Exhibit 49). Over the
medium term, we believe that through space growth, the increase of online sales,
and market share gains, there is massive potential for further growth.
Exhibit 48 Outside of its Home Market of Spain and Exhibit 49 …While Zara's Market Share Doesn't Reach
Neighboring Portugal, Inditex Shows a Double Digits in Any Market, and Is Below
Lower Level of Penetration and Market 2% in Most — Even of the Top 20 Markets
Share… by Sales
Inditex 12/13 % of Market Rel. Penetr. Zara 12/13 Rel. Penetr.
Share % of Sales Market (€m) Share
Sales (€m) Sales (€m) Spain = 100 Sales (€m) Spain = 100
Spain 3,351 21.0% 22,991 14.6% 100 Spain 1,476 14.0% 22,991 6.4% 100
China 1,210 7.6% 210,724 0.6% 4 China 859 8.2% 210,724 0.4% 6
France 971 6.1% 41,781 2.3% 16 France 784 7.4% 41,781 1.9% 29
Italy 881 5.5% 48,867 1.8% 12 Italy 635 6.0% 48,867 1.3% 20
Portugal 859 5.4% 4,177 20.6% 141 Japan 517 4.9% 85,161 0.6% 9
Russia 754 4.7% 53,619 1.4% 10 Portugal 504 4.8% 4,177 12.1% 188
Mexico 607 3.8% 19,134 3.2% 22 Germany 430 4.1% 63,957 0.7% 10
Japan 529 3.3% 85,161 0.6% 4 Russia 417 4.0% 53,619 0.8% 12
Poland 479 3.0% 7,908 6.1% 42 UK 405 3.8% 15,635 2.6% 40
Germany 464 2.9% 63,957 0.7% 5 Mexico 349 3.3% 19,134 1.8% 28
UK 450 2.8% 15,635 2.9% 20 Greece 293 2.8% 4,416 6.6% 103
Greece 434 2.7% 4,416 9.8% 67 USA 280 2.7% 282,351 0.1% 2
Turkey 347 2.2% 14,877 2.3% 16 Poland 261 2.5% 7,908 3.3% 52
Saudi Arabia 295 1.8% 9,830 3.0% 21 Brazil 243 2.3% 44,911 0.5% 8
USA 284 1.8% 282,351 0.1% 1 South Korea 243 2.3% 19,972 1.2% 19
South Korea 267 1.7% 19,972 1.3% 9 Turkey 199 1.9% 14,877 1.3% 21
Belgium 247 1.5% 6,915 3.6% 24 Belgium 168 1.6% 6,915 2.4% 38
Brazil 245 1.5% 44,911 0.5% 4 Saudi Arabia 162 1.5% 9,830 1.6% 26
Romania 216 1.4% 2,555 8.5% 58 Canada 137 1.3% 29,073 0.5% 7
Israel 168 1.1% 3,449 4.9% 33 Holland 137 1.3% 12,766 1.1% 17
Other 2,888 18.1% 382,505.3 0.8% 5 Other 2,042 19.4% 346,670 0.6% 9
Source: Euromonitor, corporate reports and Bernstein estimates and Source: Euromonitor, corporate reports and Bernstein estimates and
analysis. analysis.
Inditex's stated growth plans call for 8-10% space growth per year for the
foreseeable future. But how long is the foreseeable future and when will Inditex
reach space and sales penetration? Although Zara is already present in most
developed (and many developing) countries around the world, we believe that
space growth from Zara could deliver Inditex's space targets for at least four to
seven years by expanding only in the 15 countries that we identify as offering the
largest opportunity. In addition, we expect space growth to also come from
Inditex's seven other banners and the other markets in which Zara is present,
suggesting space growth could be sustained over a longer time frame.
In 2012, Zara represented 66% of Inditex sales, 71% of profit, and 64% of
Inditex's total store space. Most Zara stores are in Europe today, and we believe
that there is significant opportunity for expansion, particularly in Asia and the
Americas (see Exhibit 50 through Exhibit 53).
Exhibit 50 Zara Was c.66% of Sales in 2012… Exhibit 51 …and c.71% of Inditex's Profit

Oysho Zara
Stradi- 2% Home 1% Stradi- 1% 0%
varius 2% varius
6% 7%
Bershka
Bershka 8%
9%
Massimo
Dutti
Massimo
6%
Dutti
7% Pull and
Bear
6%
Pull and
Bear
7% Zara (inc
Zara Kids)
66% Zara (inc
Zara Kids)
71%
Exhibit 52 Zara Represents 64% of Inditex's Total Exhibit 53 …and We Believe That Significant Further
Store Space… Opportunity for Space Growth Exists in the
Americas and Asia
2012 Space Zara Store Split
Zara
Uterqüe
Stradi- Oysho Home 0%
Asia
varius 2% 3% 17% Spain
7% 24%
Middle
East &
Bershka Africa
11% 4%
Lat Am
Massimo 8%
Dutti
5%
Zara N America
Pull & 64% 4%
Bear
8% Europe
(ex-Spain)
43%
While we believe that Zara is underpenetrated in most markets based on

market share relative to the company's position in Spain and Portugal, other
analyses suggest similar conclusions. For example, stores outside of Europe serve
far more people than those in Europe, and we believe that there is potential to add
more stores to cities and markets where Zara is already present. In order to assess
this opportunity, we analyzed the average number of people served by each Zara
store to determine both the potential to expand into smaller cities and also to add
more stores to large cities.1
Our analysis suggests that, at the global level, c.59% of stores serve an average
population of 300,000 or less (see Exhibit 54). Breaking this down by geographical
region, Europe is characterized by stores serving smaller populations, with only
10% serving a population greater than 400,000 (see Exhibit 55). In contrast, in Asia
and the Americas, the majority of stores serve populations bigger than 400,000,
with 36%of Asian stores serving a population greater than one million and 28% of
stores in the Americas serving a population greater than one million (see Exhibit
and 56 and Exhibit 57).
In some cases, this clearly reflects a lower level of income in these regions
relative to Europe; however, we believe that as these economies grow, they will
support a higher number of stores. In addition, even the largest cities in the world
show different penetration levels. Our analysis suggests that cities in Europe such
as London, Paris, Milan, Lisbon and Berlin have twice the number of stores per
person relative to cities in other parts of the world like New York, Sao Paulo,
Beijing and Shanghai (see Exhibit 58). We expect that over time Zara will increase
the number of stores in these cities, such that their penetration relative to the
population is more similar to that of cities in Europe. We've seen evidence of this
already, as cities like Mexico City and Tokyo are closer to the store penetration
levels of Europe than the rest of the world.
Exhibit 54 At a Global Level, the Majority of Stores Exhibit 55 ...With Europe the Driving Force of This
Serve a Population of Less Than 300,000... Pattern
30% Population Served 45% Population Served
27%
Per Zara Store - Global 39% Per Zara Store - Europe
40%
25%
35%
21%
20% 30% 28%
16%
Frequency
Frequency
25%
15%
12% 20%
11% 17%
10% 15%
5% 4% 10% 7%
5% 5%
2% 2% 5% 3%
1% 0% 1% 0% 0% 0% 1%
0% 0%
900K-1,000K
900K-1,000K
<100K
>1000K
<100K
>1000K
100K - 200K
200K - 300K
300K - 400K
400K - 500K
500K - 600K
600K - 700K
700K - 800K
800K - 900K
100K - 200K
200K - 300K
300K - 400K
400K - 500K
500K - 600K
600K - 700K
700K - 800K
800K - 900K
Population Served Per Zara Store Population Served Per Zara Store
Source: National Statistics Bureaus, corporate reports and Bernstein Source: National Statistics Bureaus, corporate reports and Bernstein
analysis. analysis.
1
To calculate this metric, we used the Zara store locator webpage available at http://www.zara.com to identify the
location of Zara stores and then used a variety of reference sources to determine the population of the towns and
cities where the stores are located. In towns with only one Zara store the population served was taken as the urban
population. With towns with more than one store, it was the urban population divided by the number of stores
present.
Exhibit 56 In Contrast, Asia Has Few Stores Serving Exhibit 57 ...a Pattern Repeated in the Rest of the
Populations Less Than 600,000... World
40% 70% Population Served
Population Served 36% Per Zara Store - Americas
35%
Per Zara Store - Asia 60% 56%
31%
30% 50%
25% 40%
Frequency
Frequency
28%
20% 30%
15% 20%
11%11% 12%
10% 7% 10% 4%
0% 0% 0% 0% 0% 0% 0%
5% 3% 0%
2%
0% 0% 0% 0%
0% -10%
900K-1,000K
900K-1,000K
<100K
>1000K
>1000K
<100K
100K - 200K
200K - 300K
300K - 400K
400K - 500K
500K - 600K
600K - 700K
700K - 800K
800K - 900K
100K - 200K
200K - 300K
300K - 400K
400K - 500K
500K - 600K
600K - 700K
700K - 800K
800K - 900K
Population Served Per Zara Store Population Served Per Zara Store
Source: National Statistics Bureaus, corporate reports and Bernstein Source: National Statistics Bureaus, corporate reports and Bernstein
analysis. analysis.
Exhibit 58 Even Among Large Cities, There Is a Clear Difference in Store Penetration in Europe
and the Rest of the World
25
Moscow
20 Paris
Shanghai
London
15 Mexico City Tokyo
Zara Stores
Beijing
10 Sao Paulo
Lisbon
Milan
Berlin New York
5
Stockholm
Sydney
0
0 5,000,000 10,000,000 15,000,000 20,000,000 25,000,000
City Population
Source: National Statistics Bureaus, corporate reports and Bernstein analysis.
Providing Some Estimates of While the preceding analysis has hopefully convinced anyone still reading that
How Much Space Growth is there is more space growth ahead for Inditex, we also believe it is useful to try to at
Still Possible least begin to estimate just how long the company can sustain 8-10% space growth.
As such, we examine just that issue, assuming that all new space comes from Zara
and that it expands only in the 15 countries with the most opportunity. While this is
clearly not how Inditex will actually expand, we believe it does provide some
quantitative basis for our long-term sales forecasts and ultimately helps to
understand the basis for Inditex's premium multiple.
In order to size the future growth opportunities for Zara, we created a list of
common sense metrics we believe affect Zara's opportunity for future growth. We
chose 11 metrics and ranked each country on each metric on a scale from 1-10,
with 10 signaling most opportunity and 1 signaling the least opportunity. All
countries and metrics were assessed on a relative basis. Each metric was then
assigned to one of three categories: market, competition, and Zara-specific. We
then took an equally weighted average of each category to generate a total
attractiveness score by country. The results are shown in Exhibit 59; Exhibit 78 and
Exhibit 79 in the Appendix include country-specific details. The categories
evaluated are:
Market Factors:
GDP per capita: Highest levels of GDP/capita receive a score of 10 and lowest
levels of GDP/capita receive a score of 1. GDP per capita is highly correlated with
clothing spend per capita (see Exhibit 60) and provides an estimate of the relative
wealth of a country and thus its likely ability to sustain more stores.
Forecast GDP per capita growth rate (CAGR from 2011 to 2016): Based on
Global Insight's forecasts for GDP/capita, with highest levels of growth meriting a
score of 10 and lowest levels of growth receiving a score of 1.
The percentage of population defined as urban: Based on current urbanization
level, with highest levels of urbanization receiving scores of 10 and lowest levels of
urbanization receiving scores of 1. A more urban population is likely to be more
attractive due to likely increased population density in cities and potentially higher
fashion demand.
Per capita clothing spend: High levels receive scores of 10, while lowest levels
receive scores of 1.
Competitive Factors:
Number of stores owned by the current No. 1 clothing retailer: A high number
of stores received a score of 10, with the lowest number of stores receiving a 1. A
higher number is indicative that the market can bear higher store numbers and that
there is likely greater demand for apparel and fashion.
Herfindahl–Hirschman Index %: A measure of how concentrated the market is.
A higher score is indicative of a few companies having large market share,
potentially making a market more difficult to penetrate. As such, the highest HHI
scores received a 1 on our scale, while the lowest HHI scores received a 10 on our
scale.
Zara Factors (sizing the Zara-specific opportunity):
Number of years in the country: The number of years Zara has been present in
a country. We have assigned a lower score to countries where Zara has been
present longest, as we believe they may be closer to store penetration, and higher
scores in countries where Zara has been present for the least amount of time.
Total population per store: An estimate of how the current number of Zara
stores relates to the country's total population level, with relative low store density
assigned the highest score on our scale.
Zara market share: Higher market share is likely to be indicative of greater
market saturation and thus make more expansion unattractive/difficult, as such the
highest market share countries (for example Spain and Portugal) scored low on our
scale.
City population served per store: Larger values may mean more opportunity to
expand in the cities already served and as such the largest values received scores of
10, while the lowest values received scores of 1.
Online: Those countries where Zara has already launched an online offer
received a lower score given that some of the benefits of online have already been
realized. Countries where Zara is not yet online received scores of 10, given the
maximum future growth from the channel.
Before we go further, a note of caution: the results of our country

attractiveness assessment suggest that Zara has significant opportunity in some of
the largest economies in the world given attractive markets, competitive
environments and significant opportunity for Zara given current penetration rates
— a fairly intuitive result; however, we would caution against any strict
interpretation of these rankings given the judgment applied in assigning scores and
the myriad other factors not considered. In particular, we believe that given
Inditex's centralized business model, which does not establish country-level
overhead, stores in some of the smaller countries classified as relatively
unattractive by our matrix can be very profitable at the store level, though we
expect they are unlikely to individually be large drivers of growth.
Exhibit 59 Summary of Country Attractiveness
Competitive Zara Specific Competitive Zara Specific

Market Environment Factors Average Market Environment Factors Average
Australia 87.5% 95.0% 80.0% 87.5% Slovakia 50% 35% 60% 48%
USA 82.5% 100.0% 46.7% 76.4% Tunisia 43% 30% 67% 46%
Hong kong 97.5% 65.0% 60.0% 74.2% Latvia 47.5% 40.0% 50.0% 45.8%
China 37.5% 100.0% 61.7% 66.4% Croatia 32.5% 65.0% 38.3% 45.3%
South Africa 37.5% 90.0% 83.3% 70.3% Costa Rica 40.0% 30.0% 65.0% 45.0%
Germany 72.5% 95.0% 36.7% 68.1% Poland 52.5% 55.0% 26.7% 44.7%
Japan 72.5% 85.0% 43.3% 66.9% Ireland 75.0% 25.0% 28.3% 42.8%
UK 77.5% 90.0% 31.7% 66.4% Uruguay* 67.5% 5.0% 60.0% 44.2%
Brazil 57.5% 70.0% 70.0% 65.8% Azerbaijan* 27.5% 40.0% 65.0% 44.2%
Russia 60.0% 70.0% 63.3% 64.4% Indonesia 32.5% 20.0% 76.7% 43.1%
Canada 80.0% 55.0% 56.7% 63.9% Estonia 52.5% 35.0% 41.7% 43.1%
Italy 57.5% 100.0% 31.7% 63.1% Spain 60.0% 60.0% 8.3% 42.8%
France 75.0% 95.0% 18.3% 62.8% Greece 52.5% 50.0% 25.0% 42.5%
Mexico 47.5% 90.0% 50.0% 62.5% Philippines* 27.5% 25.0% 73.3% 41.9%
Turkey 47.5% 75.0% 61.7% 61.4% Lithuania 50.0% 25.0% 40.0% 38.3%
Finland 80.0% 50.0% 51.7% 60.6% Morocco* 35.0% 15.0% 70.0% 40.0%
Singapore 82.5% 45.0% 53.3% 60.3% Qatar* 75.0% 0.0% 43.3% 39.4%
Sweden 85.0% 60.0% 30.0% 58.3% Peru* 45.0% 5.0% 66.7% 38.9%
South Korea* 75.0% 30.0% 66.7% 57.2% Slovenia 42.5% 40.0% 33.3% 38.6%
Netherlands 77.5% 60.0% 31.7% 56.4% Romania 35.0% 35.0% 41.7% 37.2%
Ukraine* 45.0% 45.0% 76.7% 55.6% Iceland* 80.0% 0.0% 30.0% 36.7%
Colombia* 47.5% 45.0% 71.7% 54.7% Egypt* 25.0% 5.0% 78.3% 36.1%
Switzerland 75.0% 55.0% 33.3% 54.4% Oman* 52.5% 0.0% 55.0% 35.8%
UAE 70.0% 45.0% 46.7% 53.9% Kuwait* 72.5% 0.0% 28.3% 33.6%
Denmark 80.0% 35.0% 46.7% 53.9% Dominican Republic* 40.0% 5.0% 55.0% 33.3%
Argentina* 62.5% 35.0% 65.0% 54.2% Guatemala 17.5% 20.0% 56.7% 31.4%
Bulgaria 55.0% 45.0% 58.3% 52.8% Panama* 47.5% 0.0% 45.0% 30.8%
Belgium 77.5% 60.0% 18.3% 51.9% Lebanon* 55.0% 0.0% 36.7% 30.6%
Serbia 32.5% 65.0% 58.3% 51.9% Malta* 65.0% 0.0% 25.0% 30.0%
India* 32.5% 40.0% 81.7% 51.4% El Salvador* 30.0% 0.0% 60.0% 30.0%
Thailand* 37.5% 40.0% 76.7% 51.4% Portugal 45.0% 35.0% 10.0% 30.0%
Malaysia* 47.5% 35.0% 71.7% 51.4% Luxembourg* 75.0% 0.0% 13.3% 29.4%
Saudi Arabia* 65.0% 30.0% 58.3% 51.1% Bahrain* 55.0% 0.0% 31.7% 28.9%
Chile 62.5% 50.0% 40.0% 50.8% Jordan* 32.5% 0.0% 53.3% 28.6%
Israel 70.0% 50.0% 31.7% 50.6% Honduras* 22.5% 0.0% 60.0% 27.5%
Czech Republic 52.5% 45.0% 51.7% 49.7% Puerto Rico* 32.5% 0.0% 43.3% 25.3%
Austria 72.5% 45.0% 31.7% 49.7% Syria* 10.0% 0.0% 63.3% 24.4%
Venezuela 50.0% 45.0% 53.3% 49.4% Cyprus* 47.5% 0.0% 25.0% 24.2%
Hungary 40.0% 50.0% 51.7% 47.2% Monaco* 50.0% 0.0% 16.7% 22.2%
Norway 75.0% 35.0% 36.7% 48.9% Montenegro* 27.5% 0.0% 38.3% 21.9%
Kazakhstan 42.5% 25.0% 71.7% 46.4% Andorra* 32.5% 0.0% 26.7% 19.7%
* Indicates a country where, due to a lack of data, a zero was scored in one or more categories.
Source: World Bank, IMF, Euromonitor, Wikipedia, National Statistics Bureaus, corporate reports and Bernstein analysis.
Exhibit 60 GDP and Clothing Spend Show a c.76% Correlation

70,000
R² = 0.7587
60,000
50,000
GDP/Capita at PPP 2011
40,000
30,000
20,000
10,000
-
- 200 400 600 800 1,000 1,200 1,400 1,600 1,800
Clothing Spend Per Capita
Note: Based on data from 37 countries globally for 2011 GDP/Capita and clothing spend/capita.
Source: IMF, Euromonitor and Bernstein analysis.
We have also plotted the results of our attractiveness assessment to examine

the relative position of different markets (see Exhibit 61 to Exhibit 65). In these
charts, blue represents Europe, red represents the Americas and yellow represents
Rest of the World (see online version for colors). The size of the bubble reflects the
size of Zara's specific opportunity, with larger bubbles reflecting more potential for
growth.
The countries that plot in the top right quadrant, which can be considered the
"most attractive" markets, are those with a high score for both competitive
environment factors and market factors. Among these countries, our analysis
suggests that the most opportunity for Zara is in countries like Australia, Russia,
Brazil, the United States, Japan, the United Kingdom and Hong Kong (see Exhibit
62).
In the top left quadrant are countries with a good competitive environment
score but a lower market attractiveness score. Most of these economies represent
large opportunities for Zara given current penetration levels (see Exhibit 63).
In the bottom right quadrant are countries with a good market attractiveness
score but a relatively low competitive environment factor score. Among these
countries, those with the most potential for Zara include Argentina, South Korea,
Saudi Arabia and Singapore (see Exhibit 64).
In the bottom left quadrant are the least attractive markets for further
expansion as determined by our analysis. A number of the countries in this
quadrant should be considered with caution as, due to a lack of data, they scored a
zero in a metric, which depressed their scores. In addition, given relatively small
markets we expect that these markets can be profitable at the store level but are
unlikely to individually be large growth drivers (see Exhibit 65).
Exhibit 61 Countries in Our Analysis Can Roughly be Split Into Four Quadrants Depending on
Their Scores for the Competitive Environment and Market; Within a Quadrant a
Larger Bubble Indicates a Larger Zara-Specific Opportunity
120%
100%
Competitive Environment Score
80%
60%
40%
20%
0%
-20%
-20% 0% 20% 40% 60% 80% 100% 120%
Market Score
Note: Color coding red – Americas; blue – Europe; yellow – Rest of World (see online version for colors).
Exhibit 62 Top Right — "Most External Opportunity" Quadrant, Signifying Strong Markets and
Favorable Competitive Environments
110% USA
Germany
100% Italy France
Australia
90%
UK
80% Brazil
Japan
70% Russia Belgium

Netherlands Sweden Hong Kong
Poland Switzerland
60% Spain
50% Canada
Greece Israel Finland

Chile
40%
40% 50% 60% 70% 80% 90% 100% 110%
Market Score
Exhibit 63 Top Left — "Good Competitive Environment" Quadrant; China Falls Into This
Quadrant Due to a Lower Market Score
110%
100% China
90% South Africa Mexico
80%
Turkey
70%
Serbia Croatia
60%
Hungary
50%
40%
0% 10% 20% 30% 40% 50% 60%
Market Score
Exhibit 64 Bottom Right — "Good Market" Quadrant; Generally Comprised of Wealthier

Countries But With Less Favorable Competitive Conditions
60%
Venezuela Czech Republic UAE
Austria
50%
Bulgaria Argentina* Singapore

40%
Slovakia Denmark
Norway
30%
Estonia
South Korea*
20% Lithuania
Saudi Arabia* Ireland
Uruguay*
10% Oman* Qatar*
Panama*
0% Iceland*
Bahrain*
Kuwait*
-10% Luxembourg*
40% 50% 60% 70% 80% 90%
Market Score
Note: Color coding red – Americas; blue – Europe; yellow – Rest of World (see online version for colors). (*) Indicates a country where due to a
lack of data a zero was scored in one or more categories.
Exhibit 65 Bottom Left —"Least Opportunity" Quadrant; Many of These Countries Are Small or
in Early Development Stages and Less Data is Available to Assess the Market
60% Ukraine*
India* Slovenia
Peru* Colombia*
50%
Azerbaijan*
40%
Philippines*
30% Guatemala
Malaysia*
Indonesia
20% Kazakhstan
Morocco*
10% Egypt*
Syria* Dominican Republic*
0% Puerto Rico*
Monaco*
Honduras*
-10% Montenegro* Jordan*
-10% 0% 10% 20% 30% 40% 50% 60%
Market Score
Note: Color coding red – Americas; blue – Europe; yellow – Rest of World (see online version for colors). (*) Indicates a country where due to a
lack of data a zero was scored in one or more categories.
The analysis presented allows us to pick out what appear to be the most
attractive countries for Zara in which to attempt further expansion (see Exhibit 66).
Some are developed countries where their per capita wealth is likely to make them
attractive; for instance, Germany. For others, it is the potential market size that is
likely to make them particularly attractive; for instance, China.
In order to estimate how much growth is still achievable for Zara from its 15
most attractive markets, we have compared Zara to the top retailer in each market
(by market share). We believe this can provide some boundaries on the number of
stores we could reasonably expect Zara to sustain. We see two potential methods
for estimating the number of possible stores. First, we can estimate the potential
store opportunity based on the number of stores the current No. 1 clothing retailer
has. However, a quick look at some of Zara's more mature markets suggest the
challenges in this approach, as Zara store numbers in France are c.34% of those of
the No. 1 retailer while in Italy Zara's store count is just 5% of the No. 1 retailer
(see Exhibit 67). Clearly, the level of sales density per store is very different for
these retailers across these markets.
We believe a second and potentially better approach is to benchmark Zara
based on the market share of the No. 1 clothing retailer. This allows us to adjust
both for the sales density of Zara relative to the No. 1 retailer and adjust for Zara's
approximate sales density by region. Again using the examples of France and Italy,
two of Zara's more mature markets, Inditex has achieved market share levels
between 57% and 90% of the No. 1 retailer (see Exhibit 68). However, this method
also has its flaws as it ignores geographic considerations like number of cities and
urban population density; what may be attractive to another retailer in a different
part of the market may not be attractive to Zara.
As such, we have attempted to judge which metric is suitable to each market,
and in some cases used an average. Those countries assessed based on store count
are highlighted in blue; those assessed based on market share are highlighted in
grey; and those assessed on an average are not highlighted (see online version for
colors) (see Exhibit 69).
We then compare our estimates for the store opportunity in the top 15 markets
to the new store openings needed to continue Inditex's stated goal of 8-10% space
growth per year. In Exhibit 70 we provide a sensitivity analysis that suggests how
many years of growth Inditex can support through growth in these top 15 markets
assuming different levels of market penetration relative to the No. 1 retailer are
achieved. Based on just Zara stores in these markets alone, we estimate that Inditex
could achieve its space growth targets for four to seven years. However, given that
space growth will not be isolated to these 15 markets and Inditex will also continue
to expand its seven other banners, we are comfortable that Inditex can achieve its
space growth targets for at least the next seven years.
Exhibit 66 The Top 15 Most Attractive Countries in Our Analysis Vary Widely in Their
Characteristics
GDP/Capita Per No. Stores Zara

Growth Rate % Population Capita of #1 No. Years Country Market City Population
Expected: Defined as Clothing Clothing HHI in Population Share Served per
GDP/Capita 2011-2016 Urban Spend Retailer (%) Country per Store (%) Current Store Online?
Australia 40,234 3.66% 89% 791 350 7% 1 7,566,681 0.3% 2,684,676 No
USA 48,387 3.41% 82% 916 958 5% 23 6,829,587 0.1% 694,549 Yes
Hong Kong 49,137 4.84% 100% 787 245 18% 6 645,791 0.5% 641,927 No
China 8,382 9.68% 47% 147 3,724 4% 6 14,970,556 0.7% 3,403,986 Yes
South Africa 10,973 3.84% 62% 223 340 8% 1 50,586,757 0.0% 3,225,308 No
Germany 37,897 2.90% 74% 928 369 7% 13 1,259,369 0.6% 282,210 Yes
Japan 34,740 3.51% 67% 728 836 12% 14 1,723,378 0.6% 611,695 Yes
UK 36,090 2.98% 80% 1,016 343 9% 20 943,364 0.8% 344,962 Yes
Brazil 11,769 4.60% 87% 242 183 11% 13 6,011,766 0.4% 1,074,841 No
Russia 16,736 5.86% 73% 374 160 9% 9 2,602,127 1.1% 659,015 No
Canada 40,541 2.50% 81% 914 58 6% 13 1,585,832 0.6% 453,387 No
Italy 30,464 1.21% 68% 965 1,968 3% 11 691,145 1.3% 155,711 Yes
France 35,156 2.49% 85% 726 353 6% 22 563,362 2.6% 192,500 Yes
Mexico 14,610 4.04% 78% 110 439 9% 20 2,042,483 2.5% 619,769 No
Turkey 14,517 3.98% 70% 228 415 16% 14 2,490,809 1.0% 859,109 No
Source: World Bank, IMF, Euromonitor, National Statistics Bureaus, corporate reports and Bernstein analysis.
Exhibit 67 Store Numbers Are an Imprecise Guide to Exhibit 68 …But We Believe Market Share Is a Better
Potential Growth… Measure, as It Allows Us to Adjust for Sales
Density
34.0% 5.1% 57.1% 90.5%

2500 4%
3.5%
1968
2000
3%
% Market Share
1500 2.1%
# Stores
2.0% 1.9%
2%
1000
1%
500 353
120 100
0 0%
France Italy France Italy
#1 Retailer Zara #1 Retailer Zara
Source: Euromonitor, corporate reports and Bernstein analysis. Source: Euromonitor, corporate reports and Bernstein analysis.
Exhibit 69 Estimates of the Store Opportunity Based on the Current Number of Stores and
Market Share of the No. 1 Clothing Retailer in Each Market Also Suggest Zara Still
Has Significant Store Opportunities in the Markets Considered
Hong South
Total Australia USA China Germany Japan UK Brazil Russia Canada Italy France Mexico Turkey
Factor Kong Africa
10% 299 32 43 0 141 33 2 10 20 13 0 0 0 0 0 6
20% 943 67 131 12 327 67 42 93 74 57 0 0 0 0 33 39
30% 1632 102 220 24 514 101 95 177 145 102 0 3 0 0 77 74
40% 2360 137 308 36 700 135 148 260 215 147 9 12 0 25 121 108
50% 3115 172 397 47 895 169 202 344 285 191 25 20 0 61 165 143
Exhibit 70 Sensitivity Analysis Suggests Inditex Could Achieve 10% Space Growth Through
Zara Stores in 15 Markets
Number of Years of Growth Based
on the #1 Retailer Share Estimate
Store Growth Rate Required

9 7% 8% 9% 10% 11%
Share Relative to #1
20% 3 2 2 2 1
Clothing Retailer
40% 6 5 5 4 4
60% 10 8 7 7 6
80% 12 11 10 9 8
Recent Performance Even While our analysis of space growth helps explain Inditex's long-term sales growth
Stronger Than Expected Given sustainability, we believe investors are likely more focused on recent strong LFL
Growth from Zara Outside of performance. We estimate that in FY 2012/13, Inditex delivered c.8% LFL sales at
Europe Zara, with c.12% LFL sales in Asia and ROW (see Exhibit 71 and Exhibit 72).
What's driving strong performance? We believe it is partly the Internet, but
also believe that Inditex continues to gain share in stores. While Inditex hasn't
disclosed the contribution of the Internet separately, we believe there is a
meaningful contribution to recent results. Given Inditex's current country level
presence with relatively few stores in any given country, we believe Inditex is
reaching new customers with its online offer, whereas most traditional brick and
mortar retailers effectively cannibalize their own sales (see Exhibit 73). That said,
Zara is only online in a limited number of countries. In Asia & ROW, where LFL
sales were strongest, Inditex is online in two countries: China and Japan (see
Exhibit 74). These two countries do represent significant portions of Inditex's total
sales; we estimate that Japan represents c.3.3% of Inditex's sales and 16% of the
company's sales in Asia & ROW and we estimate that China represents c.7.6% of
Inditex's sales and 36% of the company's sales in Asia & ROW.
Given this growth, does annual space growth of 8-10% still make sense? Yes,
at least for now. Given the extremely low store numbers that Zara and the other
banners have in each market, we still believe that space growth at this level makes
sense. That said, we also see potential for Inditex to slow store growth in favor of a
greater reliance on the Internet for growth over time.
Critically, we do not believe that this changes the potential for top-line growth,
given Inditex's relatively low market share in each market. Online penetration of
clothing markets is still relatively low and we expect that Zara and Inditex can be
beneficiaries of the channel shift to online retail over time (see Exhibit 75). This
may mean that the ultimate number of stores that Zara and Inditex opens does not
reach the number implied by our space analysis, but the level of sales growth
should be equivalent as Zara and Inditex expand its market share.
Exhibit 71 Inditex's c.6% LFL Sales Growth in FY 2012/13 Was Largely Driven by Zara's
Performance, by Our Estimates
Zara 7.3% 2.4% 8.3% 17.9%
Pull & Bear 9.8% 1.5% 2.1% 13.5%
Massimo Dutti 9.2% 1.9% 0.9% 11.9%
Bershka 9.1% 1.7% 2.1% 12.8%
Stradivarius 11.4% 1.3% -2.4% 10.3%
Oysho 6.8% 1.6% -8.1% 0.3%
Zara Home 12.9% 1.4% -3.9% 10.4%
Uterqüe 1.6% 1.9% 5.3% 8.8%
Total 7.6% 2.0% 6.0% 15.6%
Exhibit 72 We Believe Asia & ROW Achieved Double-Digit LFL Sales Growth in FY 2012/13
Europe Ex-Spain 8.6% 0.7% 8.7% 18.1%
Spain -0.1% 0.0% -4.0% -4.1%
Asia & ROW 20.0% 1.5% 11.9% 33.5%
Americas 11.7% 0.4% 8.8% 20.8%
Total 7.6% 2.0% 6.0% 15.6%
Exhibit 73 Zara Has Relatively Few Stores per Exhibit 74 …Though It Only Recently Began Its Online
Country, With the Exception of Spain… Roll Out
469 Zara's Entry to Online Sales
500 100%
Spain, Germany,
Average # Zara Stores/Country
90% France, Italy,

% 2012 Sales from Online-Live
30%
80% Portugal, UK, Poland
400
Austria, Ireland & & China
70%
Benelux
60%
Countries
300 Canada
50% & Russia
40%
200 30%
Denmark, Monaco,
Norway, Sweden,
20% Switzerland, US &
100 10%
Japan
19 17 12 0%
2010 2011 2012 2013 Future?
0
Spain Europe Ex- Asia & ROW Americas
Spain
Exhibit 75 Clothing Sales Online By Geography
Online Proportion of Apparel Market

14%
12%
10%
8%
6%
4%
2%
0%
Source: Euromonitor and Bernstein analysis.
Margin Sustainability Seems In addition to the acceleration in sales growth that we expect to see over the next
Increasingly Plausible few years, we also believe Inditex's gross and operating margins look increasingly
stable. We believe the gross margin expansion has occurred due to a combination
of three things:
Benefits of lower input costs: We believe that Inditex has pricing power,
given its model, which creates scarcity among consumers for its product. As such,
we believe it benefits if input costs fall, as it can hold prices flat rather than pass on
the savings.
Mix shift away from Spain: Since FY 2004/05, the proportion of sales
coming from Spain has decreased from 45% to 21% at FY 2012/13, with the bulk
of share going to Asia, where price points are typically higher (see Exhibit 76 and
Exhibit 77). While we recognize that higher costs are attached to sales outside
Spain or Europe, and so Inditex does not see the full bottom-line benefit of selling
at a higher price point in Asia or the Americas, we believe the differential between
the relative price premium and additional associated costs still leads to margin
expansion.
Increasing relevance of online: In FY 2012/13, we believe Zara achieved
c.8% LFL sales growth; significantly higher than any other banner (see Exhibit 71).
While this level of performance will likely be due, in part, to Zara's higher
proportional international presence (e.g., we believe Zara derives c.20 pp more of
its sales outside of Spain than any of the other fascias), we also think that LFL sales
are increasingly being driven by Zara's online offering. As seen in Exhibit 75, most
apparel markets are in the nascent stages of online penetration but, even where it is
more established, we expect online to become increasingly relevant and to
represent a greater share of the respective apparel markets. Inditex's management
does not tend to elaborate on the financial performance of the online businesses,
but it has said that it is not margin dilutive. We think this makes sense given the
Inditex business model, which already caters for at least twice weekly shipments to
each store globally (although there may be some added cost in packaging and
delivering to the customer, we believe this is not enough to offset the elimination of
store-based costs).
Exhibit 76 Spain's Proportion of Sales Has Fallen c.3% Exhibit 77 …as Higher Price Point Countries Have
Per Year… Taken an Increasing Share
Spain as % of Total Sales 180 167167

50%
45% 45% 45% 160
42%
39% 140
40% 37% 120 118
France Price = 100

34%
120 108110 106 106
32% 100 100
100
30% 28% 79 77
25% 80
21% 60
20%
40
20
10%
0
0%
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Average Weighted Average
Source: Corporate reports and Bernstein estimates and analysis. Source: Bloomberg L.P, corporate websites and Bernstein analysis.
Appendix
Exhibit 78 Data for Each Country

GDP/Capita
City
Growth Rate
% Population Per Capita No. Stores of Zara Market Population
Expected:
Defined as Clothing #1 Clothing HHI No. Years in Population Share Served per
2011-2016
GDP/Capita Urban Spend Retailer (%) Country Per store (%) Current Store
Australia 40234 3.66% 89% 791 350 7% 1 7566681 0.3% 2684676
Norway 53471 2.44% 79% 1572 92 21% 15 1676433 0.6% 257572
Spain 30626 1.64% 77% 552 494 24% 37 137800 8.5% 90079
France 35156 2.49% 85% 726 353 6% 22 563362 2.6% 192500
Italy 30464 1.21% 68% 965 1968 3% 11 691145 1.3% 155711
UK 36090 2.98% 80% 1016 343 9% 20 943364 0.8% 344962
Germany 37897 2.90% 74% 928 369 7% 13 1259369 0.6% 282210
Portugal 23361 1.97% 61% 457 84 19% 24 173141 14.9% 147538
Russia 16736 5.86% 73% 374 160 9% 9 2602127 1.1% 659015
USA 48387 3.41% 82% 916 958 5% 23 6829587 0.1% 694549
Greece 26294 2.20% 61% 557 53 9% 19 239726 4.7% 56873
Poland 20334 5.33% 61% 220 81 10% 13 987205 3.7% 212145
Brazil 11769 4.60% 87% 242 183 11% 13 6011766 0.4% 1074841
Turkey 14517 3.98% 70% 228 415 16% 14 2490809 1.0% 859109
Saudi Arabia* 24237 4.00% 82% 403 N/A 13% 13 1085479 1.0% 708511
Canada 40541 2.50% 81% 914 58 6% 13 1585832 0.6% 453387
Netherlands 42183 2.30% 83% 882 115 10% 13 836942 1.5% 228644
Austria 41822 2.94% 68% 1113 68 14% 12 704403 1.3% 208654
Colombia* 10249 4.84% 75% 97 N/A 7% 5 4665000 1.7% 1276423
Ukraine* 7233 5.47% 69% 164 N/A 7% 4 5062879 0.0% 1032547
Venezuela 12568 2.91% 93% 200 8 8% 20 3016677 3.7% 1388290
UAE 48158 1.64% 84% 578 10 8% 14 918230 2.9% 582418
Sweden 40394 3.50% 85% 1154 134 11% 18 1188416 1.0% 220637
Chile 17222 4.96% 89% 291 7 5% 13 2486090 5.0% 203993
India* 3694 7.63% 30% 34 N/A 8% 2 172884775 0.0% 6030944
Singapore 59711 3.49% 100% 512 16 8% 10 740529 2.7% 740529
Philippines* 4073 4.28% 49% 61 N/A 17% 7 15389642 0.0% 668721
Thailand* 9396 6.32% 34% 81 N/A 9% 7 10913242 0.4% 1087453
China 8382 9.68% 47% 147 3724 4% 6 14970556 0.7% 3403986
Japan 34740 3.51% 67% 728 836 12% 14 1723378 0.6% 611695
South Korea* 31714 5.18% 83% 448 N/A 14% 4 1470719 1.1% 858201
Israel 30975 2.80% 92% 458 78 11% 15 393975 4.6% 159832
Mexico 14610 4.04% 78% 110 439 9% 20 2042483 2.5% 619769
Belgium 37737 1.91% 97% 649 128 11% 18 405602 2.0% 91998
Switzerland 43370 2.54% 74% 872 77 9% 10 795260 1.1% 106236
Ireland 39639 4.29% 62% 775 38 19% 11 509806 1.8% 103824
Finland 36236 2.77% 85% 697 43 8% 10 1353565 1.0% 244549
Hong kong 49137 4.84% 100% 787 245 18% 6 645791 0.5% 641927
Morocco* 5052 5.26% 57% 44 N/A 21% 8 6528160 1.4% 907480
Croatia 18192 2.80% 58% 145 150 11% 5 536327 5.8% 149200
Slovenia 28642 2.64% 48% 272 76 16% 9 411598 5.3% 86020
Bulgaria 13597 5.13% 72% 226 8 9% 2 1472914 2.3% 419986
Lithuania 18856 5.37% 67% 126 33 19% 8 796925 5.2% 264507
Serbia 10642 4.42% 52% 117 180 13% 6 1780167 1.7% 492508
Hungary 19591 3.39% 68% 139 39 7% 8 1423143 2.4% 370757
Czech Republic 27062 3.89% 74% 176 44 10% 11 1750701 1.7% 271422
Romania 12476 4.98% 55% 34 15 14% 8 1190184 8.6% 238106
Andorra* N/A N/A 88% 325 N/A N/A 12 78115 N/A 86165
Cyprus* 29074 1.26% 70% 355 N/A N/A 16 167779 N/A 136120
Denmark 37152 2.66% 87% 839 75 18% 12 2792379 0.3% 606911
Slovakia 23304 4.76% 57% 243 43 16% 9 2722662 0.2% 329789
Estonia 20380 4.96% 70% 209 17 13% 8 647118 3.8% 208497
Iceland* 38061 3.39% 92% 581 N/A N/A 11 160030 N/A 110250
Latvia 15662 4.87% 68% 206 31 11% 8 517593 0.0% 164660
Luxembourg* 80119 1.74% 82% 763 N/A N/A 11 255900 N/A 78699
Malta* 25428 2.76% 95% 421 N/A N/A 17 417617 N/A 13985
Montenegro* 11545 2.74% 60% 95 N/A N/A 4 620029 N/A 185937
Monaco* N/A N/A 100% 998 N/A N/A 7 35881 N/A 35352
Argentina* 17516 4.85% 92% 200 N/A 12% 14 4011710 1.3% 1280136
Costa Rica 11927 4.74% 64% 111 25 16% 7 2150856 1.5% 857743
El Salvador* 7550 3.72% 61% 73 N/A N/A 10 3091500 2.4% 783578
Guatemala 5070 2.29% 50% 8 2 22% 5 7356882 7.6% 555050
Honduras* 4345 3.25% 49% 28 N/A N/A 4 4192536 N/A 1000179
Panama* 14097 5.87% 75% 70 N/A N/A 8 1702907 N/A 440346
Peru 10062 5.86% 72% 25 22 N/A 1 30135875 N/A 8445211
Puerto Rico* N/A N/A 99% 177 N/A N/A 11 3725789 N/A 280827
Dominican Republic* 9287 4.48% 71% 20 2 N/A 10 4722641 N/A 1276199
Uruguay* 15113 5.09% 93% 307 17 N/A 13 1625763 1.5% 850000
Azerbaijan 10202 3.45% 52% 147 26 12% 1 9235100 N/A 2122300
Bahrain* 27556 2.08% 89% 269 N/A N/A 13 617286 N/A 164755
Egypt* 6540 3.98% 43% 34 27 N/A 4 20628000 0.2% 2920667
Indonesia 4666 6.80% 54% 45 12 20% 7 23764133 0.7% 2019679
Jordan* 5900 2.56% 79% 74 N/A N/A 11 3167350 N/A 1183500
Kazakhstan 13001 7.62% 59% 111 30 18% 2 8388000 0.8% 693091
Kuwait* 41691 2.58% 98% 265 N/A N/A 14 716411 N/A 50353
Lebanon* 15523 4.00% 87% 222 N/A N/A 14 858400 N/A 476444
Malaysia* 15568 4.61% 72% 142 N/A 11% 9 4722356 0.6% 1206645
Oman* 26519 2.19% 72% 413 N/A N/A 5 2773479 N/A 775878
Qatar* 102943 2.86% 96% 328 N/A N/A 12 849718 N/A 796947
Syria* N/A N/A 55% 210 N/A N/A 3 10851000 N/A 1946031
South Africa 10973 3.84% 62% 223 340 8% 1 50586757 0.0% 3225308
Tunisia 9478 5.14% 67% 37 15 17% 6 5336900 2.5% 728453
* indicates a country where due to a lack of data a zero was scored in one or more categories.
Exhibit 79 Breakdown of Scores Attributed to Each Country

Competitive Environment
Market Factors Zara Specific Factors
Factors
GDP/Capita City
% Population Per Capita No. Stores of Zara Market
Growth Rate HHI No. Years in Population Population
GDP/Capita defined as Clothing #1 clothing Share Online?
Expected: (%) Country Per store served per
Urban Spend retailer (%)
2011-2016 current store
Australia 10 7 8 10 10 9 10 9 9 10 10
Norway 10 4 6 10 4 3 3 6 9 3 1
Spain 7 3 6 8 10 2 1 1 1 1 1
France 8 4 8 10 10 9 1 2 5 2 1
Italy 7 2 4 10 10 10 5 3 8 2 1
UK 9 5 7 10 10 8 1 4 9 4 1
Germany 9 5 5 10 10 9 4 5 9 3 1
Portugal 5 3 3 7 3 4 1 1 1 2 1
Russia 4 10 5 5 6 8 6 7 8 7 10
USA 10 6 7 10 10 10 1 9 10 7 1
Greece 6 4 3 8 2 8 1 1 2 1 10
Poland 5 10 3 3 3 8 4 4 4 3 1
Brazil 2 9 8 4 7 7 4 9 9 10 10
Turkey 3 7 5 4 10 5 3 7 8 9 10
Saudi Arabia* 6 7 7 6 0 6 4 5 8 8 10
Canada 10 5 7 10 2 9 4 6 9 5 10
Netherlands 10 4 7 10 4 8 4 4 7 3 1
Austria 10 5 4 10 3 6 4 3 8 3 1
Colombia* 2 9 6 2 0 9 8 8 7 10 10
Ukraine* 1 10 4 3 0 9 8 8 10 10 10
Venezuela 3 5 9 3 1 8 1 7 4 10 10
UAE 10 3 7 8 1 8 3 4 5 6 10
Sweden 10 6 8 10 5 7 1 5 8 3 1
Chile 4 9 8 4 1 9 4 6 1 3 10
India* 1 10 1 1 0 8 9 10 10 10 10
Singapore 10 6 10 7 1 8 5 4 5 8 10
Philippines* 1 8 1 1 0 5 7 10 10 7 10
Thailand* 2 10 1 2 0 8 7 10 9 10 10
China 2 10 1 2 10 10 7 10 9 10 1
Japan 8 7 4 10 10 7 3 6 9 7 1
South Korea* 7 10 7 6 0 6 8 5 8 9 10
Israel 7 5 9 7 3 7 3 2 2 2 10
Mexico 3 8 6 2 10 8 1 6 6 7 10
Belgium 9 3 10 9 5 7 1 2 6 1 1
Switzerland 10 5 5 10 3 8 5 4 8 2 1
Ireland 9 8 3 10 1 4 5 2 7 2 1
Finland 9 5 8 10 2 8 5 5 8 3 10
Hong kong 10 9 10 10 9 4 7 3 9 7 10
Morocco* 1 10 2 1 0 3 6 9 7 10 10
Croatia 4 5 2 2 6 7 8 2 1 2 10
Slovenia 7 5 1 4 3 5 6 2 1 1 10
Bulgaria 3 10 5 4 1 8 9 5 6 5 10
Lithuania 4 10 4 2 1 4 6 4 1 3 10
Serbia 2 8 1 2 7 6 7 6 7 5 10
Hungary 4 6 4 2 1 9 6 5 6 4 10
Czech Republic 6 7 5 3 2 7 5 6 7 3 10
Romania 3 9 1 1 1 6 6 5 1 3 10
Andorra* 0 0 8 5 0 0 4 1 0 1 10
Cyprus* 7 2 5 5 0 0 2 1 0 2 10
Denmark 9 5 8 10 3 4 4 7 9 7 1
Slovakia 5 9 2 4 2 5 6 7 9 4 10
Estonia 5 9 4 3 1 6 6 3 3 3 10
Iceland* 9 6 9 8 0 0 5 1 0 2 10
Latvia 3 9 4 3 1 7 6 2 10 2 10
Luxembourg* 10 3 7 10 0 0 5 1 0 1 1
Malta* 6 5 9 6 0 0 2 2 0 1 10
Montenegro* 2 5 2 2 0 0 8 3 0 2 10
Monaco* 0 0 10 10 0 0 7 1 0 1 1
Argentina* 4 9 9 3 0 7 3 8 8 10 10
Costa Rica 2 9 3 2 1 5 7 6 7 9 10
El Salvador* 1 7 3 1 0 0 5 7 6 8 10
Guatemala 1 4 1 1 1 3 8 9 1 6 10
Honduras* 1 6 1 1 0 0 8 8 0 10 10
Panama* 3 10 5 1 0 0 6 6 0 5 10
Peru* 2 10 5 1 1 0 10 10 0 10 10
Puerto Rico* 0 0 10 3 0 0 5 8 0 3 10
Dominican Republic* 2 8 5 1 1 0 5 8 0 10 10
Uruguay* 3 10 9 5 1 0 4 6 7 9 10
Azerbaijan* 2 6 1 2 1 7 10 9 0 10 10
Bahrain* 6 4 8 4 0 0 4 3 0 2 10
Egypt* 1 7 1 1 1 0 8 10 9 10 10
Indonesia 1 10 1 1 1 3 7 10 9 10 10
Jordan* 1 5 6 1 0 0 5 7 0 10 10
Kazakhstan 3 10 2 2 1 4 9 9 8 7 10
Kuwait* 10 5 10 4 0 0 3 3 0 1 10
Lebanon* 3 8 8 3 0 0 3 4 0 5 10
Malaysia* 3 9 5 2 0 7 6 8 9 10 10
Oman* 6 4 5 6 0 0 8 7 0 8 10
Qatar* 10 5 10 5 0 0 4 4 0 8 10
Syria* 0 0 1 3 0 0 9 9 0 10 10
South Africa 2 7 3 3 10 8 10 10 10 10 10
Tunisia 2 10 4 1 1 5 7 9 6 8 10
* indicates a country where due to a lack of data a zero was scored in one or more categories.
Assessing the Opportunity for

Chinese Growth
Is the Chinese Apparel Market Between 2006 and 2012, and despite already being the second-largest apparel
the Most Attractive in the market in the world behind the United States, the Chinese apparel market grew at
World at the Moment? Quite an 11.6% CAGR in local currency. Consumer spending was similarly impressive,
Possibly growing at an 11.0% CAGR and actually growing at a faster rate than in the
preceding five years, despite the global recession. Moreover, between 2006 and
2012, the Chinese apparel market grew by $160 billion, which by itself would
represent the second-largest apparel market in the world. As it was, China went
from being 31.5% of the size of the U.S. apparel market in 2006 to 74.6% in 2012,
and is now more than double the size of the third-largest market in the world
(Japan) (see Exhibit 80 through Exhibit 82).
Clearly, the Chinese apparel market has been attractive over the last several
years, but a key question remains over the sustainability of this growth, and the
market's likely future attractiveness given the levels of competition. We have
therefore looked at several market and competitive factors, and compared them to
other countries (both developed and emerging) to gauge the current and future
appeal of the Chinese apparel market, in order to assess Inditex's opportunity (see
Exhibit 83).
Market Factors:
GDP per capita: GDP per capita is highly correlated with clothing spend per
capita and provides an estimate of the relative wealth of a country and thus its
likely ability to sustain more stores. While China has a relatively low GDP/capita
currently, we note both that this factor seems highly likely to improve over the
coming years given GDP growth expectations, and that GDP/capita grew at an
impressive 11.9% CAGR between 2006 and 2011.
Forecast GDP per capita growth rate (CAGR from 2011 to 2016): Based on
Global Insight's forecasts for GDP/capita, China is expected to have an annual
c.9.2% GDP/capita growth rate over the next five years; a higher rate than expected
for many of the other countries regarded as fast growth (e.g., Russia and Brazil).
Percentage of population defined as urban — based on current urbanization
level: A more urban population is likely to be more attractive due to increased
population density in cities and potentially higher fashion demand. China's 47%
urbanization in 2011 puts it lowest of the countries we have compared the Chinese
apparel market to, but this level has been increasing rapidly, with 81% of the
population deemed rural in 1979. Indeed, as urbanization levels increase there will
be an incremental boost to the addressable markets for the apparel retailers above
and beyond population growth.
Per capita clothing spend: While China's spend/capita is low, as noted in
Exhibit 81, this has been rising rapidly over the last five years. Given the
correlation between GDP growth and apparel spend, we fully expect per capita
expending to improve over the coming years.
Competitive Factors:
Number of stores operated by the current No. 1 clothing retailer: A higher
number is indicative that the market can bear higher store numbers and that there is
likely greater demand for apparel and fashion. As of 2011, the last year for which
we have store count data, the leading clothing retailer was a Chinese company,
Metersbonwe group, with c.3,700 stores.
Herfindahl-Hirschman Index Percent — a measure of how concentrated the
market is. A higher score is indicative of a few companies having large market
share, potentially making a market more difficult to penetrate. China's HHI score is
just 4%, reflective of the current fragmented nature of the Chinese apparel market.
We take two clear messages from these market and competitive factors. First,
in terms of spending capacity, China is clearly still well below developed markets
and several other emerging markets. But secondly, the Chinese market has grown
rapidly and is projected to continue growing at a fast rate, with other factors like an
increasingly urban population and low HHI score only serving to make it an even
more attractive market.
Exhibit 80 The Chinese Apparel Market Has Grown Exhibit 81 …as Spend per Capita Has Also
Faster Than the Major Global Markets Over Experienced a Double-Digit CAGR
the Last Five Years, and the Asia Pacific
Region as a Whole…
Apparel Market CAGR 2006-2012 Apparel Spend/Capita CAGR 2006-2012
12% 12%
10% 10%
8% 8%
6% 6%
4% 4%
2% 2%
0% 0%
-2% -2%
-4% -4%
Source: Euromonitor and Bernstein analysis. Source: Euromonitor and Bernstein analysis.
Exhibit 82 China Is the Second-Largest Apparel Market in the World, Only

Behind the United States
Apparel Market Size 2012

400
363
350
300
271
250
$ billion
200
150
109
100 82 75
63 69
58 54 49
50 30
12
0
USA China Japan Germany UK Italy Russia Brazil France India Spain Sweden
Source: Euromonitor and Bernstein analysis.
Exhibit 83 China Looks Like an Attractive Apparel Market on a Number of Metrics, Particularly
as GDP/Capita, per Capita Spending on Clothing and Urbanization Continue to Grow
GDP/Capita
% Population Per Capita No. Stores of
GDP/Capita Growth Rate HHI
defined as Clothing #1 clothing
PPP$ Expected: (%)
Urban Spend retailer
2011-2016
China 8,531 9.23% 47% 147 3,724 4%
Hong Kong 49,137 4.84% 100% 787 245 18%
Australia 40,234 3.66% 89% 791 350 7%
Brazil 11,769 4.60% 87% 242 183 11%
Canada 40,541 2.50% 81% 914 58 6%
France 35,156 2.49% 85% 726 353 6%
Germany 37,897 2.90% 74% 928 369 7%
Italy 30,464 1.21% 68% 965 1,968 3%
Japan 34,740 3.51% 67% 728 836 12%
Mexico 14,610 4.04% 78% 110 439 9%
Russia 16,736 5.86% 73% 374 160 9%
South Africa 10,973 3.84% 62% 223 340 8%
Turkey 14,517 3.98% 70% 228 415 16%
UK 36,090 2.98% 80% 1,016 343 9%
USA 48,387 3.41% 82% 916 958 5%
Fragmented Market Suggests The Chinese apparel market is currently highly fragmented; as of 2012, Belle
Share Gains Are There to Be International Holdings Ltd. is the market share leader with just 1.1% share, while
Taken there are seven local brands in the top 10, with a combined market share of c.4.5%
(see Exhibit 84). This is a far lower market share than for other markets, with the
2.2% share for the market leader in Italy (Benetton) and 2.3% in Russia (Adidas)
being the next lowest (see Exhibit 85). If we strip out footwear from the equation
and look purely at clothing, the market looks even more fragmented, with the
Danish company Bestseller A/S holding a market share lead with only 1.0% of the
market (see Exhibit 86).
We believe this suggests there is plenty of room for market share gains in
China. Moreover, unlike in markets like the U.K. and U.S., we believe Inditex is
competing more directly with the sportswear companies such as Nike and Adidas,
as we believe the Chinese consumer may see less distinction between the fashion
and sportswear retail outlets. While this means there should be a greater
opportunity for market share gains, the flip side is that maintaining existing market
share becomes more difficult.
Given current share levels, we expect further market consolidation, as has been
observed in Western markets, as small independent players are likely to find it
increasingly difficult to compete against larger retailers with purchasing scale.
While we think there are some prestigious Chinese apparel brands, such as
Metersbonwe and Semir, we believe that the fragmentation of the market means
that there will be consolidation over the coming years, with the multiples (many of
them Western companies expanding into China) taking share from the small
independent players. Indeed, since 2004, the top 50 apparel retailers in the Chinese
market have gone from having 6.8% of the total market share to 15.5% in 2012,
suggesting consolidation has already started to take place.
Even within the more recognized Chinese brands, we believe there has been
some brand value slippage as Western names have become more prominent. This
appears to be at least partially borne out by the number of apparel brands
recognized in Hurun's 100 most valuable Chinese brands; over the last two years
apparel has gone from having 10 of the most valuable brands to five (see Exhibit
87).
Against that market backdrop, we believe Inditex is fairly well placed in
China; Euromonitor estimates Inditex has just c.0.3% of the apparel market,
making it the 23rd largest player (see Exhibit 84). When just looking at the clothing
market, we estimate Inditex holds greater share, and is placed higher in the
rankings; we estimate Inditex has c.0.66% share and is the fifth largest player.
Exhibit 84 Chinese Apparel Is a Highly Fragmented Market, With the Market Leader, Belle,
Holding Just a 1.1% Market Share
Rank Company Main Banner 2012 Market Share
1 Belle International Holdings Ltd Belle 1.1%
2 Nike Inc Nike 1.0%
3 adidas Group adidas 1.0%
4 Bestseller A/S Jack & Jones 0.8%
5 Metersbonwe Group Metersbonwe 0.7%
6 Semir Group Co Ltd Semir 0.6%
7 Bosideng International Holdings Co Ltd Bosideng 0.6%
8 Daphne International Holdings Ltd Daphne 0.5%
9 Anta (China) Co Ltd Anta 0.5%
10 Li Ning Co Ltd Li Ning 0.5%
11 E Land Group E-Land 0.4%
12 Texwinca Holdings Ltd Baleno 0.4%
13 361 Degrees International Ltd 361 Degrees 0.4%
14 Xtep International Holdings Ltd Xtep 0.3%
15 Aokang Group Co Ltd Aokang 0.3%
16 Xdlong International Co Ltd XDlong 0.3%
17 Dongguan Dongyue Caparison Co Ltd Yishion 0.3%
18 Youngor Group Co Ltd Youngor 0.3%
19 Glorious Sun Enterprises Ltd Jeanswest 0.3%
20 VF Corp Lee 0.3%
21 Ningbo Romon Group Co Ltd Romon 0.3%
22 Fujian Septwolves Industry Co Ltd Septwolves 0.3%
23 Inditex, Industria de Diseño Textil SA Zara 0.3%
Exhibit 85 The Share of the Apparel Market Leader in China Is Well Below the Market Share of
the Market Leaders in Other Countries
Market Leader's Share of Apparel Market
18
16.5
16
14
% Apparel Market Share
12 11.4
10.3
10
8.2
8
6.6
6 5.4 5.2
4.2
4
2.3 2.2
2 1.1
Source: Euromonitor, Kantar and Bernstein analysis.

Exhibit 86 We Believe Inditex Is the Fifth-Largest Company in Terms of Chinese Clothing

Market Share
Rank Company Main Banner 2012 Market Share
1 Bestseller A/S Jack & Jones 1.0%
2 Metersbonwe Group Metersbonwe 0.9%
3 Semir Group Co Ltd Semir 0.7%
4 Bosideng International Holdings Co Ltd Bosideng 0.7%
5 Inditex, Industria de Diseño Textil SA Zara 0.66%
6 Nike Inc Nike 0.6%
7 adidas AG adidas 0.6%
8 E Land Group E-Land 0.5%
9 Texwinca Holdings Ltd Baleno 0.5%
10 Dongguan Dongyue Caparison Co Ltd Yishion 0.4%
Note: To establish the proportion of Inditex's sales that are clothing only, we have applied the proportion implied by Euromonitor's apparel
versus clothing split to our estimates for Inditex's Chinese sales.
Exhibit 87 Apparel Is in the Top 10 Industries in Hurun's 2012 List of the "Top 100 Most
Valuable Chinese Brands"
Industry No. of brands in Top 100

Rank Industry top 100 Rank Brand Head Office
1 Finance 19 60 Metersbonwe Shanghai
2= Tobacco 13 65 Semir Zhejiang
2= Real Estate 13 70 Anta Fujian
4 Wine 9 82 Bosideng Jiangsu
5= Food & Beverages 6 91 Septwolves Fujian
5= Web-based Service 6
7= Apparel 5
7= Retailer 5
9= Security 4
9= Consumer Appliances 4
11= Telecom 3
11= Auto 3
13= Pharmaceuticals 2
13= Computers 2
13= Air Transportation 2
16= Education 1
16= Hotels 1
16= Household Chemical Products 1
16= Media 1
Source: Hurun and Bernstein analysis.
China: the State of Play for Inditex entered the Chinese market on February 23, 2006, when the first Zara store
Inditex was opened in Shanghai: a 2,000 square meter flagship store in Nanjing Xi Lu, the
main commercial avenue in Shanghai. By January 31, 2013, Inditex had opened
396 stores in China, with China becoming an increasingly important market in
terms of space growth, as 25% of group stores opened in FY 12/13 opened in
China. To put this growth into context, more stores were opened in China than the
Americas, Africa, Spain, the Middle East and the rest of Asia combined (see
Exhibit 88). While Zara has the most significant presence, Inditex is looking to
expand all of its banners across China, with the other concepts representing 258 of
the 396 stores at year end 2012/13 (see Exhibit 89 and Exhibit 90).
On the surface, it looks like China represents a slight anomaly in terms of store
opening strategies for Inditex. Ordinarily, we would expect Inditex to spread
widely but relatively thinly (i.e., Inditex is present in 86 countries but typically
holds less than 2% market share). However, in China, Inditex has opened stores
more aggressively; indeed, of the countries international competitor H&M is
present in and where the company has a meaningful number of stores (we take
meaningful to mean more than 20 stores), there are only more Zara than H&M
stores in Inditex's home markets of Spain and Portugal, and fellow Southern
European countries, Italy and Greece (see Exhibit 91). We believe there are three
main drivers of this seemingly different approach from Inditex:
 Location and Logistics: We believe Inditex's business model means it is easier
for them to enter a new market, even if that market is on the other side of the
world. As soon as the stores are opened, Inditex is able to follow its strategy of
sending goods from its distribution centers in Spain to each store at least twice a
week.
 Market Opportunity: We believe Inditex is continually looking for the most
attractive global opportunities in which to open their stores. In a country with
only a few such locations, this will likely lead to slow market penetration and
gradual growth in market share. However, in a country with a significant number
of suitable sites, Inditex has the capacity and the capital to aggressively open new
space, leading to faster market share gains. This is what we believe is happening
in China at the moment, and will likely continue to happen in the coming years;
China is arguably the most attractive apparel market in the world at present, given
its size and the growth prospects implied by the factors in Exhibit 83, and so
Inditex is looking to seize the market opportunity by opening a significant number
of stores.
 Fashion Strategy: Given the success that luxury brands (whether
apparel/autos/beverages, etc.) have enjoyed in China, we suspect Inditex's product
offering may hold significant appeal to the Chinese consumer, who we believe is
likely to be more attuned to Inditex's more aspirational and fashion focused
product.
This aggressive store opening policy is visible in our estimates for the
respective country level sales contributions for Inditex, as we believe China is the
second-largest market, behind only Spain, for both Inditex (7.6% of 2012/13 sales)
and Zara (8.2% of sales) (see Exhibit 92 and Exhibit 93).
Exhibit 88 In 2012, More Inditex Stores Were Opened Exhibit 89 As in Most Markets, Inditex's Store Growth
in China Than the Rest of Asia, the Has Been Driven by Zara, Though the Other
Americas, Africa, the Middle East and Spain Fascias Are Following Fast
Combined
2006/7 2007/8 2008/9 2009/10 2010/11 2011/12 2012/13
Inditex YoY Store Growth by Geography: Zara 7 12 23 44 70 101 138
2007/8-2012/13
Pull & Bear 0 0 0 4 18 41 57
100% Massimo Dutti 0 2 4 6 8 24 42
Bershka 0 0 0 13 26 47 58
90%
Stradivarius 0 0 0 1 16 40 57
80% Oysho 0 0 0 0 0 17 30
Zara Home 0 0 0 0 0 5 12
70%
Uterqüe 0 0 0 0 0 0 2
60% Total 7 14 27 68 138 275 396
50%
40%
30%
20%
10%
0%
2007/8 2008/9 2009/10 2010/11 2011/12 2012/13
China Other
Note: China includes Hong Kong. Note: China includes Hong Kong.
Source: Corporate reports and Bernstein estimates and analysis. Source: Corporate reports and Bernstein estimates and analysis.
Exhibit 90 39% of Zara Stores Opened in 2012 Were Opened in China
Zara YoY Store Growth by Geography:

2007/8-2012/13
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2007/8 2008/9 2009/10 2010/11 2011/12 2012/13
China Other
Note: China includes Hong Kong.

Exhibit 91 H&M Typically Has a Higher Store Count Than Inditex in the Countries in Which the
Company Is Present
H&M Inditex Zara
Germany 406 91 69
USA 233 47 45
United Kingdom 269 95 65
Sweden 177 12 9
France 182 259 126
Spain 146 1,930 469
Holland 124 42 22
Norway 111 4 3
Denmark 94 2 2
Poland 103 205 42
Italy 104 307 102
China 134 396 138
Switzerland 82 18 10
Belgium 70 77 27
Austria 68 18 12
Canada 61 23 22
Finland 53 4 4
Czech Republic 31 17 6
Portugal 23 348 81
Greece 25 154 47
Hungary 26 29 7
Note: Blue shading reflects H&M having more stores than Inditex, yellow shading reflects H&M having more stores than Zara, but not Inditex
(see online version for colors).
Exhibit 92 Despite the Low Relative Penetration, We Exhibit 93 …and the Same Is True for Inditex's Largest
Believe China Is Already Inditex's Second- Fascia, Zara
Largest Market…
Inditex 12/13 Zara 12/13 Rel. Penetr.
% of Market Rel. Penetr.
Sales (€m) Sales (€m) % of Sales Market (€m) Share Spain = 100
Sales (€m) Share Spain = 100
Spain 3,351 21.0% 22,991 14.6% 100 Spain 1,476 14.0% 22,991 6.4% 100
China 1,210 7.6% 210,724 0.6% 4 China 859 8.2% 210,724 0.4% 6
France 784 7.4% 41,781 1.9% 29
France 971 6.1% 41,781 2.3% 16
Italy 635 6.0% 48,867 1.3% 20
Italy 881 5.5% 48,867 1.8% 12
Japan 517 4.9% 85,161 0.6% 9
Portugal 859 5.4% 4,177 20.6% 141
Portugal 504 4.8% 4,177 12.1% 188
Russia 754 4.7% 53,619 1.4% 10
Germany 430 4.1% 63,957 0.7% 10
Mexico 607 3.8% 19,134 3.2% 22 Russia 417 4.0% 53,619 0.8% 12
Japan 529 3.3% 85,161 0.6% 4 United Kingdom 405 3.8% 15,635 2.6% 40
Poland 479 3.0% 7,908 6.1% 42 Mexico 349 3.3% 19,134 1.8% 28
Germany 464 2.9% 63,957 0.7% 5 Greece 293 2.8% 4,416 6.6% 103
UK 450 2.8% 15,635 2.9% 20 USA 280 2.7% 282,351 0.1% 2
Greece 434 2.7% 4,416 9.8% 67 Poland 261 2.5% 7,908 3.3% 52
Turkey 347 2.2% 14,877 2.3% 16 Brazil 243 2.3% 44,911 0.5% 8
Saudi Arabia 295 1.8% 9,830 3.0% 21 South Korea 243 2.3% 19,972 1.2% 19
USA 284 1.8% 282,351 0.1% 1 Turkey 199 1.9% 14,877 1.3% 21
South Korea 267 1.7% 19,972 1.3% 9 Belgium 168 1.6% 6,915 2.4% 38
Belgium 247 1.5% 6,915 3.6% 24 Saudi Arabia 162 1.5% 9,830 1.6% 26
Canada 137 1.3% 29,073 0.5% 7
Brazil 245 1.5% 44,911 0.5% 4
Holland 137 1.3% 12,766 1.1% 17
Romania 216 1.4% 2,555 8.5% 58
Other 2,042 19.4% 346,670 0.6% 9
Israel 168 1.1% 3,449 4.9% 33
Other 2,888 18.1% 382,505.3 0.8% 5
Source: Euromonitor and Bernstein estimates and analysis. Source: Euromonitor and Bernstein estimates and analysis.
Premium Price Points to Although Inditex's store opening strategy in China seems to differ from its general
Europe, But Price Differential broad and thin store opening approach, its pricing strategy seems consistent in
Remains Similar China with its approach in Western Europe.
We conducted a like-for-like price comparison of Zara's French and Chinese
products (we chose France as it is an important developed and mature market for
Inditex where we believe its pricing strategy will be broadly consistent with its
developed market pricing strategy). The results showed remarkably consistent
premia for the Chinese products over the identical French items:
 Of 15 items checked at Zara, 13 had a premium to France of 24-25% in China.
The checked shirt and skinny jeans were cheaper relatively, but the overall
average premium for Chinese items over France was still a fairly sizeable 21%
(see Exhibit 94).
Exhibit 94 Zara China's Products Have a 22% Premium Attached to Them Relative to Zara
France on a Weighted Average, and a 21% Premium on a Simple Average
Zara China vs. Zara France Price Comparison
130
125
France Price = 100
120
115
110
105
100
95
90
85
80
China France
Note: Weighted average looks at the cost of the full basket, whereas the simple average assigns the same weight to each product.
Source: FactSet, company websites and Bernstein analysis.
What Next in China for Inditex? If anything, we expect a further step-up in Chinese expansion for Inditex, as there
are no signs of a slowdown in space growth on the horizon.
Inditex has guided that it aims to open c.130 stores/year in China across all
banners over the medium term. Given the 8-10% annual space growth Inditex
guides towards, we expect store openings in China to represent c.20% of total
group openings over the next six years (see Exhibit 95).
We believe the September 5, 2012, launch of Zara online, and planned future
online launches of the other banners, will provide an extra boost to Inditex's
Chinese sales (see Exhibit 96). Inditex does not split out the online (or even country
level) sales data, but given relatively low store penetration, we believe Inditex's
online offer is generally additive rather than cannibalistic to store sales. Given
Inditex's current country level presence, with low store numbers in any given
country, we believe Inditex is reaching new customers with its online offer,
whereas most traditional brick and mortar retailers effectively cannibalize their own
sales with their online offers.
Exhibit 95 We Anticipate China Will Represent c.20% of Inditex's Store Growth Over the
Coming Years
Inditex YoY Store Growth by

Geography: 2012/13-2017/18
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
2012/13 2013/14e 2014/15e 2015/16e 2016/17e 2017/18e
China Other
Source: Bernstein estimates and analysis.
Exhibit 96 Inditex Only Entered China in 2006, But It Has Already Moved Online
Zara Pull&Bear Massimo Dutti Bershka Stradivarius Oysho Zara Home Uterqüe
Austria
Belgium
Canada
China
Denmark
Finalnd
France
Germany
Greece
Ireland
Italy
Japan
Luxembourg
Monaco
Netherlands
Norway
Poland
Portugal
Spain
Sweden
Switzerland
UK
USA
Note: Shading means concept is online in country.

Is Such Rapid Expansion At FY 2011/12 results Inditex stated that its 275 Chinese stores were spread
Feasible, or Is Inditex in between 42 cities in China. We have attempted to track where these Zara stores are
Danger of Market Saturation? located (which we believe is a good proxy for the current and future locations of
the other banners) and, perhaps unsurprisingly, have found that there is a strong
correlation between GDP/capita for any particular province and the number of Zara
stores in that province (see Exhibit 97). The correlation implies that Zara looks for
a province to have a GDP/capita of at least c.$3,000 before opening its first store.
After that, we calculate each incremental c.$840 of GDP/capita justifies opening
another Zara store.
Conversely, we have found there is no correlation between a province's
population and the number of stores (see Exhibit 98); for example, the Chinese
National Bureau of Statistics suggests there are c.94 million people living in Henan
province, and yet there are only two Zara stores (one for every 47 million people).
In contrast, there is a combined total of 32 stores in Shanghai province, or one for
every 720,000 people. Shanghai is the wealthiest of the 31 provinces, in terms of
GDP/capita, while Henan is only 21st (also, Shanghai clearly benefits from having
both a high population density and level of urbanization).
As one might expect then, as Shanghai and Beijing are the two wealthiest of
the 31 mainland provinces, these are the two provinces with the highest
proliferation of Zara stores, even though they are not the most populated provinces.
However, even in Shanghai and Beijing, we believe there is scope for significant
further penetration. We have looked at the number of Zara stores compared to
population in a variety of Inditex's markets, both emerging and developed, and
found that there are typically two levels of store trajectory, largely dependent on
whether the country is European or not (see Exhibit 99). In some cases, this clearly
reflects a lower level of income in these regions relative to Europe; however, we
believe that as these economies grow, and China's certainly seems likely to, they
will support a higher number of stores. In addition, even the largest cities in the
world show different penetration levels. Our analysis suggests that cities in Europe
such as London, Paris and Milan have twice the number of stores per person
relative to cities in other parts of the world like New York, Sao Paulo, Beijing and
Shanghai, suggesting store density is not merely a function of wealth. We expect
that over time Zara will increase the number of stores in these cities, such that their
penetration relative to the population is more similar to that of cities in Europe. We
have seen evidence of this already, as cities like Mexico City and Tokyo are closer
to the store penetration levels of Europe than the rest of the world. Therefore, we
would expect to see similar store penetration in China's larger and wealthier cities.
Elsewhere, there are relatively wealthy provinces that seem underpenetrated,
most notably Tianjin, the third wealthiest province in terms of GDP/capita, where
we believe there are only three Zara stores, despite there being seven urban
districts, and Tianjin being conveniently located on the coast. While Tianjin's
GDP/Capita may not entirely reflect the store opportunities present in the province,
as the figures may have been inflated by the ongoing property boom that has
reportedly left a number of uninhabited towns, we believe there is still a clear
disparity between the store opportunity and the current number of Zara stores. The
data in Exhibit 97 also show Zara's relative store penetration within China, which
as discussed shows significant room for further growth even in the most highly
penetrated cities. As we expect those penetration levels to increase, we also would
expect the penetration levels in the other provinces and towns to increase.
Exhibit 97 There Is a Clear Correlation Between a Province's GDP/Capita and the Number of
Zara Stores in the Location
# Zara Stores by Chinese Provincial GDP/Capita R² = 58%

18
16
14
12
# Zara Stores
10
0
2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 11,000 12,000
GDP/Capita (USD)
Source: National Bureau of Statistics (China), company websites and Bernstein analysis.
Exhibit 98 There Is No Correlation Between a Province's Size, in Terms of Population, and the
Number of Zara Stores
Zara Stores by Provincial Population
18
16 R² = 0%
14
12
# Stores
10
0
0 30 60 90 120
Population (m)
Source: National Bureau of Statistics (China), company websites and Bernstein analysis.
Exhibit 99 We Believe Inditex Will Likely Look to Increase the Penetration of People/Store in
Tier 1 Chinese Cities to the Levels Seen in Other Non-European Cities Like Tokyo
and Mexico City
25
Paris Moscow
20
Shanghai
London Tokyo
15
Zara Stores
Mexico City
Beijing
Lisbon Sao Paulo
10
Milan
Berlin New York
5
Stockholm
Sydney
0
0 5,000,000 10,000,000 15,000,000 20,000,000 25,000,000
City Population
Source: National Statistics Bureaus, corporate reports and Bernstein analysis.
So Just How Big Is the The constant currency sales growth we estimate Inditex has achieved over the last
Opportunity? In a Word, several years in China is truly impressive (see Exhibit 100). While we expect year-
Enormous on-year growth to slow in the coming years, we still anticipate c.25% constant
currency sales growth to 2017/18. At present, we estimate China represents c.7.6%
of Inditex's sales, but by 2017/18, we expect China to represent c.13.2% (see
Exhibit 101), making it Inditex's largest country in terms of sales.
Given the guided level of store expansion, with c.130 stores to be opened per
annum in the medium term, along with the likely boost that online sales will
provide and the potential in the Chinese market, we do not think the level of growth
we are projecting is unrealistic. Indeed, as a proportion of Inditex's total sales
growth, we estimate China peaked in 2011/12, with c.30%, and that this proportion
will reduce to c.20% by 2017/18 (see Exhibit 102).
Exhibit 100 We Expect Inditex to Continue to Grow Sales in China, at a 25% CAGR to FY 17/18
Inditex Absolute and Constant Currency Sales

4,000 120%
YoY Constant Currency Sales Growth %

3,500
100%
3,000
80%
2,500
Sales €m
2,000 60%
1,500
40%
1,000
20%
500
0 0%
06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14e 14/15e 15/16e 16/17e 17/18e
Sales Constant Currency Sales Growth
Exhibit 101 We Expect China to Be Increasingly Relevant for Both Inditex and H&M in the
Coming Years, Albeit We Forecast China's Proportion of Inditex's Sales Will Grow at
a Faster Rate
China's Proportion of Total Inditex Sales: 2006/7 - 2016/17e

14%
12%
10%
8%
6%
4%
2%
0%
06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14e 14/15e 15/16e 16/17e
Exhibit 102 Despite Already Being in 86 Countries, We Expect China to Represent More Than
20% of Inditex's Total Sales Growth Over the Coming Years
China % Inditex Sales Growth
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
China % Sales Growth Other

Sales Densities by Region Reveal

Inditex's Strength in Emerging
Markets
At First Glance, Emerging In 2002, 45% of Inditex's sales were derived from Spain, with the rest of Europe
Markets Represent Clear representing 36% of group sales and the Americas and Asia, combined,
Growth Opportunities contributing just 18% (see Exhibit 103).
Much has changed in the past 10 years, with the relative importance of its
home markets and Europe diminishing and that of the Americas and, even more so,
Asia growing apace. As of FY 2012, Spain's proportion of Inditex sales has more
than halved since 2002, while Asia's more than tripled to 21% (see Exhibit 104).
Despite rapid growth in emerging markets, market share for Inditex remains
low. This suggests to us that there is substantial scope to significantly increase its
store base over the coming years, particularly in emerging markets, with little
danger of cannibalizing its existing store bases (see Exhibit 105).
The opportunities provided by emerging markets, particularly Asia, have
clearly not been lost on Inditex, as can be seen in its recent store opening activity in
China. In 2012/13, c.25% of Inditex's new stores opened in China (see Exhibit
106). This rate of growth has accelerated over the last several years; as recently as
FY 2007/8, with seven new stores, China only represented c.1% of total Inditex
store openings, while in 2012/13 the company opened 121 stores in China.
From 2012-15, Asia Pacific is expected to see a c.8.0% apparel sales CAGR,
with China growing at an 11.4% CAGR, while Western Europe is forecast to grow
at just a 1.5% CAGR. Given the expected apparel market growth rates for emerging
markets relative to more developed ones we believe investors are counting on rapid
growth in emerging markets and believe that this is one of the keys to the premium
multiples investors continue to pay for both Inditex and H&M (see Exhibit 107).
Exhibit 103 In 2002, 20% of Inditex's Sales Came from Exhibit 104 In FY 2012, 32% of Inditex's 2012 Sales
Asia and the Americas Came from Asia and the Americas
Inditex Geographical Sales Mix: 2002 Inditex Geographical Sales Mix: 2012
Americas, Americas,
12% 11%
Spain, 21%
Asia, 6%
Spain, 45% Asia, 21%
Europe (ex-
Spain), 36% Europe (ex-
Spain), 47%
Source: Corporate reports and Bernstein estimates and analysis. Source: Corporate reports and Bernstein analysis.
Exhibit 105 Inditex Has Low Market Share Penetration Exhibit 106 In 2012/13 More Than 25% of New Inditex
in Most of its Markets Stores Were Opened in China
Inditex Inditex YoY Store Growth by Geography:
12/13 Sales Rel. Penetr. 2007/8-2012/13
(€m) % of Sales Market (€m) Share Spain = 100
Spain 3,351 21.0% 22,991 14.6% 100 100%
China 1,210 7.6% 210,724 0.6% 4
France 971 6.1% 41,781 2.3% 16 90%
Italy 881 5.5% 48,867 1.8% 12
80%
Portugal 859 5.4% 4,177 20.6% 141
Russia 754 4.7% 53,619 1.4% 10 70%
Mexico 607 3.8% 19,134 3.2% 22
Japan 529 3.3% 85,161 0.6% 4 60%
Poland 479 3.0% 7,908 6.1% 42
50%
Germany 464 2.9% 63,957 0.7% 5
UK 450 2.8% 58,448 0.8% 5 40%
Greece 434 2.7% 4,416 9.8% 67
Turkey 347 2.2% 15,635 2.2% 15 30%
Saudi Arabia 295 1.8% 9,830 3.0% 21
282,351
20%
USA 284 1.8% 0.1% 1
South Korea 267 1.7% 19,972 1.3% 9 10%
Belgium 247 1.5% 6,915 3.6% 24
Brazil 245 1.5% 44,911 0.5% 4 0%
Romania 216 1.4% 2,555 8.5% 58 2007/8 2008/9 2009/10 2010/11 2011/12 2012/13
Israel 168 1.1% 3,449 4.9% 33
Other 2,888 18.1% 338,934 0.9% 6 China Other
Note: Shading reflects more than 5% market share.

Source: Euromonitor, corporate reports and Bernstein estimates and
analysis. Source: Corporate reports and Bernstein analysis.
Exhibit 107 Emerging Markets Are Likely to Have Significantly Higher Apparel Sales Growth
Over the Coming Years Than More Developed Markets
2012-2015e Apparel Sales CAGR
14%
11.8% 11.4%
12%
10%
8.0%
8% 7.4%
5.6%
6%
3.8%
4%
2.4% 2.1%
1.8% 1.5%
2%
0.3%
0%
-2% -1.3%
-4%
Spain France USA Germany Sweden UK Russia China Western Middle Latin Asia
Europe East and America Pacific
Africa
Source: Euromonitor, Haver, Global Insight and Bernstein estimates and analysis.
Price Point Comparison Hints We conducted a like-for-like price comparison of Zara's products across a number
at the Potential Benefit of of its major markets. The results suggest Chinese products are at a c.9% premium
Emerging Market Expansion to Europe ex-Spain (see Exhibit 108).
Given higher price points, if volumes across geographies are consistent,
emerging markets should boost both LFL sales and margins, given their higher
price points (see Exhibit 109).
Exhibit 108 Zara China's Products Have a c.9% Premium Attached to Them Relative to Zara in
Europe ex-Spain
160
141
140 130
Europe - ex. Spain = 100
120 106 109 106

103
Relative Price
99 100 100
100
75
80
60
40
20
0
Korea Arabia
Source: FactSet, corporate websites and Bernstein analysis.

Exhibit 109 Our Analysis Suggests Chinese Price Points Are Significantly Higher Than European
Price Points
Zara Geographic Price Comparison
180
167
160
140
118 122
France Price = 100

120 110
106
100
100
77
80
60
40
20
Source: Bloomberg L.P., corporate websites and Bernstein analysis.
Emerging Market Sales In order to assess success and customer traction in emerging markets, we have
Densities Are Higher Than looked at the sales densities Inditex has achieved by region. We find that as
Europe expected given price premia, Inditex has higher sales densities in emerging markets
relative to the group.
Over the last 10 years, Inditex has averaged a €2.67 million sales density per
store and €5.15 million per 1,000 square meter (see Exhibit 110 and Exhibit 111).
After the recession sales densities slightly lagged the historical average, but they
have now returned to levels above the historical average. Rather than necessarily
suggesting an improvement in the underlying apparel markets, we believe this
better recent trend has been largely driven by the sales mix shift away from Europe,
as suggested by looking at the regional sales density splits:
 Spanish sales densities have markedly reduced relative to the group (see Exhibit
112). In 2003, Spain's sales density was c.8% below group average, which we
believe was driven by price rather than volume. This discount to group has
steadily increased, reaching c.29% in 2012/13, with absolute sales/square meter
also declining.
 European sales densities, relative to the overall group, are still below their pre-
recession highs, albeit they are still at a c.5% premium to group average (see
Exhibit 113). This is, we believe, due to a combination of weak underlying
markets in many of Inditex's largest European countries and the mix shift from
Spain to higher-sales-density regions, which has driven the recent increase in
group sales density.
 Asian sales densities remain at a significant premium to the group average (see
Exhibit 114).
 Sales densities in the Americas have increased over the last 10 years, and are
currently at all time highs relative to the group (c.47% premium — see Exhibit
115), suggesting the brands have been gaining traction. Stores in the United
States, for example, have risen from just 12 at year-end 2003/2004 to 47 at year-
end 2012/13.
For Inditex, expansion outside of Europe is having a beneficial impact on
sales, as the company is actually seeing higher sales densities in Asia and the
Americas than it is achieving in either its home market or the rest of Europe. While
this is partly a reflection of higher price points in these regions, it also suggests that
it is maintaining good volumes in these markets, with the prices not acting as a
deterrent to customers. The growth in China acts as a strong case in point; our
analysis suggests that Chinese price points are at a c.9% premium to mature-market
European ones, and yet there is no noticeable detrimental impact on sales, with
China becoming an increasingly important market for Inditex, as seen by the level
of store openings over the last several years (see Exhibit 106). We suspect the
Inditex banners appeal to the Chinese consumer, with some, e.g., Zara and
Massimo Dutti, positioned as aspirational European fashion. We believe this
increased penetration in emerging markets has been one of the main factors behind
the return to strong, and improving, LFL sales growth in the last few years (see
Exhibit 116).
Exhibit 110 Inditex's Sales Per Store Have Been Exhibit 111 ...and This Is Reflected in Sales/Square
Growing in Recent Years... Meter
Inditex Sales / Store: 2003-2012 Inditex Sales / SQM: 2003-2012
3.0 2.82 2.77 6

2.73 2.76
2.64 2.67 2.62 2.60 2.61 5.30 5.28 5.32
5.17 5.15 5.17 5.08 5.08 5.08
2.50 4.89
2.5 5
Sales / SQM €'000

2.0 4
Sales / Store €m
1.5 3
1.0 2
0.5 1
0.0 0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Exhibit 112 Inditex Spain's Sales Density, Relative to Exhibit 113 Inditex Europe (ex-Spain) Has Seen Sales
the Group, Has Consistently Declined Density Premium to the Group Decline In
Recent Years
Inditex Spain Inditex Europe ex-Spain
0% 12%
-5% 10%
Sales Density Relative to Group

-10% 8%
-15% 6%
-20% 4%
-25% 2%
-30% 0%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Exhibit 114 Asian Sales Densities Remain at a Exhibit 115 …While Americas Sales Density Premia Are
Significant Premium to the Group… Growing
Inditex Asia Inditex Americas
25% 50%
45%
20% 40%
35%
15% 30%
25%
10% 20%
15%
5% 10%
5%
0% 0%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Exhibit 116 We Believe Increased Emerging Market Exposure Has Helped Support Strong LFL
Sales
Inditex LFL Growth 2003/4 - 2012/13
10%
9%
9%
8%
7%
6%
6% 6%
5% 5%
5%
4%
4%
3%
3%
2%
1%
1%
0% 0%
0%
03/04
04/05
05/06
06/07
07/08
08/09
09/10
10/11
11/12
12/13
Future Space Growth We believe the LFL sales growth performance of Inditex, combined with the sales
Projections Suggest Inditex densities by region we estimate, suggests Inditex is well placed to benefit from
Will Continue to Focus on continued emerging market expansion, particularly in China, a country the
Emerging Markets company has identified as a key area for future growth.
Inditex is growing space aggressively in emerging markets, particularly Asian
ones, a trend we expect to continue in the coming years, when we expect space
growth in Asia to overtake space growth in Europe (see Exhibit 117 and Exhibit
118). We believe this expansion will help drive sales growth and, given the higher
price points in Asia relative to Europe, which have not affected volumes, lead to
improved sales densities.
Exhibit 117 Inditex Has Significantly Increased the Exhibit 118 ...We Expect Asia to be the Main Focus of
Proportion of Stores Opened in Asia Over Inditex's Store Openings Over the Next
the Last Four Years... Three Years
Inditex Asian Store Openings as Proportion Inditex Store Allocation 2009-2014e

of Total
110%
50%
9% 9% 9%
45%
90%
40%
35% 70% 46% 46% 46%

30%
25% 50%
20%
15% 30%
44% 44% 44%
10%
10%
5%
0%
-10%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2009 2010 2011 2012 2013e 2014e 2015e
Asia & RoW Spain Europe ex-Spain Asia & RoW Americas
Sales Density Differentials We expect group level sales densities, and LFLs, will improve for Inditex. We
Lead to Differing ROIC and believe this will have a direct impact on returns on capital and margins. We expect
Margin Forecasts Inditex will benefit from a higher proportion of sales derived from countries in
which it has a higher price point, given the sales are supported by good volumes
(albeit some of the margin benefit is lost due to higher costs, relating to distribution
and, in some instances, country specific tariffs). As a result, we expect Inditex's
returns on capital to improve in the coming years (see Exhibit 119).
We expect Inditex's gross margin to continue to tick up, given this geographic
mix shift (see Exhibit 120). We believe the same trend will be true for EBIT
margins (see Exhibit 121).
Exhibit 119 We Expect Inditex's ROIC to Continue Increasing Over the Coming Years as Higher
Price Point Emerging Markets Take a Higher Proportion of Sales
Inditex ROIC: 2005/6 - 2015/16e
100%
90%
80%
70%
60%
50%
40%
Exhibit 120 We Expect Inditex's Gross Margin to Exhibit 121 ...and Believe the Same Trends Will Be True
Continue to Tick Up Over the Medium Term, for EBIT Margins
Given This Geographic Mix Shift...
61% 24%
20%
57%
Gross Margin
16%
EBIT Margin
53% 12%
8%
49%
4%
45% 0%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013e
2014e
2015e
2016e
2013e
2014e
2015e
2016e
What's Driving Sales Growth? Price

or Volume?
Our Pricing Survey Highlights One of the key questions about Inditex's sales growth is what component is driven
the Benefits Derived from a by volume growth and what part of sales is driven by price? While Inditex has said
Sales Mix Shift to the Higher that its prices have remained flat on a like-for-like basis over the last several years,
Price Point Asian and there are differences in Inditex's price by region, which suggest that at the group
American Regions level, there is a price component of growth. In this chapter, we calculate how much
of growth this price/geographic mix has supported, with the aim of understanding
growth sustainability going forward.
We conducted a pricing survey to assess how prices at Zara vary across the
geographical regions as reported by Inditex: Spain, Europe excluding Spain, the
Americas and the rest of the world (ROW). Our analysis suggests that Spain is the
cheapest region, with an average price across the 22 items at 75% relative to
Europe ex-Spain. Europe ex-Spain is the second-cheapest region, with the
Americas marginally more expensive (104% relative to Europe ex-Spain), while
the biggest premium is seen on goods sold into the rest of the world region, an
average of 121% relative to Europe ex-Spain (see Exhibit 122).
Price variation within regions was also observed in some cases. The countries
selected to represent Europe ex-Spain all use the euro and we found virtually no
difference in price between them across the 22 items. In contrast, significant
variation was seen in the rest of the world region, with Japan and South Korea the
most expensive countries surveyed (141% and 130%, respectively, relative to
Europe ex-Spain). Within the same geographical region this contrasts with, for
instance, China, at a 9% premium to Europe ex-Spain (see Exhibit 123).
For more details about how our pricing survey was conducted, please see the
appendix to this chapter.
Exhibit 122 Our Analysis Suggests That Zara Prices in Spain Are the Cheapest and the Rest of
the World Region Is the Most Expensive
140
121
120
Geographic Area Relative Price
104
100
(Europe - ex. Spain = 100)
100
80 75
60
40
20
0
Europe - ex. Spain Spain Americas ROW

Exhibit 123 Price Variation Within Regions Was Also Observed With, for Instance, Japan the
Most Expensive Surveyed from the Rest of the World Region, But Saudi Arabia Only
Slightly More Expensive Than Europe ex-Spain
160
141
Europe - ex. Spain = 100 140 130
120 106 109 106

103
Relative Price
99 100 100
100
75
80
60
40
20
0
Korea Arabia
Expanding the Global Footprint Over the last decade the sales split by region has shifted significantly, with Spain
Leads to Price-Related Sales ceding most share and Asia being the main beneficiary in recent years. In 2002,
Growth Spain represented 46% of group sales, while Asia represented just 7%. By 2012,
Spain's proportion of sales had more than halved to c.21% and Asia had increased
to 20% of sales (see Exhibit 124 and Exhibit 125).
We expect this mix shift to continue going forward, in part given the higher
growth rates of apparel in emerging markets compared to Spain and Western
Europe, and in part given that Inditex is continuing to open an increasing
percentage of its new space in emerging markets (see Exhibit 126 and Exhibit 127).
This evolution of sales mix has had an impact on the average price point of
sales within the group. A simple way to think about the price evolution is to
consider how transferring one unit of product from one region to another affects the
price and associated revenue of that item. For example, if an item is sold in Asia
instead of Spain, there is, on average, a 61% boost to revenue attached to the item
(see Exhibit 128).
Given the relative prices (assuming that price differentials by region have been
constant over time and that sales mix is consistent across geography), and using the
sales splits by region provided by the company, we are able to calculate the group-
level sales growth achieved purely by geographic mix shift, essentially price-
related sales growth. Over the past five years, we believe this geographic shift has
provided an average 1.3% boost to sales (see Exhibit 129).
In 2013, we expect sales growth of 1.6% will come purely from further
geographic mix shift, as we expect Asia's share of volume to increase by c.3.0 pp,
the Americas' by 70 bp and Spain's to diminish by 3.6 pp. We expect this trend to
continue over the medium term due to further mix shift away from Spain to higher
price point regions.
Exhibit 124 There Was a More Even Regional Exhibit 125 ...Compared to 2002, When 80% Came from
Distribution of Sales in 2012... Europe, and, More Specifically, 46% Came
from Spain
Americas,
Americas, 13%
14%
Asia, 7%
Europe
Ex-Spain,
34%
Asia, 20%
Europe
Ex-Spain,
45%
Spain, Spain,
21% 46%
Exhibit 126 Emerging Markets Are Likely to Have Significantly Higher Apparel Sales Growth
Over the Coming Years Than More Developed Markets
2012-2015e Apparel Sales CAGR
12% 11.1%
10.2%
10%
8.1%
8% 7.5%
5.7%
6%
3.8%
4% 3.0%
2.4%
1.8% 1.6%
2%
0.3%
0%
-2% -1.3%
Spain France USA Germany Sweden UK Russia China Western Middle Latin Asia
Europe East and America Pacific
Africa
Source: Euromonitor, Haver Analytics, Global Insight and Bernstein estimates and analysis.
Exhibit 127 We Expect Asia to Remain the Key Focus Area of Expansion in the Coming Years
Inditex Store Allocation 2009-2014e
110%
9% 9%
90%
70% 46% 46%
50%
30%
44% 44%
10%
-10%
2009 2010 2011 2012 2013e 2014e
Spain Europe ex-Spain Asia & RoW Americas
Exhibit 128 Moving the Proportion of Volume from Spain and Europe ex-Spain to Asia & RoW
and the Americas Leads to Group Price and Revenue Growth
1 Unit to
Spain Europe (ex-Spain) Asia & RoW Americas
Spain 1.33 1.61 1.39
1 Unit From
Europe (ex-Spain) 0.75 1.21 1.04
Asia & RoW 0.62 0.83 0.86
Americas 0.72 0.96 1.16
Source: Oanda, corporate websites and Bernstein estimates and analysis.
Exhibit 129 According to Our Pricing Survey, We Believe There Would Have Been a 1.3% Boost
to Sales Growth Purely from the Geographical Mix Shift in 2012
Geographic Mix Shift Impact onSales

2.5%
2.0% 1.9%
1.6%
1.4%
1.5% 1.3%
1.2% 1.3%
1.0% 0.9% 0.8%
0.5% 0.5%
0.5%
0.0%
-0.2%
-0.5%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013e
Source: Oanda, corporate websites and Bernstein estimates and analysis.

What About Volume Growth? While this mix shift is beneficial to sales growth, it only explains a small fraction
of the total sales growth delivered by Inditex over the past decade. How should we
think about volume growth?
One way to think about volume growth is that it's everything else, after
adjusting for FX. This makes two (large) assumptions: 1) Inditex's LFL prices are
flat within each geography over time, which is what Inditex management has
stated, and 2) Inditex's price and product mix is constant over time within a
geography, though data in the U.K. suggest this is not the case (see Exhibit 130
through Exhibit 132). So perhaps the more accurate way to think about the growth
that remains is that it's a combination of volume and product mix.
If everything else comes from either volume growth or product mix shift, then
we can compare it to the contribution from new space, which, in our view, is most
likely to be driven by volume growth. Clearly, geographic price mix is also related
to space growth, but could occur even if group volumes were flat. For example, if
one unit of product were sold in Asia and ROW at the expense of Spain, even if
group volume was flat, there would still be revenue growth. The percentage of sales
coming from Asia and ROW will accelerate faster because of space growth, but
only if Inditex is selling additional volume through these stores. As such, we
believe the contribution from new space is largely volume growth. As we've
discussed in previous chapters, space growth has been the biggest driver of sales
growth over the past decade and we expect Inditex's space growth targets of 8-10%
to be maintained for at least the next four to seven years.
What's left is the combination of LFL volume growth and product mix shift
(see Exhibit 133 for a diagram of how we think about the components of Inditex's
growth).
As we've discussed in previous research, space growth has been the biggest
driver of sales growth over the past decade (see Exhibit 134). Given that at least
some portion of LFL sales growth is coming from the geographic price mix, this
suggests that underlying volume and product mix related LFL sales growth has
been at a lower level than total reported LFL sales (see Exhibit 135). At the low
end, we estimate that LFL volume growth and product mix have contributed
c.3 pp of growth per annum over the last 10 years.
Our analysis suggests volume growth remains the largest driver of sales growth
at Inditex, with the contribution from price through the combination of geographic
mix and intra-geography product mix likely accounting for less than half of overall
sales growth.
We forecast 10.9% constant currency sales growth in 2013, driven by c.8.3%
space growth but boosted by c.0.9% LFL volume growth and product mix related
sales growth and c.1.6% from geographic price mix shift. We expect a similar top
line trajectory over the medium term, with space contributing c.8.0% and LFL sales
growing at c.5.0% with LFL volume growth and product mix shift boosted by a
greater proportion of sales coming from higher price point countries (see Exhibit
136).
Exhibit 130 Zara's Proportion of Exhibit 131 ...the Proportion of Mid- Exhibit 132 …as Product Mix Has
Clothes from Lowest Priced Goods Has Also Moved to the Highest
Priced Goods in the U.K. Fallen c.12 pp in That Priced Items
Has Decreased in the Period...
Last 18 Months...
Zara Proportion of Sales Ptag 1-3 Zara Proportion of Sales Ptag 4-8 Zara Proportion of Sales Ptag 9-10
5.5 55 65
% sales in Ptag 9-10
% sales in Ptag 1-3
% sales in Ptag 4-8
5.0
50 61
4.5
4.0 45 57
3.5 40 53
3.0
35 49
2.5
2.0 30 45
Source: Kantar and Bernstein analysis. Source: Kantar and Bernstein analysis. Source: Kantar and Bernstein analysis.
Exhibit 133 We Believe There Are Three Key Components of Constant Currency Sales Growth
for Inditex, Which Are Affected in Different Measures by Price and Volume
LFL Volume
LFL Sales and Product Price and Volume
Mix
Geographic
Mix Shift Price
Space Space
Contribution Growth Mostly Volume
Contribution
Note: Area reflects our estimates of contribution to 2012 group constant currency sales growth.
Source: Bernstein estimates and analysis.
Exhibit 134 Space Has Continued to Be the Main Driver of Constant Currency Sales Growth in
Recent Years
Inditex Constant Currency Revenue Growth

30%
25%
20%
15%
10%
5%
0%
-5%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013e
Space Growth Contribution Geographic Mix Shift LFL Volume and Product Mix
Source: Oanda, corporate websites and reports and Bernstein estimates and analysis.
Exhibit 135 By Sizing the Geographic Price Shift Contribution to Sales, We Can Estimate the
Range of Growth in LFL Volume and Intra-Geography Product Mix, Which at the Low
End Has Averaged c.3.0% Over the Last 10 Years
LFL Volume and Product Mix Shift Growth

10%
9.2%
9.0%
8%
6.0% 6.0%
6%
5.0% 5.0%
4.0%
4% 4.5% 4.6% 4.7%
4.1% 3.0%
5.0%
2%
1.0% 2.1%
1.7%
0.5% 0% 0% 0.9%
0%
-0.8%
-2% -1.2%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013e
Source: Oanda, corporate websites and reports and Bernstein estimates and analysis.
Exhibit 136 We Expect Inditex to Achieve c.11.0% Sales Growth Annually Over the Medium Term
20%
15%
YoY Change
10%
5%
0%
-5%
03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14E 14/15E 15/16E 16/17E
Total Space LFL FX
Appendix — Pricing Survey We use Zara as a proxy for Inditex as a whole given it is the largest banner (c.66%
Results of group sales as of FY12) and because it has launched online in more countries,
allowing us to sample prices across more geographies. Within each region we
selected a number of countries as representative, based largely on their size as a
percentage of total Inditex sales in 2012. Overall, the countries included in our
analysis represented c.56% of group sales (see Exhibit 137). Given we believe
prices in Europe (ex-Spain) are most consistent across the group, with all euro-
denominated countries appearing to have near identical pricing, and other European
countries showing minimal variation (albeit Russia is priced at a premium — see
Exhibit 139), this is the area where we sampled the lowest proportion of intra-
regional sales. In contrast, we surveyed a greater proportion of Asian sales, given
our expectation that prices by country would be more dissimilar, as proved to be
the case (see Exhibit 138).
We ran our price survey in March 2013. We selected 22 items of womenswear
available on each of our selected countries' Zara online shopping sites and recorded
the price as stated in the appropriate local currency. Items were chosen at random
from across the different categories offered by Zara. Although a relatively small
sample, we believe the wide range of products chosen mean the results are likely to
be representative of the pricing differentials seen between the countries.
We converted these prices to euros at the average FX rate from the past 90
days to ameliorate any recent currency swings. Given Zara's relatively fast turnover
of stock, we believe 90 days is a fair measure of Inditex's ability to respond to FX
movements.
For each item we then calculated an average price for each of the geographical
regions as reported by Inditex. We then rebased these regional averages relative to
the Europe ex-Spain average. Exhibit 139 summarizes the relative pricing for each
of the 22 items on a country-by-country basis.
Following the completion of the pricing survey, we excluded certain countries
from the rest of the analysis as we decided to use only euro area countries in our
Europe ex-Spain sample. Therefore, although shown here for reference, the data for
the U.K., Russia and Poland are not used in calculating the regional average prices
or any other part of the analyses presented.
Exhibit 137 The Countries Used in Our Analysis Represented c.56% of Group Sales in 2012
24%
% of Inditex 2012 Sales by Geography
21.0%
20%
16% 14.5% 14.4%
12%
7.6%
8% 6.1% 5.5% 5.6%
3.8% 3.3%
4% 2.9%
1.8% 1.7% 1.8%
0%

Exhibit 138 Our Price Survey Covered Countries Representing a Significant Proportion of Each
Region's Group Sales
100%
90%
80%
% of Regional Sales Surveyed
70%
60%
50% 100%
40%
72%
30%
20% 40%
32%
10%
0%
Spain Europe Ex-Spain Asia & ROW Americas
Exhibit 139 Relative Pricing of the 22 Items Across the Countries Used in Our Analysis
Relative Price - Europe ex-Spain = 100
Strappy
Draped Shirt with Straight- Striped
Trench Jacket with Printed Dress Combination Crocodile Applique Cut Trouser with Slim
Coat Combination Strappy with Velour Textured on the Printed Combination Tomboy Boyfriend
with Belt Lapel Dress Frill Dress Top Shoulder Trousers Waistband Fit Jeans Jeans
France 100 100 100 100 100 100 100 100 100 100 100
Germany 100 100 100 100 100 100 100 100 100 100 100
Italy 100 100 100 100 100 100 100 100 100 100 100
Spain 71 75 80 71 72 75 75 75 80 80 75
Mexico 101 104 107 101 95 99 99 99 107 107 99
USA 97 94 121 97 106 113 113 113 121 121 113
China 103 105 120 120 110 120 108 108 120 96 108
Japan 132 147 151 132 134 147 147 147 151 151 147
South Korea 129 130 139 129 125 121 121 121 139 139 121
Saudi Arabia 103 100 112 103 104 100 100 100 112 112 100
UK 102 104 109 85 95 89 89 107 95 95 89
Russia 135 143 149 135 129 124 124 124 149 149 124
Poland 103 112 96 103 96 102 102 102 96 96 102
Relative Price - Europe ex-Spain = 100
Two- Shopper Faux

Sarong Tone Bag with Leather
Style Open Sweater with Snakeskin Three Necklace
Striped Flowing Mid- Sequinne Work Embroidered Pattern Printed T- Shark T- Studded Shades with Silver
Skirt length Skirt d Skirt Sweater Tiger Sweatshirt shirt Shirt Sandals of Blue Plaque Average
France 100 100 78 100 100 100 100 110 100 100 100 99
Germany 100 100 111 100 100 100 100 95 100 100 100 100
Italy 100 100 111 100 100 100 100 95 100 100 100 100
Spain 87 80 56 75 80 71 78 73 70 70 76 75
Mexico 118 107 105 99 107 101 103 102 96 101 104 103
USA 126 121 108 113 75 97 98 99 94 99 89 106
China 120 120 120 90 120 120 88 87 114 93 120 109
Japan 168 151 149 147 101 132 128 123 136 130 148 141
South Korea 138 139 139 121 139 129 149 126 122 124 120 130
Saudi Arabia 120 112 107 100 112 103 113 102 95 93 117 106
UK 103 95 106 107 109 102 104 87 89 92 112 98
Russia 157 149 138 124 149 135 140 136 124 96 132 135
Poland 120 96 107 102 96 103 105 89 90 94 114 101
Note: Europe – ex-Spain (France, Italy, Germany); Americas (Mexico, U.S.), RoW (China, Japan, South Korea, Saudi Arabia). Previous 90-day
average FX rates as of March 12, 2013, used.
Exhibit 140 Results of Our Pricing Survey

Item Price in Euros
Strappy
Draped Shirt with Straight- Striped
Trench Jacket with Printed Dress Combination Crocodile Applique Cut Trouser with Slim
Coat Combination Strappy with Velour Textured on the Printed Combination Tomboy Boyfriend
with Belt Lapel Dress Frill Dress Top Shoulder Trousers Waistband Fit Jeans Jeans
China 71.82 83.81 59.83 83.81 55.03 47.84 43.04 43.04 59.83 47.84 43.04
Japan 92.32 117.52 75.52 92.32 67.12 58.72 58.72 58.72 75.52 75.52 58.72
South Korea 90.30 104.30 69.30 90.30 62.30 48.30 48.30 48.30 69.30 69.30 48.30
Saudi Arabia 72.16 80.20 56.08 72.16 52.06 40.00 40.00 40.00 56.08 56.08 40.00
Mexico 70.98 82.82 53.22 70.98 47.30 39.60 39.60 39.60 53.22 53.22 39.60
USA 67.81 75.35 60.27 67.81 52.73 45.18 45.18 45.18 60.27 60.27 45.18
Spain 49.95 59.95 39.95 49.95 35.95 29.95 29.95 29.95 39.95 39.95 29.95
France 69.95 79.95 49.95 69.95 49.95 39.95 39.95 39.95 49.95 49.95 39.95
Germany 69.95 79.95 49.95 69.95 49.95 39.95 39.95 39.95 49.95 49.95 39.95
Italy 69.95 79.95 49.95 69.95 49.95 39.95 39.95 39.95 49.95 49.95 39.95
UK 71.29 83.18 54.65 59.41 47.52 35.64 35.64 42.77 47.52 47.52 35.64
Russia 94.22 114.06 74.38 94.22 64.46 49.58 49.58 49.58 74.38 74.38 49.58
Poland 72.30 89.22 48.12 72.30 48.12 40.86 40.86 40.86 48.12 48.12 40.86
REGIONAL AVERAGE
Europe - ex. Spain 69.95 79.95 49.95 69.95 49.95 39.95 39.95 39.95 49.95 49.95 39.95
Spain 49.95 59.95 39.95 49.95 35.95 29.95 29.95 29.95 39.95 39.95 29.95
Americas 69.40 79.09 56.74 69.40 50.01 42.39 42.39 42.39 56.74 56.74 42.39
ROW 81.65 96.46 65.18 84.65 59.13 48.71 47.51 47.51 65.18 62.18 47.51
RELATIVE WEIGHT (Europe ex-Spain = 100)

Europe - ex. Spain 100 100 100 100 100 100 100 100 100 100 100
Spain 71 75 80 71 72 75 75 75 80 80 75
Americas 99 99 114 99 100 106 106 106 114 114 106
ROW 117 121 130 121 118 122 119 119 130 124 119
Item Price in Euros
Two- Shopper Faux

Sarong Tone Bag with Leather
Style Open Sweater with Snakeskin Three Necklace
Striped Flowing Mid- Sequinne Work Embroidered Pattern Printed T- Shark T- Studded Shades with Silver
Skirt length Skirt d Skirt Sweater Tiger Sweatshirt shirt Shirt Sandals of Blue Plaque Average
China 35.85 59.83 107.79 35.85 59.83 83.81 20.26 23.86 91.00 119.78 20.26 58.96
Japan 50.32 75.52 134.32 58.72 50.32 92.32 29.32 33.52 109.12 167.92 25.12 75.33
South Korea 41.30 69.30 125.30 48.30 69.30 90.30 34.30 34.30 97.30 160.30 20.30 69.94
Saudi Arabia 35.98 56.08 96.28 40.00 56.08 72.16 25.93 27.94 76.18 120.40 19.90 55.99
Mexico 35.46 53.22 94.66 39.60 53.22 70.98 23.62 27.76 76.90 130.18 17.70 55.16
USA 37.64 60.27 97.30 45.18 37.64 67.81 22.55 27.08 75.35 127.48 15.01 56.30
Spain 25.95 39.95 49.95 29.95 39.95 49.95 17.95 19.95 55.95 89.95 12.95 39.45
France 29.95 49.95 69.95 39.95 49.95 69.95 22.95 29.95 79.95 129.00 16.95 53.09
Germany 29.95 49.95 99.95 39.95 49.95 69.95 22.95 25.95 79.95 129.00 16.95 54.27
Italy 29.95 49.95 99.95 39.95 49.95 69.95 22.95 25.95 79.95 129.00 16.95 54.27
UK 30.89 47.52 95.06 42.77 54.65 71.29 23.76 23.76 71.29 118.83 19.00 52.71
Russia 47.10 74.38 123.98 49.58 74.38 94.22 32.22 37.18 99.18 123.98 22.30 71.22
Poland 36.03 48.12 96.48 40.86 48.12 72.30 24.16 24.16 72.30 120.66 19.32 54.19
REGIONAL AVERAGE
Europe - ex. Spain 29.95 49.95 89.95 39.95 49.95 69.95 22.95 27.28 79.95 129.00 16.95 53.88
Spain 25.95 39.95 49.95 29.95 39.95 49.95 17.95 19.95 55.95 89.95 12.95 39.45
Americas 36.55 56.74 95.98 42.39 45.43 69.40 23.09 27.42 76.13 128.83 16.36 55.73
ROW 40.86 65.18 115.92 45.72 58.88 84.65 27.45 29.90 93.40 142.10 21.39 65.05
RELATIVE WEIGHT (Europe ex-Spain = 100)

Europe - ex. Spain 100 100 100 100 100 100 100 100 100 100 100 100
Spain 87 80 56 75 80 71 78 73 70 70 76 75
Americas 122 114 107 106 91 99 101 101 95 100 96 104
ROW 136 130 129 114 118 121 120 110 117 110 126 121
Note: Europe – ex-Spain (France, Italy, Germany); Americas (Mexico, U.S.), ROW (China, Japan, South Korea, Saudi Arabia). Previous 90-day
average FX rates as of March 12, 2013, used.
Beyond Zara — A Detailed Look at

the Other Brands
More Than Zara — Inditex We believe that when many investors think of Inditex, they actually think only of
Operates Eight Different Zara. While this is understandable — after all, it remains the most significant driver
Brands Across Apparel, Home of group performance, representing c.66% of group sales and c.71% of group EBIT
Décor and Accessories as of FY2012 and has more than twice as many stores as any other brand in more
countries — we believe that understanding Inditex also requires a deeper look at
the non-Zara brands, which account for c.34% of sales and 29% of profit (see
Exhibit 141 through Exhibit 144).
Exhibit 141 Zara Still Represents Around Two-Thirds of Exhibit 142 ...and c.71% of Group EBIT
Group Sales...

Oysho Zara
Stradi- 2% Home 1% Stradi- 1% 0%
varius 2% varius
6% 7%
Bershka
Bershka 8%
9%
Massimo
Dutti
Massimo 6%
Dutti
Pull and
7% Bear
6%
Pull and
Bear
7% Zara (inc
Zara Kids)
66% Zara (inc
Zara Kids)
71%
Exhibit 143 Zara Has More Than Double the Number of Stores of Any Other Brand
2,000
1,600
Store Numbers
1,200
800
400
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Zara Pull & Bear Massimo Dutti Bershka Stradivarius Oysho Zara Home Uterqüe

Exhibit 144 Zara Is Present in the Most Markets, But Other Brands Have Broadened Their
Footprints Significantly in Recent Years
100
80
Geographies
60
40
20
0
Zara Pull & Bear Massimo Dutti Bershka Stradivarius Oysho Zara Home Uterqüe
2001 2012
There's More to Inditex Than In total Inditex operates eight different brands in sectors ranging from general
Zara apparel, to lingerie, to home décor (see Exhibit 145). The non-Zara brands can be
broadly split into those focused on general apparel and those with a more
specialized focus.
Those focused on general apparel are Pull & Bear, Massimo, Bershka and
Stradivarius.
The more specialized brands are Oysho, which focuses on women's underwear
and nightwear, Zara Home, which focuses on homewares, and Uterqüe, which
focuses on accessories.
All brands utilize the Zara business model of proximity sourcing, high open-to-
buy, and fast and flexible collections, leveraging the strengths of the Zara business
model. The smaller brands also benefit from the size of Inditex when it comes to
things like real estate and rent negotiations, logistics, and IT and systems
development.
Exhibit 145 Overview of Inditex's Brands

Fast‐fashion.
Founded 1975 10541 21.2% 37% 1925 86 2010 1044 5245 1111
Mid‐quality.
Casual and sporty.
Founded 1991 1086 16.8% 57% 816 59 254 312 4269 715
For teen's‐20s customers.
For 20s‐30s customers.
Acquired 1991 1134 17.4% 42% 630 60 172 273 6589 1145
Founded 1998 1485 16.1% 51% 885 62 338 382 4388 706
clientele
Only women's wear.
Acquired 1999 961 21.6% 57% 780 52 207 265 4652 1007
Founded 2001 314 8.3% 21% 524 35 75 143 4204 348
nightwear
Accessories
Founded 2008 74 ‐12.2% n/a 92 18 12 134 5990 ‐729
(Limited clothing)

Diversification Means Access The diversification into brands other than Zara allows Inditex to target a broader
to Customers Potentially Not swathe of the retail market than it could from one brand alone without
Otherwise Touched by Inditex compromising or diluting the Zara offer or brand image.
We conducted a pricing survey of the general apparel brands to examine how
their pricing differs and how this relates to their target demographics (see Exhibit
146).
Our survey found that Massimo Dutti is the most highly priced brand at
c.160% of Zara pricing while Stradivarius is the cheapest at c.60% of Zara pricing.
Massimo Dutti offers a more refined, classic styling and targets an "urban,"
"cosmopolitan" and "educated" customer. These shoppers are likely to be
concerned by quality and willing to pay a premium for it. In contrast the other
general apparel brands are priced more cheaply than Zara, likely as they are
targeted at younger shoppers, typically teenage or early twenties, for whom value
and fashion may be more important.
Exhibit 146 Our Pricing Survey Suggests That Massimo Dutti Is Inditex's Highest Priced Brand
and Stradivarius the Lowest
180%
159%
160%
Relative Pricing (Zara = 100)
140%
120%
100%
100%
81%
80% 72%
62%
60%
40%
20%
0%
Zara Pull & Bear Massimo Dutti Bershka Stradivarius
Note: Average price of skirts, men's trousers, T-shirt/tops and dresses compared across brands. Prices taken from Spanish e-commerce site for
each brand.
Source: Corporate websites, Bernstein pricing survey and Bernstein analysis.
Inditex Develops New Although just 21% of sales in 2012/13, Spain remains Inditex's largest market in
Concepts in Spain Before terms of stores, with 32% of total (see Exhibit 147).
Rolling Them Out Each of the non-Zara brands is developed first in Spain. To that end, each of
Internationally the non-Zara apparel brands has over 200 stores in Spain, while Oysho and Zara
Home each have more than 100 stores in Spain. That said, the other brands are
already geographically diverse. Indeed, after Spain and Portugal, some combination
of China, Russia and Mexico are in the top five countries by store numbers for each
non-Zara brand (see Exhibit 148 and Exhibit 149).
Exhibit 147 Overall, Europe Remains by Far Inditex's Largest Geography in Terms of Stores,
With c.75% of Total
Inditex Store Split
Asia
Middle 11%
East &
Africa
7% Spain
32%
Lat Am
7%
N America
1%
Europe
(ex-Spain)
43%
Exhibit 148 Inditex — Geographic Heat Map of Stores
Source: Corporate reports, www.clearlyandsimply.com and Bernstein analysis. (See online version for colors.)
Exhibit 149 China, Russia and Mexico Have Been Focus Countries for Expansion for Non-Zara
Brands
Country Rank by Number of Stores
Massimo
Zara Pull & Bear Dutti Bershka Stradivarius Oysho Zara Home Uterqüe
1 Spain Spain Spain Spain Spain Spain Spain Spain
2 China Portugal Portugal Russia Poland Italy Portugal Mexico
3 France China China China Russia Russia Italy Belgium
4 Italy Russia Mexico Mexico China Mexico Russia Portugal
5 Japan Mexico Russia Portugal Portugal Portugal France Russia
We Expect Zara to Remain the We expect Zara to continue to drive overall sales growth going forward and project
Main Driver of Growth Going it to expand c.+100 bp as a percentage of group sales to 2017E relative to FY2012.
Forward, and to Increase as a We expect it to also expand c. +100 bp as a percentage of group EBIT (see Exhibit
Percentage of Group Sales, 150 and Exhibit 151).
But Significant Opportunity However, we also see considerable further growth opportunity for all of
Remains for Non-Zara Brands Inditex's brands. Our analysis for Zara suggests that it can achieve management
space growth targets for the medium term simply by expanding in markets we
consider the most attractive. The opportunity for other brands is likely equally
significant given their relatively smaller geographic footprint and lower level of
penetration.
Looking at how Zara expanded internationally can provide an insight into the
prospects for Inditex's other brands. Exhibit 152 shows how the non-Zara brands
stand as of FY 2012 in terms of the number of stores and the number of countries
where they have a presence. Bubble size represents sales in FY 2012. The trend line
represents how Zara developed between 2001 and 2006. In general, the more
developed apparel brands average c.14-15 stores per country (calculated as total
stores/total countries), which is about the same number of stores per country that
Zara had opened in the period from 2001-04, when Zara was present in fewer than
60 countries. Since then, the average number of stores per country for Zara has
increased to c.22. The apparel brands typically sit somewhat below the Zara trend
line, indicating that they have fewer stores per country than Zara had at the same
stage of expansion. This may indicate that these non-Zara brands have a lower
potential store number in each geography relative to Zara. The non-apparel brands
are earlier in their development making the comparison to Zara more difficult and
ultimate growth potential harder to assess.
Assuming that the ratio of stores to countries seen for each brand is maintained
going forward and they all eventually expand to the 86 countries Zara has entered
as of FY 2012, we can calculate what this suggests for potential future store
numbers (see Exhibit 155). This analysis suggests that the non-apparel brands have
the most absolute potential for store growth as they are at an earlier stage of
expansion. Of the apparel brands, Stradivarius has the most potential for store
growth (+510 from current levels) and Massimo Dutti the lowest (+273 from
current levels). In total, this would suggest c.77% growth in store numbers is
possible from here. However, if the non-Zara brands are also able to increase the
number of stores per country, as Zara has done over time, store growth could be as
much as 230% relative to current levels.
Exhibit 150 We Expect Zara's Share of Group Sales to Exhibit 151 ...and Its Share of Group EBIT to Grow by
Increase c.100 bp by 2017E... the Same Amount
2017e Sales 2017e EBIT

Zara Zara
Stradi- Home Home
Oysho 2% Uterqüe Stradi-
varius
2% 1% varius Oysho 2% Uterqüe
6% 1% 0%
6%
Bershka
Bershka 8%
9%
Massimo
Dutti
Massimo 6%
Dutti
7% Pull and
Bear
5%
Pull and
Bear
6%
Zara (inc
Zara Kids)
67% Zara (inc
Zara Kids)
72%
Source: Bernstein estimates and analysis. Source: Bernstein estimates and analysis.
Exhibit 152 The Non-Zara Apparel Brands Typically Sit Slightly Below the Trend Line for Zara
Between 2001 and 2006
1400
Bubble Size = 2012 Sales
Trend Line = Zara Progression 2001‐2006
1200
2006
Pull & Bear Bershka

1000
2005
Stradivarius 2004
800
2003
Stores
600 Oysho
2002
2001 Massimo Dutti
400
Zara Home
200
Uterqüe
-200
0 10 20 30 40 50 60 70 80
Countries
Note: Legend – red Bershka, green Massimo Dutti, light blue Stradivarius, orange Pull & Bear, yellow Oysho, dark blue Zara Home, Uterqüe
black. (See online version for colors.)
Exhibit 153 Zara Has Seen Its Stores per Country Step Exhibit 154 Non-Zara Brands Typically Have a Lower
Up as It Has Expanded Internationally Stores/Country Level Than Zara Had at the
Same Stage of Expansion
24 16 15.0 15.0
22.3 22.4 13.8 14.3
21.7 21.8 14
22 21.1
12
10.5 10.2
Stores / Country
19.7
20 10
Zara Stores / Country
18.7
18 8
17.0
15.8 6 5.1
16 15.4 15.5
14.8 4
14 2
0
12
Oysho
Bershka
Stradivarius
Uterqüe
Massimo Dutti
Zara Home
Pull & Bear
10
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Countries (33) (40) (46) (55) (59) (63) (69) (72) (74) (79) (82) (86) Countries (59) (60) (62) (52) (35) (35) (18)
Exhibit 155 Assuming That the Non-Zara Brands Maintain Their Stores per Countries Ratio and
Expand to 86 Geographies as Zara Had Done by FY 2012 Provides One Means of
Estimating Future Potential Store Numbers
1,400
1290 1288
1228
1189
1,200
1,000 903 885 877

Number of Stores
816
780
800
630
600 524
440
400 357
200
92
0
Pull & Bear Massimo Dutti Bershka Stradivarius Oysho Zara Home Uterqüe
Current Stores Calculated Potential Stores

Exhibit 156 Overview of Zara

Fast‐fashion.
Founded 1975 10541 21.2% 37% 1925 86 2010 1044 5245 1111
Mid‐quality.
Zara — Still the Mainstay of Zara is Inditex's original brand. The first store opened in La Coruña, Spain in 1975.
Group Performance Zara remains the major brand for Inditex, representing c.66% of group sales
and c.71% of group EBIT as of FY2012 (see Exhibit 141 and Exhibit 142).
Following a period where it fell, Zara has expanded as a percentage of group sales
and EBIT since 2009 (see Exhibit 158 and Exhibit 159).
Zara has recorded a 14% sales CAGR since 2001 and seen EBIT margin
expand c.+300 bp (see Exhibit 160). Space growth has been a major driver of
performance, averaging c.14% since 2002 (see Exhibit 161). Performance remains
strong, with +17.9% year-over-year sales growth in 2012 and c.+190 bp of EBIT
margin expansion. We expect sales growth to continue and model a c.12% CAGR
to 2017E. We see more limited scope for EBIT margin expansion and expect
c.+50 bp across the period (see Exhibit 162). We expect space growth to continue
at double-digit rates as store size rises (see Exhibit 163).
Zara is the most international of Inditex's brands, but remains majority oriented
to Europe, which represents c.67% of stores (see Exhibit 164 and Exhibit 165). As
of FY2012, Zara was present in 86 geographies, with the online shop currently
available in 21 geographies.
Exhibit 157 Zara Markets Fast Fashion, Offering on-Trend Items at Very Competitive Prices
Source: Corporate website and Bernstein analysis.

Exhibit 158 Following a Period of Decline, Zara Has Exhibit 159 ...and Group EBIT
Recently Begun to Rise as a Percentage of
Group Sales...
90% 90%
85% 85%
80% 80%
Zara as % of Group EBIT

Zara as % of Group Sales
75% 75%
70% 70%
65% 65%
60% 60%
55% 55%
50% 50%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Exhibit 160 Zara Has Grown Sales at a 14% CAGR Exhibit 161 Space Growth Has Been a Major Driver of
Since 2001, With a Step Up in EBIT Margin Sales and Averaged c.14% Since 2002
Since 2010
12000 30% 2500 25%
2000 20%
9000 25%
YoY Space Growth

Zara Stores Numbers
Zara Sales (€ million)
1500 15%
EBIT Margin
6000 20%
1000 10%
3000 15% 500 5%
0 0%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
0 10%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Sales EBIT Margin% Stores YoY Growth
Exhibit 162 We Expect Sales Growth to Continue and Exhibit 163 We Expect Continued Double-Digit Space
Model a c.12% CAGR to 2017E Growth in the Future as Store Size
Increases
20000 30% 3500 12%
3000 10%
15000 25%
2500
YoY Space Growth

Zara Sales (€ million)
Zara Stores Numbers

8%
EBIT Margin
2000
10000 20% 6%
1500
4%
1000
5000 15%
500 2%
0 0%
0 10%
2013e
2014e
2015e
2016e
2017e
2011
2012
Sales EBIT Margin% YoY Growth YoY Growth
Exhibit 164 Zara Is the Most International of Inditex's Brands, But the Majority of Stores Are Still
in Europe
Zara Store Split
Asia
17% Spain
24%
Middle
East &
Africa
4%
Lat Am
8%
N America
4%
Europe
(ex-Spain)
43%

Exhibit 165 Zara — Geographic Heat Map of Stores
Exhibit 166 Overview of Pull & Bear

Casual and sporty.
Founded 1991 1086 16.8% 57% 816 59 254 312 4269 715
For teen's ‐ 20's customers.
Pull & Bear — a Younger, More Pull & Bear, with sales of €1.1 billion as of FY 12/13, was founded by Inditex in
Casual Style 1991, with an offer that is more casual and sporty compared to Zara and aimed at a
slightly younger demographic, intended to reach teenagers and consumers in their
early twenties.
Pull & Bear is Inditex's fourth-largest brand in terms of sales, but third largest
in terms of store numbers. In FY 2012, Pull & Bear represented c.7% of group
sales and c.6% of group EBIT.
Sales growth has been strong, recording a c.15% CAGR since 2001, with EBIT
margin expansion of c.220 bp (see Exhibit 168). Consistent with the group overall,
space growth has been a key driver of sales growth, growing at an average of
c.19% p.a. since 2002 (see Exhibit 169). Pull & Bear reported sales growth of
c.14% year-over-year in 2012 and EBIT margin expansion of c.210 bp following a
trough in 2011. Going forward, we expect sales to grow at a CAGR of c.9% to
2017E with +20 bp EBIT margin expansion (see Exhibit 170), with annual space
growth of c.8% p.a. to 2017E (see Exhibit 171).
Like all of the non-Zara brands, Pull & Bear was first developed in Spain
before expanding internationally. As of January 2013, Spain represented c.34% of
total stores, though the brand now reaches 59 countries in total. Outside of Spain
and Portugal, Pull & Bear has been rolled out most aggressively in Russia and
China, with 55 stores (6.7% of total) and 57 stores (7.0% of total), respectively (see
Exhibit 172 and Exhibit 173). Finally, Pull & Bear's e-commerce offer is available
online in 17 geographies, but is not yet present in Canada, Norway, China, Japan
and the U.S., where Zara is already online.
Pull & Bear offers three different collections aimed at reaching young teens
and people in their early 20s. Among these, Pull & Bear Heritage was the brand's
most recent launch, intended to reach men and featuring designs with a "boho,
independent air." Pull & Bear describes its clientele as "engaged with their
environment" and as having a "casual dress sense" and uses words such as "easy,"
"comfortable" and "casual" when describing its style. Brands we believe have a
similar customer and design aesthetic are: Abercrombie & Fitch and Hollister.
Our pricing survey suggests that Pull & Bear is priced at c.70% of Zara,
meaning it is the second cheapest of Inditex's general apparel brands (see Exhibit
146). Despite this lower price point, sales per square foot are strong. The average
store size is c.30% relative to Zara stores, and sales per square meter are 81%
relative to Zara.
Exhibit 167 Pull & Bear Offers a More Casual Sporty Style Compared to Zara, With a Core
Demographic of Teenagers and Early Twenties

Exhibit 168 Sales Growth Has Been Strong, Recording Exhibit 169 Space Growth Has Been a Key Driver of
a +15.4% CAGR Since 2001, With EBIT Sales Growth, Growing at an Average of
Margin Expansion of c.+220 bp c.19% p.a. Since 2002
1200 25% 900 36%
800 32%
Pull & Bear Stores Numbers

700 28%
900 20%
Pull & Bear Sales (€ million)
YoY SpaceGrowth
600 24%
EBIT Margin
500 20%
600 15% 400 16%
300 12%
200 8%
300 10%
100 4%
0 0%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
0 5%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Stores YoY Growth

Sales EBIT Margin%
Exhibit 170 We Expect Sales to Grow at c.9% p.a. to Exhibit 171 We Expect Space Growth of c.8.5% p.a.
2017 and Model 20 bp of EBIT Margin Going Forward
Expansion
2000 20% 1200 15%
1000 14%
Pull & Bear Sales (€ million)
1600 18%
Pull & Bear Stores Numbers
YoY SpaceGrowth
800 12%
EBIT Margin
1200 16%
600 11%
800 14%
400 9%
400 12%
200 8%
0 10% 0 6%
2013e
2014e
2015e
2016e
2017e
2011
2012
2011
2012
2013e
2014e
2015e
2016e
2017e
Sales EBIT Margin%

Stores YoY Growth
Exhibit 172 The Majority of Pull & Bear Stores Are in Europe...
Pull & Bear Store Split
Asia
Middle 9%
East &
Africa
8%
Spain
34%
Lat Am
7%
N America
0%
Europe
(ex-Spain)
43%
Exhibit 173 ... But a Geographic Heat Map of Pull & Bear Stores Shows a Heavy Exposure to
Russia and China
Exhibit 174 Overview of Massimo Dutti

For 20's ‐ 30's customers.
Acquired 1991 1134 17.4% 42% 630 60 172 273 6589 1145
Massimo Dutti — the Most Massimo Dutti, with sales of €1.1 billion as of FY12/13, was founded in 1985 and
Expensive Brand in Inditex's was acquired by Inditex in 1991. Originally focused on men's apparel, it expanded
Portfolio into women's apparel in 1992. In 2003 it launched a childrenswear range, designed
for children aged 12 to 16, and now also offers baby clothing.
Massimo Dutti is Inditex's third-largest brand in terms of sales, but only the
fifth largest in terms of store numbers. In FY 2012, Massimo Dutti represented
c.7% of group sales and c.6% of EBIT.
Sales growth has been strong, recording a c.15% CAGR since 2001 and EBIT
margin has expanded c.690 bp (see Exhibit 176). Consistent with the group overall,
c.14% p.a. since 2002 (see Exhibit 177). Performance in 2012 was mixed.
Although sales grew c.12% year-over-year, EBIT margin contracted c.-610 bp.
Although the margin fell, it remained above long-run historical levels. Going
forward we expect a sales CAGR of c.10% to 2017E and c.+250 bp of margin
expansion (see Exhibit 178). We expect c.9% space growth p.a. going forward (see
Exhibit 179).
As of January 2013, Spain represented 39% of total stores, though the brand
now reaches 60 countries in total. Outside of Spain and Portugal, Massimo Dutti
has rolled out most aggressively in China and Mexico, with 47 stores (6.7% of
total) and 33 stores (5.2% of total), respectively (see Exhibit 180 and Exhibit 181).
Finally, Massimo Dutti's e-commerce offer is available online in 19 countries, but
is not present in Canada, China or Japan, where Zara is already online.
Massimo Dutti offers a more refined, classic style of clothing. It describes its
style using words including "urban," "cosmopolitan" and "educated." It describes
its clientele as multiculturally sensitive and interested in the latest fashion. In
certain stores, Massimo Dutti also offers personal tailoring of some of its men's
suits, shirts and jackets, allowing customers to select particular fabrics or colors.
Our pricing survey indicates that Massimo Dutti is the most expensive of
Inditex's apparel brands, priced at c.160% of Zara prices (see Exhibit 146). The
average store size is c.26% of relative to Zara stores, and sales-per-square meter are
c.126% relative to Zara.
Exhibit 175 Massimo Dutti Is Targeted at Consumers in Their 20s-30s, Offering an Elegant, More
Work Appropriate, Conservative Style
Exhibit 176 Since 2001, Sales Have Grown at a c.15% Exhibit 177 Space Growth Has Been a Key Driver of
CAGR and EBIT Margin Has Expanded Sales Growth, Growing at an Average
+690 bp of c.14% p.a. Since 2002
1200 30% 700 42%
1000 25% 600 36%

Massimo Dutti Stores Numbers
Massimo Dutti Sales (€ million)
500 30%
YoY Space Growth

800 20%
EBIT Margin
400 24%
600 15%
300 18%
400 10%
200 12%
200 5% 100 6%
0 0% 0 0%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Sales EBIT Margin%

Stores YoY Growth
Exhibit 178 Going Forward We Expect a Sales CAGR of Exhibit 179 We Expect Space Growth to Decelerate
c.10% to 2017E and c.+250 bp of Margin from 2012 Levels Then Decline Steadily to
Expansion High-Single-Digit Levels
2000 25% 1000 14%
900 13%
Massimo Dutti Sales (€ million)
1600 23% 800 12%
Massimo Dutti Stores Numbers

700 11%
YoY Space Growth

600 10%
EBIT Margin
1200 21%
500 9%
400 8%
800 19%
300 7%
200 6%
400 17%
100 5%
0 4%
0 15%
2011
2012
2013e
2014e
2015e
2016e
2017e
2011
2012
2013e
2014e
2015e
2016e
2017e
Exhibit 180 The Majority of Massimo Dutti Stores Are Located in Europe
Massimo Dutti Store Split
Asia
Middle 10%
East &
Africa
7%
Spain
Lat Am 39%
7%
N America
0%
Europe
(ex-Spain)
43%

Exhibit 181 Massimo Dutti — a Geographic Heat Map of Stores Shows Targeted Expansion in
China and Mexico
Exhibit 182 Overview of Bershka

Founded 1998 1485 16.1% 51% 885 62 338 382 4388 706
clientele
Bershka — Offers a Young Bershka, with sales of €1.5 billion as of FY 12/13, was founded by Inditex in 1998
Urban Style with the aim of targeting a younger market than other brands with a younger, more
urban style. Bershka is Inditex's second-largest brand in terms of sales and store
numbers. In FY 2012, Bershka represented c.9% of group sales and c.8% of group
EBIT.
Sales growth has been strong, recording a c.20% CAGR since 2001, with EBIT
margin expansion of c.360 bp (see Exhibit 184). Consistent with the group overall,
c.19% since 2002 (see Exhibit 185). Performance in 2012 was below group average
as sales grew c.4% year-over-year and EBIT margin was flat. Going forward we
expect a sales CAGR of c.11% to 2017E and c.+40 bp of margin expansion (see
Exhibit 186), with annual space growth of c.11% to 2017E (see Exhibit 187).
Bershka was first developed in Spain before expanding internationally. As of
January 2013, Spain represented c.30% of total stores, though the brand now
reaches 62 countries in total. Outside of Spain, Bershka has been rolled out most
aggressively in Russia, China and Mexico, with 59 stores (6.7% of total), 58 stores
(6.6% of total) and 51 stores (5.8% of total), respectively (see Exhibit 188 and
Exhibit 189). Finally, Bershka's e-commerce offer is available online in 13
countries, but is not present in nine countries where Zara is already online
including China, Japan and the United States.
Bershka offers three different collections. In womenswear it offers the Bershka
collection and also the BSK collection. The Bershka collection offers a full range
of womenswear focused on the latest fashions. BSK is targeted at younger
customers with a style described as inspired by their music and idols. The Bershka
menswear collection includes sportswear alongside fashion.
Bershka describes its clientele as "interested and highly aware of new trends,"
"adventurous," and "interested in new technologies." Bershka stores use music,
screens and urban art and photography decorations to produce a "fun" shopping
experience.
Our pricing survey indicates that Bershka is priced at c.80% of the level of
Inditex, positioning it at the mid-point of Inditex's apparel offerings (see Exhibit
146). The average store size is c.37% relative to Zara stores, and sales per square
meter are c.84% relative to Zara stores.
Exhibit 183 Bershka Offers a Younger, More Urban Style Than Other Brands

CAGR and EBIT Margin Has Expanded Sales Growth, Growing at an Average of
+360 bp c.19% Since 2002
1600 18% 1000 35%
1400 17%
900 32%
Bershka Stores Numbers

800 29%
1200 16%
Bershka Sales (€ million)
700 26%
YoY Space Growth

1000 15% 600 23%
EBIT Margin
800 14% 500 20%
400 17%
600 13%
300 14%
400 12%
200 11%
200 11% 100 8%

0 5%
0 10%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Exhibit 186 Going Forward We Expect a Sales CAGR of Exhibit 187 We Expect Space Growth to Decline
c.11% to 2017E and c.+40 bp of Margin Steadily Going Forward But Remain at
Expansion Double-Digit Rates
3000 20% 1600 16%
1400 14%
2500 18%
Bershka Stores Numbers
1200 12%
Bershka Sales (€ million)
YoY Space Growth

2000 16%
1000 10%
EBIT Margin
1500 14% 800 8%
600 6%
1000 12%
400 4%
500 10% 200 2%
0 0%
0 8%
2011
2012
2013e
2014e
2015e
2016e
2017e
2013e
2014e
2015e
2016e
2017e
2011
2012
Sales EBIT Margin%

Stores YoY Growth
Exhibit 188 Bershka Is Majority Oriented to Europe

Bershka Store Split
Middle Asia
East & 9%
Africa
6% Spain
30%
Lat Am
9%
N America
0%
Europe
(ex-Spain)
43%
Exhibit 189 Bershka — Geographic Heat Map of Stores Shows Rapid Expansion in China, Russia
and Mexico
Source: Corporate reports, www.clearlyandsimply.com and Bernstein analysis. (See online version for color.)
Exhibit 190 Overview of Stradivarius

Only women's wear.
Acquired 1999 961 21.6% 57% 780 52 207 265 4652 1007
Stradivarius — Classic Yet Stradivarius, with sales of €961 million as of FY12/13, was acquired by Inditex in
Fashionable Womenswear 1999. It was originally founded in 1994 in Barcelona. It offers only womenswear
with a slant towards fashionable yet classic items.
Stradivarius is Inditex's fifth-largest brand in terms of sales, but the fourth
largest in terms of store numbers. In FY 2012, Stradivarius represented c.6% of
group sales and c.7% of group EBIT.
Sales growth has been strong, recording a c.24% CAGR since 2001 with EBIT
margin expansion of c.1,500 bp (see Exhibit 192). Consistent with the group
overall, space growth has been a key driver of sales growth, growing at an average
of c.19% since 2002 (see Exhibit 193). Performance in 2012 was mixed. Sales rose
c.10% year-over-year but EBIT margin fell c.40 bp. Going forward we expect a
sales CAGR of c.12% to 2017E and 100 bp of EBIT margin contraction (see
Like all of the non-Zara brands, Stradivarius was first developed in Spain
total stores, the brand now reaches 52 countries in total. Outside of Spain,
Stradivarius has been rolled out most aggressively in Russia, China and Poland
with 58 stores (7.4% of total), 57 stores (7.3% of total) and 61 stores (7.8% of
total), respectively (see Exhibit 196 and Exhibit 197). Finally, Stradivarius' e-
commerce offer is available online in six geographies.
Stradivarius describes its offer as "catwalk trends that are perfectly adapted to
the daily needs of its customers." It uses words such as "feminine," "fresh" and
"creative" to describe its style. Stradivarius describes its stores as "welcoming."
They use black and dimmed lighting with areas of light and darkness to give its
stores a "theatrical" feel.
Our pricing survey indicates that Stradivarius is priced at c.62% of the level of
Inditex, positioning it as the cheapest of Inditex's apparel brands (see Exhibit 146).
The average store size is c.25% relative to Zara stores, and sales per square meter
are c.89% relative to Zara.
Exhibit 191 Stradivarius Offers Only Womenswear, in a Fashionable But More Classic Style
Exhibit 192 Since 2001, Sales Have Grown at a c.24% Exhibit 193 As of FY2012 Stradivarius Was Present in
CAGR and EBIT Margin Has Expanded 52 Geographies via 780 Stores
+1,500 bp
1200 30% 900 30%
800 28%
1000 25%
Stradivarius Stores Numbers
700 26%
Stradivarius Sales (€ million)
YoY Space Growth

800 20% 600 24%
EBIT Margin
500 22%
600 15%
400 20%
300 18%
400 10%
200 16%
200 5% 100 14%
0 12%
0 0%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Stores YoY Growth

Sales EBIT Margin%
Exhibit 194 We Expect a Sales CAGR of c.12% to 2017E Exhibit 195 We Expect Space Growth to Decline
and 100 bp of EBIT Margin Contraction Steadily Going Forward
2000 25% 1400 18%
1200 16%
1600 24%
Stradivarius Stores Numbers

Stradivarius Sales (€ million)
1000 14%
YoY Space Growth

EBIT Margin
1200 23%
800 12%
600 10%
800 22%
400 8%
400 21%
200 6%
0 20% 0 4%
2013e
2014e
2015e
2016e
2017e
2011
2012
2013e
2014e
2015e
2016e
2017e
2011
2012
Sales EBIT Margin%

Stores YoY Growth
Exhibit 196 About 80% of Stradivarius Stores Are in Europe With Only a Limited Footprint
Elsewhere
Stradivarius Store Split
Asia
Middle 9%
East &
Africa
8%
Lat Am Spain
3% 37%
N America
0%
Europe
(ex-Spain)
43%

Exhibit 197 Stradivarius — Geographic Heat Map of Stores Shows Fastest Expansion from Spain
Into Poland, Russia and China
Exhibit 198 Overview of Oysho

Founded 2001 314 8.3% 21% 524 35 75 143 4204 348
nightwear
Oysho — Lingerie Oysho, with sales of €314 million as of FY 12/13, was founded by Inditex in 2001.
It offers women's lingerie and a limited range of other items.
Oysho is Inditex's seventh-largest brand in terms of sales, but sixth largest in
terms of store numbers. In FY 2012, Oysho represented c.2% of group sales in
2012 and c.1% of group EBIT.
Sales growth has been strong, recording a c.47% CAGR since 2001. The brand
has moved from being loss-making in 2001 and 2002 to reporting an EBIT margin
of 8.3% in 2012 (see Exhibit 200). Consistent with the group overall, space growth
has been a key driver of sales growth, growing at an average of c.28% since 2002
(see Exhibit 201). Performance in 2012 was somewhat disappointing. Sales rose
c.0.3% year-over-year but EBIT margin fell c.320 bp. Going forward we expect a
sales CAGR of c.9% to 2017E with c.+50 bp of EBIT margin expansion (see
Like all of the non-Zara brands, Oysho was first developed in Spain before
expanding internationally. As of January 2013, Spain represented c.37% of total
stores, though the brand now reaches 35 countries in total. Outside of Spain, Oysho
has been rolled out most aggressively in Italy and Russia, with 47 stores (9.0% of
total) and 44 stores (8.4% of total), respectively (see Exhibit 204 and Exhibit 205).
Finally, Oysho's e-commerce offer is available in 12 geographies, but is not yet

present in 10 countries where Zara is already online.
Oysho describes its style using words such as "fun," "sexy" and "feminine." It
describes its customers as "spontaneous" and prepared to "bring their particular
style to their whole wardrobe."
According to Euromonitor, Oysho (4.8% share) is second to Cortefiel-owned
Women's Secret (6.2% share) in the women's underwear, nightwear and swimwear
market in Spain. Our pricing survey suggests that Oysho is positioned to be cheaper
than Women's Secret. For instance, we found the average price for a bra was c.€16,
with a maximum price of only €19.99, versus an average of c.€20 with a maximum
of €100 at Women's Secret (see Exhibit 206).
Exhibit 199 Oysho Offers Women's Lingerie and a Limited Range of Other Items

CAGR and the Brand Has Moved from Loss Sales Growth, Growing at an Average of
to a Profit c.28% Since 2002
350 25% 600 55%
300 0%
500 45%
Oysho Sales (€ million)
250 -25%
YoY Space Growth

Oysho Stores Numbers
400 35%
EBIT Margin
200 -50%
300 25%
150 -75%
200 15%
100 -100%
100 5%
50 -125%
0 -150% 0 -5%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Sales EBIT Margin%

Stores YoY Growth
Exhibit 202 We Expect a Sales CAGR of c.9% to 2017E Exhibit 203 We Expect c.8% Space Growth p.a. Going
With c.+50 bp of EBIT Margin Expansion Forward
600 17% 800 14%
700 13%
500 15%
600 12%
Oysho Sales (€ million)
YoY Space Growth

Oysho Stores Numbers
400 13%
500 11%
EBIT Margin
300 11% 400 10%
300 9%
200 9%
200 8%
100 7% 100 7%
0 6%
0 5%
2011
2012
2013e
2014e
2015e
2016e
2017e
2011
2012
2013e
2014e
2015e
2016e
2017e
Sales EBIT Margin%

Stores YoY Growth
Exhibit 204 Roughly 79% of Oysho Stores Are in Europe With a Small Presence in Latin America,
Asia and the Middle East & Africa
Oysho Store Split
Middle
Asia
East &
6%
Africa
8%
Lat Am
8% Spain
37%
N America
0%
Europe
(ex-Spain)
43%
Exhibit 205 Oysho — Geographic Heat Map of Stores Reveals That the Brand Has Expanded
Fastest in Italy and Russia, Followed by China and Mexico
Exhibit 206 Our Pricing Survey Suggests That Oysho Is Positioned to Be Cheaper Than Market
Leader Women's Secret
€30.00
€25.00 23.56 24.13
20.16
€20.00
Average Price
16.11
€15.00
11.71
€10.00 9.14
7.13 6.46
€5.00
€0.00
Bra Briefs Nightdress Thong
Oysho Women's Secret
Exhibit 207 Overview of Zara Home

Zara Home — Home Decor Zara Home, with sales of €350 million as of FY12/13, was founded by Inditex in
With Zara Style 2003. It offers textiles and homewares. Its product range includes bedroom and
bathroom furnishings and textiles, tableware and decorative items such as vases. It
offers a limited range of clothing including beachwear. It also offers a selection of
products oriented towards children.
Zara Home is Inditex's sixth-largest brand in terms of sales, but its seventh
largest in terms of total store numbers. In FY 2012, Zara Home represented c.2% of
group sales and c.1% of group EBIT.
Sales growth has been strong. Since being founded in 2003, sales have grown
at a c.47% CAGR. The brand has moved from being loss-making in 2003 to
reporting an EBIT margin of 11.7% in 2012 (see Exhibit 209). Consistent with the
group overall, space growth has been a key driver of sales growth, growing at an
average of c.41% p.a. since 2004 (see Exhibit 210). Performance in 2012 was
mixed. Sales rose c.10% year-over-year, but EBIT margin fell c.40 bp. Going
forward we expect a sales CAGR of c.12% to 2017E and c.+140 bp of EBIT
margin expansion (see Exhibit 211), with annual space growth of c.12% to 2017E
(see Exhibit 212).
Like all of the non-Zara brands, Zara Home was first developed in Spain
total stores, though the brand now reaches 35 countries in total. Outside of Spain,
Zara Home has been rolled out most aggressively in Italy and Portugal, with 26
stores (7.3% of total) and 27 stores (7.6% of total), respectively (see Exhibit 213
and Exhibit 214). Finally, Zara Home's e-commerce offer is available online in 20
geographies, but is not yet present in China, Canada or Japan, where Zara is already
online.
According to Euromonitor, Zara Home (2.1% share) is second to IKEA
(18.7% share) in the Spanish furniture and homewares market. Our pricing survey
suggests Zara Home is generally more expensive than IKEA. For instance we
found that the average price of a vase at Zara Home was c.€25 versus c.€11 at
IKEA (see Exhibit 215).
Exhibit 208 Zara Home Offers Textiles and Homewares
Exhibit 209 Since Being Founded in 2003, Sales Have Exhibit 210 Space Growth Has Been a Key Driver of
Grown at a c.47% CAGR and the Brand Has Sales Growth, Growing at an Average of
Moved from Being Loss-Making to c.41% p.a. Since 2004
Reporting an EBIT Margin of 11.7% in 2012
400 15% 400 160%
350 140%
320 10%
Zara Home Stores Numbers
300 120%
Zara Home Sales (€ million)
YoY Space Growth
250 100%
EBIT Margin
240 5%
200 80%
160 0% 150 60%
100 40%
80 -5% 50 20%
0 0%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
0 -10%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Stores YoY Growth

Sales EBIT Margin%
Exhibit 211 Going Forward We Expect a Sales CAGR Exhibit 212 We Expect Space Growth to Decline
of c.12% to 2017E and c.+140 bp of EBIT Steadily But Remain at Double-Digit
Margin Expansion Levels to 2017E
700 17% 700 20%
600 16% 600 18%
Zara Home Stores Numbers

Zara Home Sales (€ million)
500 15% 500 16%
YoY Space Growth

EBIT Margin
400 14% 400 14%
300 13% 300 12%
200 12% 200 10%
100 11% 100 8%
0 10% 0 6%
2011
2012
2013e
2014e
2015e
2016e
2017e
2011
2012
2013e
2014e
2015e
2016e
2017e
Sales EBIT Margin%

YoY Growth YoY Growth
Exhibit 213 About 83% of Zara Home Stores Are in Europe, With Only a Limited Footprint
Elsewhere
Middle Zara Home Store Split
East & Asia
Africa 4%
7%
Lat Am
7%
Spain
40%
N America
0%
Europe
(ex-Spain)
43%

Exhibit 214 Zara Home — Geographic Heat Map of Stores Reveals That Expansion Has Been
Fastest in Proximity Markets Like Italy and Portugal, But Zara Home Is Also Building
a Presence in Priority Countries Like Russia, China and Mexico
Exhibit 215 Our Pricing Survey Suggests Zara Home Is Generally More Expensive Than IKEA
€140.00
120.32
116.69
€120.00
€100.00
Average Price
€80.00
€60.00
€40.00
25.48 23.92
€20.00 11.15 10.41 8.21
4.33
€0.00
Vase Placemat Rug Bathmat
Zara Home IKEA

Exhibit 216 Overview of Uterqüe

Accessories
Founded 2008 74 ‐12.2% n/a 92 18 12 134 5990 ‐729
(Limited clothing)
Uterqüe — Accessories Uterqüe, with sales of €74 million as of FY 12/13, was founded by Inditex in 2008.
It offers accessories and a limited range of clothing.
Uterqüe is Inditex's smallest brand in terms of sales and in terms of store
numbers. In FY 2012, Uterqüe represented less than 1% of group sales in 2012 and
was loss-making.
Since being founded in 2008, sales have grown at a c.44% CAGR. The brand
has never reported a profit, seeing a €9 million loss in 2012 (see Exhibit 218).
Space growth has averaged c.35% since 2009 (see Exhibit 219). Going forward we
expect a sales CAGR of c.7% to 2017E and for the brand to move to profitability
(see Exhibit 220), with annual space growth of c.7% (see Exhibit 221).
Uterqüe was first developed in Spain before expanding internationally. As of
January 2013, Spain represented c.45% of total stores, though the brand reaches 18
countries in total. Outside of Spain, Uterqüe has been rolled out most aggressively
in Portugal, Mexico and Russia, with seven stores (7.6% of total), eight stores
(8.7% of total) and six stores (6.5% of total), respectively (see Exhibit 222 and
Exhibit 223). Finally, Uterqüe's e-commerce offer is available online in nine
geographies.
Uterqüe describes its positioning as the provider of limited series products at
an affordable price. It uses words such as "quality" and "exclusivity" and a "strong
trend" component. It describes its stores as "unique," with "impeccable customer
service" aiming to make the shopping experience an enjoyable moment.
Data from Euromonitor suggests that Uterqüe has the sixth-biggest share of the
Spanish accessories market. Key competitors include Diagomoda-owned Blanco
(No. 7 with share of 1.3%) and other Inditex brands such as Zara (No. 1 with share
of 8.3%). Our pricing survey suggests that Uterqüe is more expensive than either
Blanco or Zara. For instance, our survey found an average price for a handbag of
€179, with a minimum price of €99.95 and maximum of €299 at Uterqüe. This
compares to an average of c.€25 at Blanco and c.€51 at Zara (see Exhibit 224).
Exhibit 217 Uterqüe Was Founded by Inditex in 2008 and Offers Accessories and a Limited
Range of Clothing
Exhibit 218 Since Being Founded in 2008, Sales Have Exhibit 219 Space Growth Has Averaged c.35% Since
Grown at a c.44% CAGR But the Brand Has 2009
Never Reported a Profit
80 15% 100 100%
90 90%
70 10%
80 80%
Uterque Stores Numbers
60 5%
Uterque Sales (€ million)
70 70%
YoY Space Growth

50 0% 60 60%
EBIT Margin
40 -5% 50 50%
40 40%
30 -10%
30 30%
20 -15% 20 20%
10 -20% 10 10%
0 0%
0 -25%
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Exhibit 220 Going Forward We Expect a Sales CAGR of Exhibit 221 We Expect Mid-Single-Digit Space Growth
c.7% to 2017E and for the Brand to Move to p.a. Going Forward
Profitability
120 15% 160 14%
140 13%
100 10%
120 11%
Uterque Sales (€ million)
YoY Space Growth

Uterque Stores Numbers
80 5%
100 10%
EBIT Margin
60 0% 80 8%
60 7%
40 -5%
40 5%
20 -10% 20 4%
0 2%
0 -15%
2013e
2014e
2015e
2016e
2017e
2011
2012
2011
2012
2013e
2014e
2015e
2016e
2017e
Exhibit 222 Uterqüe Is More International Than the Other Brands Bar Zara, With a Significant
Exposure to the Middle East & Africa
Uterqüe Store Split
Middle Asia
East & 2%
Africa
15%
Lat Am Spain
9% 45%
N America
0%
Europe
(ex-Spain)
43%

Exhibit 223 Uterqüe — Geographic Heat Map of Stores Reveals Low Stores Counts Outside of
Spain
Exhibit 224 Our Pricing Survey Suggests That Uterqüe Is More Expensive Than Either Blanco or
Zara
€200.00
179.12
€160.00
Average Price
€120.00
89.86
€80.00 73.70
50.64 50.40
34.09 35.42
€40.00
24.59
19.82
11.42 7.13
€0.00
Hand Bag Wallet Bracelet/Armband Sandals
Uterque Blanco Zara

On Valuation…
Inditex: A High Multiple, But We rate Inditex outperform with a target price of €115. While Inditex trades at a
Justified high absolute multiple (23.3x NTM P/E) and a significant premium to the market
(89%), we believe this is justified given the sustainability of earnings and the cash
generation of the business. We believe Inditex will maintain its multiple in the near
term, given sustainable low-mid-teens earnings growth, on the back of stable LFLs,
space growth and margin, the three metrics (alone, or in combination) that have
precipitated other retailers experiencing multiple de-rating in the past 15 years.
Additionally, Inditex had c.€4.1 billion in cash on the balance sheet at year-end and
we expect the company to add on average c.€850 million in cash to this total each
year if the current dividend payout is maintained. As such, we estimate a DCF
valuation of €129, suggesting c.33% upside to the current share price.
Exhibit 225 Inditex's Absolute NTM P/E Has Returned to Exhibit 226 …and Continues to Trade at a Significant
Historical Levels in Recent Months… Premium to the MSCI Europe
26x 2.3x ITX Rel. P/E 5 Year History
24x
21.9 2.1x
22x
1.9x
20x
18x 1.7x 1.77
16x
1.5x
14x
12x 1.3x
10x
1.1x
Sep-03
Sep-04
Sep-05
Sep-06
Sep-07
Sep-08
Sep-09
Sep-10
Sep-11
Sep-12
Sep-03
Sep-04
Sep-05
Sep-06
Sep-07
Sep-08
Sep-09
Sep-10
Sep-11
Sep-12
19.3x 5 year average SCBe
1.79x 5 year average SCBe
Source: FactSet and Bernstein estimates and analysis. Source: FactSet and Bernstein estimates and analysis.
Inditex Likely to Maintain One of the key controversies for Inditex is not about fundamentals, but rather
Premium Multiple whether or not the stock will maintain its premium multiple. Unsurprisingly, a
company's NTM P/E multiple is highly correlated to its perceived earnings growth
potential (c.58% average correlation — see Exhibit 227); simply put, when the
investment community no longer believes in sustainable earnings growth, the NTM
P/E multiple starts to decline. This is particularly true for growth stocks, because
the expectation for strong earnings growth will likely drive a high multiple (see
Exhibit 228 and Exhibit 229). The correlation is much lower for mature, cyclical
retailers, given mean reversion (see Exhibit 230).
Key to our Inditex thesis, in which we believe the company justifies its high
multiple on an absolute and relative basis, is our belief that the company will be
able to sustain double-digit earnings growth in the medium term (five to seven
years). For earnings to be sustainable, it is therefore important to understand the
earnings traps suffered by the retailers who at one point traded at high multiples,
but no longer do, and to analyze why Inditex will not, in our opinion, suffer a
similar fate in the coming years.
Over the past 15 years, there have been many instances of retail companies
going ex-growth (see Exhibit 231 and Exhibit 232); ultimately we believe this is
caused by some combination of LFL sales deterioration, space growth deceleration
and margin contraction (see Exhibit 233).
We examined nine different retailers that at one point traded at similar or
higher multiples than those that Inditex currently trades on. We found that in eight
of nine cases a deceleration in LFL sales growth precipitated the fall in P/E
multiple. In close to half of the cases (four of nine), there was a deceleration in
space growth, which was associated with the declining multiple. We find that a
falling margin was only associated with the de-rating in two of nine cases and
occurred along with LFL sales deceleration. Here we provide an example of each,
but please see the Appendix at the end of this chapter for a description of the
catalysts for de-rating at other retailers.
 LFL sales growth deceleration or decline: Gap (not covered) is a prime
example of this phenomenon. Between 1996 and 1999, LFL sales growth
averaged c.+9%, but since 1999 the average annual decline has been c.-4%. This
has resulted in significant de-rating, with the NTM P/E multiple declining from
mid 20s to mid teens, as Gap has gone ex-growth (see Exhibit 235 and Exhibit
236).
 Space saturation: There are only so many stores a retailer can sustain in any
given market before a saturation point is reached, after which there is limited
scope for further space growth and the risk of self-cannibalization increases. This
is particularly notable when a retailer is largely concentrated in one market. Bed
Bath & Beyond (covered by Bernstein's U.S. Retail team) grew space by more
than 20% annually between fiscal years 1997 and 2002, but by 2005 space growth
had declined to 12%. This slowdown is reflected in the significant NTM P/E
multiple de-rating, going from an average of 33x between April 1997 and March
2004 to an average of 16.1x since then (see Exhibit 237 and Exhibit 238).
 Margin contraction: Investor concerns in early 2008 over Benetton's future
performance given the macro backdrop proved correct, as margin expansion and
earnings growth stalled (see Exhibit 239 and Exhibit 240). After 2008, Benetton
saw consecutive years of margin contraction and net income decline, to the extent
that the company decided to de-list in March 2012, believing that the share price
no longer reflected the company's fundamental value.
Ultimately, we believe the key differentiator between these retailers and
Inditex is international exposure. Inditex derives just c.21% of its sales from its
domestic market (Spain), whereas on average, the domestic market represents
c.78% of sales for all of the other retailers considered (see Exhibit 234). While
some of the other retailers are present in many different countries, in most cases,
their growth stories have stalled when the retailer saturated the home market.
In contrast, although we believe Inditex has largely saturated the Spanish
market from a market share and store numbers perspective, we believe that Inditex
is far from the saturation point internationally, given relatively low store counts and
market share. Yet despite this low level of overall international penetration, the
scale and breadth of Inditex's international business has demonstrated the success
of its model and brands, which we believe will sustain double-digit sales and
earnings growth over the medium term. Finally, the fact that Inditex is a Spanish
company and has still managed to achieve 4% LFL sales growth in FY 2011/12 and
6% in FY 2012/13 is testament to the strength of the international operations given
the well documented travails that have affected the Spanish economy.
Exhibit 227 There Is, Typically, a Significant Correlation Exhibit 228 …as Can Be Seen Since 1997 at Bed Bath &
Between a Company's NTM P/E Multiple Beyond…
and YoY Earnings Growth Expectations…
50x
R² = 76%
NTM PE Multiple - YoY EPS Growth Forecast
Correlation
40x
90%
80%
Consensus NTM P/E

30x
70%
60% 20x
50%
40% 10x
30%
0x
20%
10%
-10x
-10% 0% 10% 20% 30%
0%
YoY Consensus EPS Growth Forecast
Source: FactSet and Bernstein analysis. Source: FactSet and Bernstein analysis.
Exhibit 229 …and Best Buy Exhibit 230 The Correlation Largely Dissipates Once a
Retailer, Like M&S, Is Considered Mature
and Cyclical
50x 30x
R² = 6%
R² = 49%
40x 25x
Consensus NTM P/E
Consensus NTM P/E
30x 20x
20x 15x
10x 10x
0x 5x
-10x 0x
-20% -10% 0% 10% 20% 30% 40% -40% -20% 0% 20% 40% 60%
YoY Consensus EPS Growth Forecast YoY Consensus EPS Growth Forecast
Exhibit 231 Many Well-Known, Global Retailers Have Exhibit 232 …as Year-on-Year Earnings Growth
De-Rated Significantly from Peak NTM P/E Expectations Have Declined
Multiples…
Peak & Last 5 Year Average NTM PE Multiple Cons. Av. YoY EPS Growth Forecast During
Peak NTM PE Multiple and Last 5 Years
45x
40%
40x
35%
35x
30%
30x
25%
25x
20%
20x
15%
15x
10%
10x
5%
5x
0%
0x
5 Yr Peak Av. Cons. YoY EPS Growth Forecast

Peak 5 Yr Av. NTM PE Last 5 Yr Av. NTM PE Last 5 Yr Av. Cons. YoY EPS Growth Forecast
Exhibit 233 Earnings Growth Deceleration Is, We Believe, Largely a Function of Three
Operational Factors: LFL Sales Deceleration, Space Saturation and/or Margin
Contraction
LFL Sales Growth Space Growth
Deceleration/Decline Deceleration Margin Contraction
Bed Bath & Beyond X
Best Buy X X
Coach X
Walmart X
Home Depot X
Next X X
Staples X X
Gap X X
Benetton X X

Exhibit 234 Inditex Derived Just 21% of Sales from Its Domestic Market in 2012/13, a
Significantly Lower Proportion Than for the Fallen Angels
% Domestic Sales
98% 97%
89%
79% 78%
74%
72%
68%
45%
21%
Inditex
Walmart
Next
Benetton
Staples
Coach
HD
BB&B
Best Buy
Gap
Exhibit 235 There Was a Clear Fall in Gap's NTM P/E Exhibit 236 …as LFL Sales Have Consistently Declined
Multiple in Both 2000 and, for a Sustained Since 1999
Period, Since 2003…
Gap NTM P/E Gap LFL Sales Growth and EPS: 1996-2011
45x 20% $2.00
40x
15%
35x $1.50
30x 10%
LFL Sales Growth
25x
$1.00
20x 5%
EPS
15x
0%
$0.50
10x
5x -5%
0x $0.00
-10%
NTM PE -15% -$0.50

1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Av. Jan 97 - Apr 02: 26.4x
Av. Last 5 Years LFL EPS
Source: FactSet and Bernstein analysis. Source: Corporate reports and Bernstein analysis.
Exhibit 237 Bed Bath and Beyond's NTM P/E Multiple Exhibit 238 …as Space Growth Has Consistently
Has Halved Since 2004… Declined
Bed Bath & Beyond NTM P/E BBBY Space and EPS Growth 1998-2012
50x 35% 50%
45x
30% 40%
40x
35x
YoY Net Income Growth

30%
25%
YoY Space Growth

30x
25x 20%
20%
20x
10%
15x
15%
10x 0%
5x 10%
-10%
0x
5% -20%
NTM PE 0% -30%
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Average Apr 97 - Mar 04: 33.0x
Average Apr 04 - Present: 16.1x

Space Growth Net Income
Exhibit 239 Benetton's NTM P/E Fell on the Back of Exhibit 240 …Which Were Proved Justified Given
Economic Concerns in Retail… Benetton's Margin Contraction
Benetton NTM P/E Benetton Operating Margin and Net Income

Growth 2004-2011
30x
14% 20%
25x 15%
12%
10%
YoY Net Income Growth

20x
10%
Operating Margin
5%
15x
0%
8%
10x -5%
6%
-10%
5x
4% -15%
0x -20%
2%
-25%
0% -30%
NTM PE
2005
2006
2007
2008
2009
2010
2011
Average Jan 95 - Dec 07: 15.1x
Average Jan 08 - Mar 12: 9.4x Operating Margin Net Income Growth
Why We Have Confidence in We are confident that Inditex can deliver sustained earnings growth given its
Sustained Earnings Growth international exposure, allowing it to benefit from higher growth markets and also
from our expectations for continued space growth.
Increasingly, apparel retailers are spreading their product to new geographies,
looking to capture the global marketplace. This has been of particular importance
for European retailers over the last decade, as the highest growth has been outside
Western Europe, in emerging markets such as China and Russia (see Exhibit 241
and Exhibit 242). Inditex currently derives c.48% of revenues from these higher
growth regions, a significantly higher proportion than any of the other apparel
names under coverage (e.g., H&M is next best at c.25% — see Exhibit 243 and
Exhibit 244).
This sales mix has already shown itself to be beneficial to Inditex's results. We
believe both Asia and the Americas achieved strong LFL sales growth in FY
2012/13, helping Inditex as a whole post a 6% LFL, despite a relatively difficult
year-on-year comp of 4% (see Exhibit 245).
We believe this pattern can continue, given Inditex's footprint and the
expectations for continued high growth for apparel retail sales in many of the
emerging markets in which Inditex is present; for example, Euromonitor forecasts
11.4% apparel market growth in China in 2013 and 11.7% in Russia (see Exhibit
246).
Exhibit 241 Western Europe Has Seen Apparel Market Exhibit 242 …With Higher Growth Seen in Emerging
Decline Over the Last Five Years… Markets, Such as China and Russia
5 & 10 Year Historical Average Apparel 5 & 10 Year Historical Average Apparel
Market Growth - Regional Market Growth - Countries
14% 16%
14%
12%
12%
10%
10%
8% 8%
6%
6%
4%
4%
2%
2% 0%
-2%
0%
-4%
-2%
Latin Asia Eastern World North Western
America Pacific Europe America Europe
2002-2012 Average Growth 2007-2012 Average Growth 2002-2012 Average Growth 2007-2012 Average Growth
Source: Euromonitor and Bernstein analysis. Source: Euromonitor and Bernstein analysis.
Exhibit 243 We Believe c.48% of Inditex's Revenue Is Exhibit 244 …a Significantly Higher Proportion Than for
Derived Outside of Western Europe… the Other Apparel Names Under Coverage
Inditex Geographic Sales Mix Sales Split by Geography

100%
Americas, 80%
11% Spain,
21%
60%
Asia &
R.O.W,
40%
21%
20%
W. Europe
(ex-
E. Europe, Spain), 0%
16% 31% H&M M&S Next
W. Europe E. Europe Americas

Asia UK International
Source: Corporate reports and Bernstein estimates and analysis. Source: Corporate reports and Bernstein analysis.
Exhibit 245 We Believe the Americas Achieved 9% LFL Sales Growth in FY 2012/13, While Asia
Achieved c.12%
Europe Ex-Spain 8.6% 0.7% 8.7% 18.1%
Spain -0.1% 0.0% -4.0% -4.1%
Asia & ROW 20.0% 1.5% 11.9% 33.5%
Americas 11.7% 0.4% 8.8% 20.8%
Total 7.6% 2.0% 6.0% 15.6%
Exhibit 246 Western Europe Is Expected to Continue to Show Muted Growth in 2013, But There
Should Be Far Higher Growth in the Emerging Markets, Where Inditex Has an
Increasingly Strong Presence
2013e Apparel Market Growth

Asia Pacific: 7.3%
Latin America: 5.9%
Eastern Europe: 8.8%
16%
14%
12%
Western Europe: 1.6%
10%
8%
6%
4%
2%
0%
-2%
-4%
Source: Euromonitor, Haver Analytics, Global Insight and Bernstein estimates and analysis.
Beyond exposure to higher-growth markets, we believe space growth is likely

to be the key to the Inditex story, and that a significant slowdown, or inability to
meet space growth targets (of 8-10% annually) would be the main driver of a de-
rating of the stock. In fiscal years 2008/9 and 2009/10 Inditex posted flat LFL
sales, and yet the stock did not de-rate relative to the MSCI Europe. While we
expect LFL sales to be strong in the coming years, we believe space to be the
dominant factor, as it has been for several of the fallen angels. It is interesting to
note that the four stocks we believe de-rated due to concerns over space growth are
four of the five stocks that have, since starting to de-rate, grown space most rapidly
(see Exhibit 247). Therefore, we do not believe it necessarily the case that these
companies had saturated their markets when they went ex-growth, but rather that
they missed an established target, or had a considerable slowdown in space growth
compared to history — as was seen at Bed Bath & Beyond, which went from very
high space growth (e.g., c.25% annually between 1998-2004) to still high, but
relatively lower, space growth in the subsequent years (7.4% annual average
between 2005-12).
We ultimately expect space to provide the highest proportion of top-line
growth at Inditex (see Exhibit 248). This may seem surprising given Inditex already
has over 6,000 stores, spread across 86 countries. The key point, however, is that
Inditex has a relatively low market share, and hence penetration, in all of its
markets outside of Spain and Portugal. Indeed, outside of the home markets of
Spain and Portugal we estimate Inditex holds an average market share in its 18
other top 20 revenue generating nations of just 3.0%, with the leading banner Zara
averaging c.1.6% share (see Exhibit 249 and Exhibit 250).
Inditex's medium-term target is to grow space by 8-10% annually, and we
believe this should be easily achievable, given the considerable opportunities for
space growth in most of Inditex's existing marketplaces, particularly the emerging
markets.
Moreover, expansion into different countries and cities does not pose as great a
problem for Inditex as it does for most other apparel retailers, because there is no
need, given the Spanish distribution model, for Inditex to build an infrastructure
beyond the stores themselves, in the new market.
Exhibit 247 The Fallen Angels We Believe De-Rated Due to Space Have Actually Tended to Open
More Space Than Those That De-Rated Due to LFL Deterioration or Margin
Contraction
Domestic Stores CAGR: Year Prior to De-Rating - Current

10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
Best Buy BB&B Staples Next HD Coach Walmart Gap Benetton
Space Related De-Rating Non-Space Related De-Rating
Source: Euromonitor, corporate reports and Bernstein analysis.
Exhibit 248 While We Expect Space Growth to Continue to Be the Dominant Driver of the Top
Line, We Also Forecast LFLs to Provide a Significant Contribution of c.4.5% per Year
20%
15%
YoY Change
10%
5%
0%
-5%
03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14E 14/15E 15/16E 16/17E
Total Space LFL FX
Exhibit 249 Outside of Its Home Market of Spain and Exhibit 250 …While Zara's Market Share Doesn't Reach
Neighboring Portugal, Inditex Shows a Double Digits in Any Market, and Is Below
Lower Level of Penetration and Market 2% in Most — Even of the Top 20 Markets
Share… by Sales
Inditex 12/13 % of Market Rel. Penetr. Zara 12/13 Rel. Penetr.
Share % of Sales Market (€m) Share
Sales (€m) Sales (€m) Spain = 100 Sales (€m) Spain = 100
Spain 3,351 21.0% 22,991 14.6% 100 Spain 1,476 14.0% 22,991 6.4% 100
China 1,210 7.6% 210,724 0.6% 4 China 859 8.2% 210,724 0.4% 6
France 971 6.1% 41,781 2.3% 16 France 784 7.4% 41,781 1.9% 29
Italy 881 5.5% 48,867 1.8% 12 Italy 635 6.0% 48,867 1.3% 20
Portugal 859 5.4% 4,177 20.6% 141 Japan 517 4.9% 85,161 0.6% 9
Russia 754 4.7% 53,619 1.4% 10 Portugal 504 4.8% 4,177 12.1% 188
Mexico 607 3.8% 19,134 3.2% 22 Germany 430 4.1% 63,957 0.7% 10
Japan 529 3.3% 85,161 0.6% 4 Russia 417 4.0% 53,619 0.8% 12
Poland 479 3.0% 7,908 6.1% 42 UK 405 3.8% 15,635 2.6% 40
Germany 464 2.9% 63,957 0.7% 5 Mexico 349 3.3% 19,134 1.8% 28
UK 450 2.8% 15,635 2.9% 20 Greece 293 2.8% 4,416 6.6% 103
Greece 434 2.7% 4,416 9.8% 67 USA 280 2.7% 282,351 0.1% 2
Turkey 347 2.2% 14,877 2.3% 16 Poland 261 2.5% 7,908 3.3% 52
Saudi Arabia 295 1.8% 9,830 3.0% 21 Brazil 243 2.3% 44,911 0.5% 8
USA 284 1.8% 282,351 0.1% 1 South Korea 243 2.3% 19,972 1.2% 19
South Korea 267 1.7% 19,972 1.3% 9 Turkey 199 1.9% 14,877 1.3% 21
Belgium 247 1.5% 6,915 3.6% 24 Belgium 168 1.6% 6,915 2.4% 38
Brazil 245 1.5% 44,911 0.5% 4 Saudi Arabia 162 1.5% 9,830 1.6% 26
Romania 216 1.4% 2,555 8.5% 58 Canada 137 1.3% 29,073 0.5% 7
Israel 168 1.1% 3,449 4.9% 33 Holland 137 1.3% 12,766 1.1% 17
Other 2,888 18.1% 382,505.3 0.8% 5 Other 2,042 19.4% 346,670 0.6% 9
Source: Euromonitor, corporate reports and Bernstein estimates and Source: Euromonitor, corporate reports and Bernstein estimates and
analysis. analysis.
It's Not All About the Multiple Our confidence in our valuation for Inditex is not solely premised on the
sustainability of our expectations for earnings growth. Given the strength and cash
generation of Inditex's business model, we also believe that investors should look
beyond current-year earnings and a simple multiple when valuing the stock. Inditex
already holds a net cash position and we expect it to be able to add c.€850 million
incremental cash to the balance sheet per year, after the dividend.
Over the last several years, Inditex has built up a substantial cash position on
its balance sheet, growing reported financial net cash from €1.2 billion in 2009/10
to €4.1 billion at year-end 2012/13. On a lease adjusted basis, Inditex's leverage
ratio has declined from 2.2x to 1.5x (see Exhibit 251 and Exhibit 252).
Over the last 12 months (based on share price as of June 27, 2013), Inditex
averaged a 3.3% FCF yield and a 2.0% dividend yield. Over the next 12 months,
we expect the average FCF yield to increase +10 bp and the dividend yield to
increase by +40 bp (see Exhibit 253 to Exhibit 255).
Exhibit 251 Inditex Has Increased Its Reported Net Exhibit 252 …and Its Leverage Ratio on a Lease-
Cash… Adjusted Basis Is Relatively Low at 1.5x
Financial Net Cash Leverage

4.4 4.1 2.5x
4.0 2.2x
3.6 3.4 3.5
2.0x 1.9x
Lease Adj. Net Debt/EBITDAR

3.2
1.7x
2.8 1.6x
2.4 1.5x
£ billions
2.4 1.5x
2.0
1.6
1.2 1.0x
1.2
0.8
0.4 0.5x
0.0
2009/10
2010/11
2011/12
2012/13
0.0x
2008/09 2009/10 2010/11 2011/12 2012/13
Exhibit 253 Inditex FCF Yield Exhibit 254 Inditex Dividend Yield Exhibit 255 SCB Three-Year FCF vs.
EPS CAGRs
5% 5% 25%
21%
4% 4% 20%
3.4%
3.3%
3% 3% 15%
13%
2.4%
2.0%
2% 2% 10%
1% 1% 5%
0% 0% 0%
LTM FCF Yield H&MNTM FCF Yield LTM Dividend YieldInditex
NTM Dividend Yield 3-Year SCBe 3-Year SCBe
EPS CAGR FCF CAGR
Note: As of June 27, 2013. Note: As of June 27, 2013.

Source: Bloomberg L.P., corporate reports and Source: Bloomberg L.P., corporate reports and Source: Corporate reports and Bernstein
Bernstein estimates and analysis. Bernstein estimates and analysis. estimates and analysis.
Key Cash Flow Line Items Working Capital: Inditex has consistently maintained an impressive negative
Reveal How the Cash Position working capital position and also has the best cash conversion cycle out of the
Has Evolved Over Time apparel retailers under coverage due, predominantly, to the payable days position.
Inditex likely benefits from using a large number of small suppliers for whom, in
many cases, Inditex is the largest client, resulting in agreeable payment terms. As
Inditex produces c.36,000 SKUs per year, compared to a competitor's 1,000-2,000,
and looks for a fast turnaround of three to five weeks from design to store versus
around six months for competitors, suppliers can be fairly certain that there will be
a regular influx of new business and so, we would expect, are generally more
willing to allow longer payment terms.
Looking on a more granular basis at the drivers of working capital shows that
Inditex has a negative cash conversion cycle, due to its long payables days but short
receivables days (see Exhibit 257). This pattern was continued in FY2012/13, with
elements of the cash conversion cycle in line with medium-term averages (see
Exhibit 258).
Our efficiency ratio (Δ Y-o-Y working capital/capex) suggests Inditex has
improved working capital to fund capital expenditure, which in turn helps to boost
the ROIC of new investment (see Exhibit 259). This is reflected in the ROIC
movements over the last few years; Inditex has seen lease-adjusted ROIC improve
by 270 bp from 2008/09 to 2012/13 and we expect further improvement of 150 bp
to 2015/16 (see Exhibit 260).
Looking at returns on new invested capital (RONIC), Inditex has held a very
consistent, and high, level of RONIC over the past decade (see Exhibit 261), with
the company able to maintain group level sales densities as it has expanded into
emerging markets. While Inditex is spending the most on expansion with capex
averaging 7.2% of sales over the last five years, this continues to generate strong
returns. We expect Inditex will continue to generate strong returns over the coming
years, as the company continues to expand space at 8-10% annually, and see strong
volume development in emerging markets.
Exhibit 256 Inditex Has a Low Working Capital Balance That Ticked Up Slightly in FY12/13
7% 70bps
5% 50bps
27bps
3% 30bps
1% 10bps
-1% -10bps
-3% -30bps
-5% -50bps
-7% -6.2% -70bps

Working Capital Working Capital ∆ in
% Sales 2012/13 % of Sales:
2007/8-2012/13

Exhibit 257 Inditex Has Maintained a Negative Cash Exhibit 258 …a Pattern Continued in 2012/13
Conversion Cycle Driven by Long Payables
Days…
120 120
81 -163 81 -165
100 100
80 80
60 60
40 40
16 16
20 20
0 0
-20 -20
-40 -40
-60 -60
-66 -80 -68
-80
Receivable Inventory Payable CC Cycle Receivable Inventory Payable CC Cycle
days days days days days days
07-12 Av. 2012/13
Exhibit 259 Our Efficiency Ratio (Δ Y-O-Y Working Capital/Capex) Suggests Inditex Has Been
Effective in Improving Working Capital to Fund Capex
Efficiency Ratio
(YoY Working Capital/Capex)
20%
0%
-20%
-40%
-60%
-80%
2006/7 2007/8 2008/9 2009/10 2010/11 2011/12 2012/13 Average 07/8-
12/13
Notes: A positive ratio signifies inefficient working capital to capex relationship.
Exhibit 260 We Expect Lease and Goodwill-Adjusted Exhibit 261 We Expect Inditex's Returns on New
ROIC to Improve Over the Next Three Years Invested Capital to Remain Above 30%
Over the Next Four Periods
ROIC Inditex RONIC
(Adjusted for Leases and Goodwill) 60%
30%
23.8% 24.2% 50%
25%
21.5% 22.7%23.0%
21.6% 21.5%
20.0% 40%
20% 18.9%
15% 30%
10% 20%
5%
10%
0%
0%
2001-3
2002-4
2003-5
2004-6
2005-7
2006-8
2007-9
2009-11e
2010-12e
2011-13e
2012-14e
2008-10
Note: We define ROIC as: (NOPAT + Tax Adjusted Rent)/(Tangible Note: 2008-10 represents the incremental NOPAT generated between
Invested Capital + Capitalized Operating Leases + Goodwill). 2008 and 2012, based on the cumulative capex spent between
2008-10, etc.
We Expect Capex to Decline as Inditex has a strong track record of converting capex into sales, with incremental
a Percent of Sales sales (year-on-year change in sales) on average equal to 1.4x Inditex's capex (see
Exhibit 262). Even so, capex as a percentage of sales in 2012/13 was 170 bp below
the levels of 2007/08 (see Exhibit 263). In 2013/14 and 2014/15, we expect capex
to be broadly level with 2012/13, and significantly above the levels seen in 2009/10
and 2010/11 (see Exhibit 264).
The capex policy appears to be working, given the reduction in capital
intensity that Inditex has achieved (Inditex have reduced capital intensity by 3.0 pp
since 2007/8) (see Exhibit 265).
Exhibit 262 On Average, Inditex Has Been Able to Convert More Than 100% of This Capex Into
Incremental Sales Over the Past 10 Years
Incremental Sales to Capex Ratio - Inditex

€3,000m 250%
€2,500m
200%
€2,000m
150%
€1,500m
100%
€1,000m
50%
€500m
€0m 0%
03/04 04/05 05/06 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14e 14/15e 15/16e
Capex (LHS) Incremental Sales (LHS) % of Incremental Sales Per % Capex (RHS)
Exhibit 263 We Expect Capex as a Proportion of Sales of c.7.0%

12%
9.9%
Capex as a Proportion of
10% 8.9% 8.7%

8.2%
8% 7.0% 7.0%
Sales
5.5%
6%
4.4%
4%
2%
0%
2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14e 2014/15e
Exhibit 264 We Expect Capex to Remain Above €1 Billion as Inditex Continues to Expand
Capital Expenditure
1600
1315 1359
1400 1204 1207
1200
938 930
£ Millions
1000
800 691
600 488
400
200
0
07/08 08/09 09/10 10/11 11/12 12/13 13/14e 14/15e

Exhibit 265 Inditex Has Reduced Its Capital Intensity Over the Last Six Years
Capital Intensity
56% 54.1%
54% 53.0%
52%
50.0%
50% 48.3% 48.3%
47.4% 47.4% 47.1%
48%
45.5%
46%
44%
07/08 08/09 09/10 10/11 11/12 12/13 06/07 vs 13/14e 14/15e 15/16e
12/13
Notes: We define Capital Intensity as: (Total Assets – Cash – Goodwill)/Sales.

We Estimate a c.21% FCF We estimate a c.21% FCF CAGR to 2015/16 at Inditex, largely driven by the
CAGR to 2015/16 at Inditex operational strength of the company, and further working capital reductions (see
Exhibit 266).
Inditex averages a 2.3% (trailing 12 month) dividend yield, 110 bp below the
MSCI Europe's average yield (see Exhibit 267). The current dividend yield is c.6
bp below the average dividend yield over the last 10 years. Inditex has grown
dividends at a fast rate over the last 10 years, largely due to a change in policy that
saw dividend cover fall from 5x to 1.7x. (see Exhibit 268 and Exhibit 269). Given
our expectations for earnings growth and dividend cover, we expect Inditex to
achieve a dividend payment CAGR of 12.8% to 2015/16. Nearer term, given our
expectations of dividend growth and the current share price, we expect NTM
dividend yield to increase 36 bp versus the LTM dividend yield (see Exhibit 270
and Exhibit 271).
Exhibit 266 We Estimate a c.21% FCF CAGR to 2015/16 Exhibit 267 Inditex Currently Averages a 2.2% Dividend
at Inditex Yield, Below That of the MSCI Europe
25% 6%
21%
5%
20%
4%
15% 3.4%
Dividend Yield
FCF CAGR
15%
3%
2.3%
10%
2%
5% 1%
0%
0% Inditex MSCI Europe
5-year 3-year
Historical CAGR Forecast CAGR
Note: As of June 27, 2013.

Source: Corporate reports and Bernstein estimates and analysis. Source: Bloomberg L.P. and Bernstein analysis.
Exhibit 268 Inditex: Dividend History and Expectations Exhibit 269 Inditex: Historical Dividend Yield
350 Inditex 6x
Inditex Dividend Yield (%)
5
300
5x
4 250
4x
Dividend Cover
DPS (€ Cent)
Dividend Yield %
200
3 3x
150
2x
2 100
1x
50
1
0 0x
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
2007/08
2008/09
2009/10
2010/11
2011/12
2012/13
2013/14e
2014/15e
2015/16e
0
Jul-02
Jul-03
Jul-04
Jul-05
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
Jul-13
DPS Dividend Cover
10 yr Av: 2.1
Source: FactSet, corporate reports and Bernstein estimates and Source: FactSet and Bernstein analysis.
analysis.
Exhibit 270 We Expect Inditex to Achieve a Dividend Exhibit 271 We Expect Dividend Yield to Edge Up, With
Payment CAGR of 12.8% to 2015/16 a +36 bp Increase
25%
6%
20% 19.3% 5%
+36bps
Dividend Yield
4%
15% 13.5%
12.8%
3%
2.4%
10% 2.0%
2%
5% 1%
0%
0% Inditex
CAGR 01/02-12/13 1
CAGR 07/8-12/13 CAGR 12/13-15/16e
Trailing 12 Month on FY 12 Divi NTM SCBe
Note: As of June 27, 2013.

Source: FactSet, corporate reports and Bernstein estimates and
Source: Bloomberg L.P. and Bernstein estimates and analysis.
analysis.
Our DCF Suggests a Valuation Given Inditex's strong record of cash generation, we believe looking at a DCF
of €130 per Share analysis is essential. Assuming a terminal growth rate of 2.5% and an 8% WACC,
our DCF suggests a €129 share price, providing 29% upside to the closing share
price on August 30, 2013, of €100.15 (see Exhibit 272).
The weighted average of our DCF analysis and NTM P/E expectations leads us
to our target price of €115.
Exhibit 272 Our DCF Suggests a Valuation of €129 per Share

Inditex DCF Valuation Model
2009 2010 2011 2012 2013e 2014e 2015e 2016e 2017e 2018e 2019e
Free Cash Flow (000s)
NOPAT 2,188 2,695 3,009 3,523 3,898 4,410 4,983 5,634 6,335 7,000 7,735
Depreciation & Amortization 625 636 693 811 837 926 1,007 1,101 1,196 1,306 1,430
Gross Cash Flow 2,812 3,332 3,702 4,334 4,735 5,336 5,990 6,736 7,531 8,306 9,165
Change in Working Capital 261 16 (204) (137) 70 86 158 142 155 160 165
Cash Flow Before Investment 3,074 3,348 3,497 4,198 4,805 5,422 6,148 6,878 7,686 8,466 9,330
Capital Expenditures (488) (691) (1,204) (1,315) (1,207) (1,359) (1,638) (2,208) (2,803) (3,224) (3,708)
Operating Free Cash Flow 2,586 2,657 2,294 2,883 3,598 4,062 4,510 4,670 4,882 5,242 5,622
Change in Cash Flow

NOPAT 5% 23% 12% 17% 11% 13% 13% 13% 12% 11% 11%
Depreciation & Amortization 10% 2% 9% 17% 3% 11% 9% 9% 9% 9% 9%
Gross Cash Flow 6% 18% 11% 17% 9% 13% 12% 12% 12% 10% 10%
Change in Working Capital -395% -94% -1356% -33% -151% 23% 83% -10% 9% 3% 3%
Cash Flow Before Investment 20% 9% 4% 20% 14% 13% 13% 12% 12% 10% 10%
Capital Expenditures -48% 42% 74% 9% -8% 13% 21% 35% 27% 15% 15%
Operating Free Cash Flow 59% 3% -14% 26% 25% 13% 11% 4% 5% 7% 7%
Discount Factor 97% 90% 83% 77% 72% 66% 62%

PV of Cash Flows 3,485 3,649 3,756 3,607 3,497 3,482 3,463
PV of Terminal Value 66,474
Total Enterprise Value 91,412

Value of Capitalized Leases -15,297
Value of Net Debt 4,097
Minority Interests -36
Pension Obligation 38
Implied Equity Value 80,214
Share Price Implied (€/share) 129

Appendix
Catalysts for De-Rating in Retail2

Best Buy (covered): After double-digit LFL sales growth in the fiscal years to
February 1999 and 2000, the American consumer electronics firm Best Buy
reported a significant slowdown to 4.9% LFL growth in 2001 and 1.9% in 2002.
After averaging a 30x NTM P/E multiple between the 1998 and 2001 results
disclosures, the stock has significantly de-rated, averaging a 13.9x NTM P/E
multiple since March 2002, with the stock never even returning to the average
multiple from the growth years. In more recent years, there has also been a clear
space growth deceleration, with Best Buy averaging just 3.4% space growth in the
last three years, after a five-year period of c.12% average annual growth. Over this
three-year period, the stock has de-rated even further, averaging just an 8.3x NTM
P/E multiple.
Coach (not covered): The luxury American leather goods company first gave
an indication that growth was slowing on October 23, 2007, when the company
released 1Q:07/08 results. Although the results were impressive (e.g., 34% net
income growth), the press release stated "While we're well positioned for the
holiday season, we are however concerned with recent traffic trends in our North
American retail stores reflecting the retail environment and the unusually difficult
comparisons with last year. Thus, we believe it's prudent to be more conservative in
our comparable-store-sales guidance for the balance of the fiscal year…As
mentioned, we have recently experienced weak traffic trends in our U.S. retail
stores…we believe that it's appropriate to target comparable-store sales of low
single digits for our North American business." While the North American LFL
sales of 9.8% in 2007/08 were better than the low-single digits the 1Q press release
guided towards, they still represented a significant slowdown from the 22.3% LFL
sales growth reported in the previous fiscal year, and the 20.7% reported the year
before. This LFL sales growth deceleration has caused a clear devaluation of the
stock, with NTM P/E going from an average of 24.4x between August 2001 and
September 2007 to 15.0x since October 2007.
Walmart (covered): Between 1998 and 2003, the U.S. operations for the
world's largest retailer averaged 6.5% LFL sales growth; this declined to 4.0% for
the fiscal year ended January 2004, before declining a further 100 bp in 2005. The
deceleration in LFL sales growth corresponded with the stock de-rating, as the
24.9x NTM P/E multiple from February 2004 declined to 18.8x in February 2005
and 15.3x in February 2005, which is relatively close to the 14.8x average NTM
P/E multiple the stock has traded on since the fiscal year 2004 results
announcement.
Home Depot (covered): The world's largest Home Improvement retailer
announced flat LFL sales in the fiscal year to January 2002, after achieving 4% and
10% LFL sales growth in the years to January 2001 and 2000, respectively. This,
again, led to significant de-rating, as the stock tumbled from a 29.0x NTM P/E
multiple in April 2002 to 16.0x in April 2003.
Next (covered): On May 16, 2002, Next reported 5% LFL sales growth in the
first 15 weeks of the 2002/3 fiscal year, having stated at the 2001/02 FY results that
there had been 7% LFL sales growth in the first seven weeks of the new fiscal year,
and after achieving 9% LFL sales growth in 2001/02. That suggested a LFL sales
growth deceleration in the last eight weeks of the period to 3%, lower than reported
growth at other retailers and surprising given the strength of the U.K. clothing
market in April 2002. This LFL sales deceleration lasted for the remainder of the
year (with 3.3% FY LFL sales growth reported) and was in fact the start of a five-
year period of consecutively worse LFL sales growth results. We believe the
company has also largely saturated the U.K. market, with little ability to expand
space (particularly in apparel), which is reflected by the dramatic decline in space
2
Information was supplied by FactSet, corporate reports and Bernstein analysis.
growth, from 29.5% growth in the year to January 2006, to an average of 7%

annual growth in the six years that have followed. This space growth saturation,
despite the increased importance and growth of the Directory business, has led to
the stock de-rating even further (although the recession has, of course, also had an
impact), with the NTM P/E multiple going from a 14.8x average multiple between
March 1995 and March 2007 to a 9.9x average multiple since.
Staples (covered): On January 25, 2001, the world's largest office products
company, Staples, announced that it would not meet analysts' FY targets for its FY
2000/01 results. This was the precursor to the company announcing -2% LFL sales
decline for the year, after achieving 7% LFL sales growth in 1999/2000 and 9% in
1998/99. The company was also affected by a slowdown in space growth, as the
c.23% store numbers growth seen in the prior two years fell to 15.8% in 2001/02,
and then down to 3.6% by 2002/03. These disappointing results led to the stock de-
rating, as the average NTM P/E multiple declined from 29.6x between May 1997
and April 2001 to 16.4x since.
Inditex: Financial Statements

Exhibit 273: Inditex: Income Statement (€ million)
2009/10 2010/11 2011/12 2012/13 2013/14E 2014/15E 2015/16E 2016/17E
Sales 11,083.5 12,526.6 13,792.6 15,946.1 17,249.9 19,419.2 21,846.6 24,531.0
Cost of Sales (4,755.5) (5,104.6) (5,612.2) (6,416.8) (6,968.5) (7,796.4) (8,754.2) (9,805.1)
Gross Profit 6,328.0 7,422.0 8,180.4 9,529.3 10,281.4 11,622.8 13,092.5 14,725.9
Gross Margin 57.1% 59.3% 59.3% 59.8% 59.6% 59.9% 59.9% 60.0%
Personnel expenses (1,791.6) (2,009.4) (2,234.2) (2,547.7) (2,738.8) (3,083.2) (3,468.6) (3,894.8)
Operating leases (1,134.0) (1,272.1) (1,398.7) (1,529.7) (1,637.5) (1,843.5) (2,073.9) (2,353.2)
Other operating expenses (1,027.0) (1,170.7) (1,286.4) (1,527.4) (1,686.7) (1,898.9) (2,158.1) (2,423.2)
Other net operating income / (losses) (1.1) (3.6) (3.4) (11.6) (12.5) (14.1) (15.9) (17.8)
EBITDA 2,374.2 2,966.2 3,257.7 3,913.0 4,205.8 4,783.2 5,376.1 6,036.8
Depreciation and Amortisation (645.8) (675.7) (735.7) (796.1) (837.2) (926.1) (1,007.4) (1,101.4)
EBIT 1,728.4 2,290.5 2,522.0 3,116.8 3,368.7 3,857.1 4,368.7 4,935.4
EBIT Margin 15.6% 18.3% 18.3% 19.5% 19.5% 19.9% 20.0% 20.1%
Finance costs (42.1) (12.1) (17.7) (27.4) (6.6) (6.4) (7.2) (8.5)
Finance income 45.9 43.2 54.7 41.5 59.4 65.6 73.5 79.6
Net Finance Costs 3.8 31.1 37.0 14.1 52.8 59.3 66.3 71.1
Exceptional items 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Profit before taxation 1,732.2 2,321.6 2,559.0 3,131.0 3,421.5 3,916.3 4,435.0 5,006.5
Income tax expense (410.0) (580.3) (613.5) (764.0) (785.0) (918.1) (1,039.7) (1,173.6)
Income tax rate 23.7% 25.0% 24.0% 24.4% 22.9% 23.4% 23.4% 23.4%
Net Profit (excluding exceptionals) 1,322.1 1,741.3 1,945.5 2,367.0 2,636.5 2,998.3 3,395.4 3,832.8
Minority interests (7.8) (9.5) (13.2) (6.3) (7.0) (7.9) (9.0) (10.1)
Profit attributable to shareholders 1,314.4 1,731.8 1,932.3 2,360.8 2,629.5 2,990.3 3,386.4 3,822.7
Basic shares (m) 621.7 623.1 623.2 623.3 623.3 623.3 623.3 623.3
Basic earnings per share
(continuing) € cent 211.4 277.9 310.0 378.7 421.9 479.7 543.3 613.3
Dividend Per Share € 1.2 1.6 1.8 2.2 2.5 2.8 3.2 3.6
Dividend Cover 1.8x 1.7x 1.7x 1.7x 1.7x 1.7x 1.7x 1.7x
Exhibit 274 Inditex: Balance Sheet (€ million)

2009/10 2010/11 2011/12 2012/13 2013/14E 2014/15E 2015/16E 2016/17E
Property, Plant and Equipment 3,294 3,397 4,063 4,662 4,996 5,386 5,954 6,949
Goodwill and Intangibles 665 687 832 820 838 919 994 1,118
Other Fixed Assets 433 539 627 716 767 872 978 1,097
Total Fixed Assets 4,392 4,624 5,522 6,198 6,600 7,177 7,926 9,165
Cash and Cash Equivalents 2,420 3,433 3,467 4,104 5,036 5,901 6,884 7,582
Trade and Other Receivables 422 482 531 848 748 874 1,031 1,109
Inventories 993 1,215 1,277 1,581 1,660 1,864 2,122 2,366
Other Current Assets 109 73 162 160 159 201 215 240
Total Current Assets 3,944 5,203 5,437 6,692 7,603 8,839 10,252 11,296
Trade and Other Payables 2,103 2,459 2,498 3,317 3,366 3,782 4,354 4,818
Short Term Debt 35 3 1 2 2 2 3 3
Other Current Liabilities 167 213 204 165 243 254 273 324
Total Current Liabilities 2,305 2,675 2,703 3,485 3,611 4,038 4,630 5,145
Assets Less Current Liabilities 6,030 7,151 8,256 9,405 10,592 11,978 13,547 15,316
Long Term Debt 5 4 2 4 4 4 5 6
Provisions 127 157 147 144 185 197 218 253
Other Non-Current Liabilities 528 567 652 775 812 925 1,043 1,165
Non-Current Liabilities 660 728 801 923 1,001 1,126 1,267 1,423
Shareholder's Equity 5,329 6,386 7,415 8,446 9,555 10,816 12,244 13,857
Minority Interests 41 37 41 36 36 36 36 36
Capital Employed 6,030 7,151 8,256 9,405 10,592 11,978 13,547 15,316

Exhibit 275 Inditex: Cash Flow Statement € million)

2009/10 2010/11 2011/12 2012/13 2013/14E 2014/15E 2015/16E 2016/17E
EBIT 1,728 2,290 2,522 3,117 3,369 3,857 4,369 4,935
Depreciation and Amortisation 625 636 693 811 837 926 1007 1101
EBITDA 2353 2927 3215 3928 4206 4783 5376 6037
Interest 4 31 37 14 53 59 66 71
Tax (391) (508) (693) (818) (785) (918) (1,040) (1,174)
Free Funds from Operations 1966 2450 2558 3124 3474 3924 4403 4934
Capex (488) (691) (1,204) (1,315) (1,207) (1,359) (1,638) (2,208)
Change in Working Capital 261 16 (204) (137) 70 86 158 142
Free Operating Cash Flow 1739 1775 1151 1672 2336 2651 2922 2868
(Acquisitions) / Disposals (22) (63) (145) (24) 31 (14) (19) 0
Dividends (662) (751) (1,004) (1,130) (1,527) (1,737) (1,967) (2,221)
Other (133) 52 47 151 93 -35 48 50
Net Cash Flow 922 1013 48 669 932 865 983 698
Exhibit 276 Inditex: Segment Results

2009/10 2010/11 2011/12 2012/13 2013/14E 2014/15E 2015/16E 2016/17E
Zara
Sales 7,077 8,088 8,938 10,541 11,409 12,898 14,568 16,422
EBIT 1,104 1,534 1,725 2,233 2,417 2,761 3,133 3,548
EBIT Margin 15.6% 19.0% 19.3% 21.2% 21.2% 21.4% 21.5% 21.6%
Stores 1608 1723 1830 1925 2040 2165 2300 2445
Pull & Bear
Sales 771 857 957 1,086 1,148 1,263 1,393 1,540
EBIT 101 139 140 182 186 207 231 258
EBIT Margin 13.1% 16.2% 14.6% 16.8% 16.2% 16.4% 16.6% 16.8%
Stores 626 682 747 816 861 911 966 1026
Massimo Dutti
Sales 790 897 1,013 1,134 1,223 1,356 1,502 1,661
EBIT 117 172 238 197 225 269 299 330
EBIT Margin 14.8% 19.2% 23.5% 17.4% 18.4% 19.9% 19.9% 19.9%
Stores 497 530 573 630 680 732 786 842
Bershka
Sales 1,177 1,247 1,316 1,485 1,611 1,806 2,025 2,267
EBIT 196 197 159 239 259 292 330 372
EBIT Margin 16.7% 15.8% 12.1% 16.1% 16.1% 16.2% 16.3% 16.4%
Stores 651 720 811 885 965 1050 1140 1235
Stradivarius
Sales 702 780 871 961 1,060 1,209 1,369 1,542
EBIT 149 176 192 208 219 250 283 318
EBIT Margin 21.2% 22.6% 22.0% 21.6% 20.6% 20.6% 20.6% 20.6%
Stores 515 593 684 780 880 982 1086 1192
Oysho
Sales 280 304 313 314 335 367 404 444
EBIT 38 45 36 26 23 27 31 37
EBIT Margin 13.6% 14.8% 11.5% 8.3% 6.8% 7.3% 7.8% 8.3%
Stores 392 432 483 524 564 607 653 702
Zara Home
Sales 243 294 317 350 383 437 495 559
EBIT 25 39 39 41 49 56 64 73
EBIT Margin 10.3% 13.3% 12.3% 11.7% 12.7% 12.8% 12.9% 13.0%
Stores 261 284 310 357 397 440 486 535
Uterqüe
Sales 44 59 68 74 78 83 89 95
EBIT -2 -12 -8 -9 -8 -4 -1 0
EBIT Margin -4.5% -20.3% -11.8% -12.2% -10.2% -5.2% -1.2% -0.2%
Stores 57 80 89 92 102 112 122 132

Index of Exhibits
1 Financial Overview 4
2 We Expect Sales Growth at a CAGR of 11% Through 2016/17, in
Line with the CAGR of 11% from 2007 to 2012 5
3 Half of Inditex Merchandise Is Produced in Proximity Locations
With Three to Five Week Lead Times 6
4 Inditex Commits to 60% of the Collection at the Start of the Season
and 40% Open to Buy 6
5 Total Markdown Depends on the Percent of Product Sold at Full
Price and the Level of Markdown on Non-Full-Price Items 7
6 Total Markdown Has a Much Bigger Impact on EBIT Margin Than
Shipping Costs 7
7 We Expect Inditex to Continue to Grow Sales in China; at a 25%
CAGR to FY 17/18 8
8 Our Analysis Suggests that Zara Prices in Spain Are the Cheapest
and the Rest of the World Region Is the Most Expensive 10
9 There Was a More Even Regional Distribution of Sales in 2012... 10
10 ...Compared to 2002, When 80% Came from Europe, and, More
Specifically, 46% Came from Spain 10
11 Zara Still Represents Approximately Two-Thirds of Group Sales... 11
12 ...and c.71% of Group EBIT 11
13 Overview of Inditex's Brands 12
14 We Believe the Americas Achieved c.9% LFL Sales Growth in FY
2012/13, While Asia Achieved c.12% 13
15 The Zara Business Model Is Replicated Across Each Inditex
Concept 17
16 Inditex Commits to 60% of the Collection at the Start of the Season
and 40% Open to Buy 18
17 Half of Inditex Merchandise Is Produced in Proximity Locations
With Three-to-Five-Week Lead Times 18
18 Total Markdown Depends on the Percent of Product Sold at Full
Price and the Level of Markdown on Non-Full-Price Items 19
19 Total Markdown Has a Much Bigger Impact on EBIT Margin Than
Shipping Costs 19
20 Inditex Is a Global Retailer With Stores on Six Continents (Blue =
Inditex Store Present) 20
21 Inditex Has Entered New Countries at an Impressive Rate Over the
Last 16 Years 20
22 Sales Has Been the Biggest Driver of Earnings Growth Over the
Past Six Years 21
23 Europe ex-Spain Provided the Lion's Share of Revenue Growth
Between 2005 and 2012 21
24 We Estimate That Inditex Has Less Than 2% Apparel Market Share
in Five of Its Top 13 Markets 22
25 Space Growth Has Been the Largest Contributor to Revenue

Growth Since 2005 23
26 Inditex Sales by Geography 2002-12 24
27 Zara Sales by Geography 2002-12 24
28 Since 2005, We Believe c.68% of Inditex's Share of Sales Lost by
Spain Has Been Taken by Asia 24
29 Space Growth Allocation by Banner 24
30 Inditex Has Guided Towards Dramatically Lower Levels of Space
Growth Through 2015 25
31 Actual Store Openings vs. Guided Store Openings 25
32 We Forecast LFL Growth of 3-6% Through 2017… 26
33 …Though Our Estimates Suggest LFL Performance Varies
Markedly by Geography 26
34 We Estimate That LFL Sales in Spain Bottomed in 2H:08 at -7%,
When Group LFL Sales Were -1% 26
35 The BRIC Countries Are Expected to Have a Combination of High
GDP and Apparel Market Growth in the Coming Years… 27
36 …Though, Even Within the BRICs, China and India Stand Out
from the Crowd in Terms of Growth Prospects 27
37 In 2013, We Expect Apparel Growth in the Emerging Markets to Be
Significantly Above the Levels in Western Europe… 28
38 …Which Should Benefit Inditex, Which Has the Largest Emerging
Market Exposure Out of the Apparel Names Under Coverage 28
39 We Expect Space Growth to Continue to Be the Most Significant
Contributor to Revenue Growth in the Coming Years 29
40 Inditex's Gross Margin Was Fairly Stable from 2004-09, Increasing
at an Average of 34 bp per Year 30
41 Our Pricing Survey Shows Spain Is c.25% Cheaper Than the Rest of
Europe, With the Rest of the World at a Further Premium 30
42 EBIT Margins Tend to Move With LFL Sales 31
43 Inditex EBIT Margins Have Not Always Retained Gross Margin
Improvements 31
44 Sales Growth Has Been the Major Driver of Profit Growth for
Inditex Since 2005… 33
45 …and New Space in Turn Has Been the Major Driver of Sales
Growth 33
46 Inditex is a Global Retailer With Zara Stores on Six Continents 34
47 We Expect Sales Growth to Continue at a CAGR of 11% Through
2016/17, in Line with the CAGR of 11% from 2007-12 34
48 Outside of its Home Market of Spain and Neighboring Portugal,
Inditex Shows a Lower Level of Penetration and Market Share… 35
49 …While Zara's Market Share Doesn't Reach Double Digits in Any
Market, and Is Below 2% in Most — Even of the Top 20 Markets
by Sales 35
50 Zara Was c.66% of Sales in 2012… 36
51 …and c.71% of Inditex's Profit 36
52 Zara Represents 64% of Inditex's Total Store Space… 36
53 …and We Believe That Significant Further Opportunity for Space
Growth Exists in the Americas and Asia 36
54 At a Global Level, the Majority of Stores Serve a Population of

Less Than 300,000... 37
55 ...With Europe the Driving Force of This Pattern 37
56 In Contrast, Asia Has Few Stores Serving Populations Less Than
600,000... 38
57 ...a Pattern Repeated in the Rest of the World 38
58 Even Among Large Cities, There Is a Clear Difference in Store
Penetration in Europe and the Rest of the World 38
59 Summary of Country Attractiveness 40
60 GDP and Clothing Spend Show a c.76% Correlation 41
61 Countries in Our Analysis Can Roughly be Split Into Four
Quadrants Depending on Their Scores for the Competitive
Environment and Market; Within a Quadrant a Larger Bubble
Indicates a Larger Zara-Specific Opportunity 42
62 Top Right — "Most External Opportunity" Quadrant, Signifying
Strong Markets and Favorable Competitive Environments 42
63 Top Left — "Good Competitive Environment" Quadrant; China
Falls Into This Quadrant Due to a Lower Market Score 43
64 Bottom Right — "Good Market" Quadrant; Generally Comprised of
Wealthier Countries But With Less Favorable Competitive
Conditions 43
65 Bottom Left —"Least Opportunity" Quadrant; Many of These
Countries Are Small or in Early Development Stages and Less
Data is Available to Assess the Market 44
66 The Top 15 Most Attractive Countries in Our Analysis Vary Widely
in Their Characteristics 45
67 Store Numbers Are an Imprecise Guide to Potential Growth… 45
68 …But We Believe Market Share Is a Better Measure, as It Allows
Us to Adjust for Sales Density 45
69 Estimates of the Store Opportunity Based on the Current Number of
Stores and Market Share of the No. 1 Clothing Retailer in Each
Market Also Suggest Zara Still Has Significant Store
Opportunities in the Markets Considered 46
70 Sensitivity Analysis Suggests Inditex Could Achieve 10% Space
Growth Through Zara Stores in 15 Markets 46
71 Inditex's c.6% LFL Sales Growth in FY 2012/13 Was Largely
Driven by Zara's Performance, by Our Estimates 47
72 We Believe Asia & ROW Achieved Double-Digit LFL Sales
Growth in FY 2012/13 47
73 Zara Has Relatively Few Stores per Country, With the Exception of
Spain… 47
74 …Though It Only Recently Began Its Online Roll Out 47
75 Clothing Sales Online By Geography 48
76 Spain's Proportion of Sales Has Fallen c.3% Per Year… 49
77 …as Higher Price Point Countries Have Taken an Increasing Share 49
78 Data for Each Country 50
79 Breakdown of Scores Attributed to Each Country 51
80 The Chinese Apparel Market Has Grown Faster Than the Major
Global Markets Over the Last Five Years, and the Asia Pacific
Region as a Whole… 54
81 …as Spend per Capita Has Also Experienced a Double-Digit

CAGR 54
82 China Is the Second-Largest Apparel Market in the World, Only
Behind the United States 55
83 China Looks Like an Attractive Apparel Market on a Number of
Metrics, Particularly as GDP/Capita, per Capita Spending on
Clothing and Urbanization Continue to Grow 55
84 Chinese Apparel Is a Highly Fragmented Market, With the Market
Leader, Belle, Holding Just a 1.1% Market Share 57
85 The Share of the Apparel Market Leader in China Is Well Below the
Market Share of the Market Leaders in Other Countries 57
86 We Believe Inditex Is the Fifth-Largest Company in Terms of
Chinese Clothing Market Share 58
87 Apparel Is in the Top 10 Industries in Hurun's 2012 List of the "Top
100 Most Valuable Chinese Brands" 58
88 In 2012, More Inditex Stores Were Opened in China Than the Rest
of Asia, the Americas, Africa, the Middle East and Spain
Combined 59
89 As in Most Markets, Inditex's Store Growth Has Been Driven by
Zara, Though the Other Fascias Are Following Fast 59
90 39% of Zara Stores Opened in 2012 Were Opened in China 60
91 H&M Typically Has a Higher Store Count Than Inditex in the
Countries in Which the Company Is Present 60
92 Despite the Low Relative Penetration, We Believe China Is Already
Inditex's Second-Largest Market… 61
93 …and the Same Is True for Inditex's Largest Fascia, Zara 61
94 Zara China's Products Have a 22% Premium Attached to Them
Relative to Zara France on a Weighted Average, and a 21%
Premium on a Simple Average 62
95 We Anticipate China Will Represent c.20% of Inditex's Store
Growth Over the Coming Years 63
96 Inditex Only Entered China in 2006, But It Has Already Moved
Online 63
97 There Is a Clear Correlation Between a Province's GDP/Capita and
the Number of Zara Stores in the Location 65
98 There Is No Correlation Between a Province's Size, in Terms of
Population, and the Number of Zara Stores 65
99 We Believe Inditex Will Likely Look to Increase the Penetration of
People/Store in Tier 1 Chinese Cities to the Levels Seen in Other
Non-European Cities Like Tokyo and Mexico City 66
100 We Expect Inditex to Continue to Grow Sales in China, at a 25%
CAGR to FY 17/18 67
101 We Expect China to Be Increasingly Relevant for Both Inditex and
H&M in the Coming Years, Albeit We Forecast China's
Proportion of Inditex's Sales Will Grow at a Faster Rate 67
102 Despite Already Being in 86 Countries, We Expect China to
Represent More Than 20% of Inditex's Total Sales Growth Over
the Coming Years 68
103 In 2002, 20% of Inditex's Sales Came from Asia and the Americas 70
104 In FY 2012, 32% of Inditex's 2012 Sales Came from Asia and the
Americas 70
105 Inditex Has Low Market Share Penetration in Most of its Markets 70
106 In 2012/13 More Than 25% of New Inditex Stores Were Opened in
China 70
107 Emerging Markets Are Likely to Have Significantly Higher Apparel
Sales Growth Over the Coming Years Than More Developed
Markets 71
108 Zara China's Products Have a c.9% Premium Attached to Them
Relative to Zara in Europe ex-Spain 71
109 Our Analysis Suggests Chinese Price Points Are Significantly
Higher Than European Price Points 72
110 Inditex's Sales Per Store Have Been Growing in Recent Years... 73
111 ...and This Is Reflected in Sales/Square Meter 73
112 Inditex Spain's Sales Density, Relative to the Group, Has
Consistently Declined 74
113 Inditex Europe (ex-Spain) Has Seen Sales Density Premium to the
Group Decline In Recent Years 74
114 Asian Sales Densities Remain at a Significant Premium to the
Group… 74
115 …While Americas Sales Density Premia Are Growing 74
116 We Believe Increased Emerging Market Exposure Has Helped
Support Strong LFL Sales 75
117 Inditex Has Significantly Increased the Proportion of Stores Opened
in Asia Over the Last Four Years... 76
118 ...We Expect Asia to be the Main Focus of Inditex's Store Openings
Over the Next Three Years 76
119 We Expect Inditex's ROIC to Continue Increasing Over the Coming
Years as Higher Price Point Emerging Markets Take a Higher
Proportion of Sales 77
120 We Expect Inditex's Gross Margin to Continue to Tick Up Over the
Medium Term, Given This Geographic Mix Shift... 77
121 ...and Believe the Same Trends Will Be True for EBIT Margins 77
122 Our Analysis Suggests That Zara Prices in Spain Are the Cheapest
and the Rest of the World Region Is the Most Expensive 79
123 Price Variation Within Regions Was Also Observed With, for
Instance, Japan the Most Expensive Surveyed from the Rest of the
World Region, But Saudi Arabia Only Slightly More Expensive
Than Europe ex-Spain 80
124 There Was a More Even Regional Distribution of Sales in 2012... 81
125 ...Compared to 2002, When 80% Came from Europe, and, More
Specifically, 46% Came from Spain 81
126 Emerging Markets Are Likely to Have Significantly Higher Apparel
Sales Growth Over the Coming Years Than More Developed
Markets 81
127 We Expect Asia to Remain the Key Focus Area of Expansion in the
Coming Years 82
128 Moving the Proportion of Volume from Spain and Europe ex-Spain
to Asia & RoW and the Americas Leads to Group Price and
Revenue Growth 82
129 According to Our Pricing Survey, We Believe There Would Have
Been a 1.3% Boost to Sales Growth Purely from the Geographical
Mix Shift in 2012 82
130 Zara's Proportion of Clothes from Lowest Priced Goods in the U.K.
Has Decreased in the Last 18 Months... 83
131 ...the Proportion of Mid-Priced Goods Has Also Fallen c.12 pp in
That Period... 83
132 …as Product Mix Has Moved to the Highest Priced Items 83
133 We Believe There Are Three Key Components of Constant
Currency Sales Growth for Inditex, Which Are Affected in
Different Measures by Price and Volume 84
134 Space Has Continued to Be the Main Driver of Constant Currency
Sales Growth in Recent Years 84
135 By Sizing the Geographic Price Shift Contribution to Sales, We Can
Estimate the Range of Growth in LFL Volume and Intra-
Geography Product Mix, Which at the Low End Has Averaged
c.3.0% Over the Last 10 Years 85
136 We Expect Inditex to Achieve c.11.0% Sales Growth Annually
Over the Medium Term 85
137 The Countries Used in Our Analysis Represented c.56% of Group
Sales in 2012 86
138 Our Price Survey Covered Countries Representing a Significant
Proportion of Each Region's Group Sales 87
139 Relative Pricing of the 22 Items Across the Countries Used in Our
Analysis 87
140 Results of Our Pricing Survey 88
141 Zara Still Represents Around Two-Thirds of Group Sales... 89
142 ...and c.71% of Group EBIT 89
143 Zara Has More Than Double the Number of Stores of Any Other
Brand 89
144 Zara Is Present in the Most Markets, But Other Brands Have
Broadened Their Footprints Significantly in Recent Years 90
145 Overview of Inditex's Brands 90
146 Our Pricing Survey Suggests That Massimo Dutti Is Inditex's
Highest Priced Brand and Stradivarius the Lowest 91
147 Overall, Europe Remains by Far Inditex's Largest Geography in
Terms of Stores, With c.75% of Total 92
148 Inditex — Geographic Heat Map of Stores 92
149 China, Russia and Mexico Have Been Focus Countries for
Expansion for Non-Zara Brands 93
150 We Expect Zara's Share of Group Sales to Increase c.100 bp by
2017E... 94
151 ...and Its Share of Group EBIT to Grow by the Same Amount 94
152 The Non-Zara Apparel Brands Typically Sit Slightly Below the
Trend Line for Zara Between 2001 and 2006 94
153 Zara Has Seen Its Stores per Country Step Up as It Has Expanded
Internationally 95
154 Non-Zara Brands Typically Have a Lower Stores/Country Level
Than Zara Had at the Same Stage of Expansion 95
155 Assuming That the Non-Zara Brands Maintain Their Stores per
Countries Ratio and Expand to 86 Geographies as Zara Had Done
by FY 2012 Provides One Means of Estimating Future Potential
Store Numbers 95
156 Overview of Zara 96

157 Zara Markets Fast Fashion, Offering on-Trend Items at Very
Competitive Prices 96
158 Following a Period of Decline, Zara Has Recently Begun to Rise as
a Percentage of Group Sales... 97
159 ...and Group EBIT 97
160 Zara Has Grown Sales at a 14% CAGR Since 2001, With a Step Up
in EBIT Margin Since 2010 97
161 Space Growth Has Been a Major Driver of Sales and Averaged
c.14% Since 2002 97
162 We Expect Sales Growth to Continue and Model a c.12% CAGR to
2017E 98
163 We Expect Continued Double-Digit Space Growth in the Future as
Store Size Increases 98
164 Zara Is the Most International of Inditex's Brands, But the Majority
of Stores Are Still in Europe 98
165 Zara — Geographic Heat Map of Stores 99
166 Overview of Pull & Bear 99
167 Pull & Bear Offers a More Casual Sporty Style Compared to Zara,
With a Core Demographic of Teenagers and Early Twenties 100
168 Sales Growth Has Been Strong, Recording a +15.4% CAGR Since
2001, With EBIT Margin Expansion of c.+220 bp 101
169 Space Growth Has Been a Key Driver of Sales Growth, Growing at
an Average of c.19% p.a. Since 2002 101
170 We Expect Sales to Grow at c.9% p.a. to 2017 and Model 20 bp of
EBIT Margin Expansion 101
171 We Expect Space Growth of c.8.5% p.a. Going Forward 101
172 The Majority of Pull & Bear Stores Are in Europe... 102
173 ... But a Geographic Heat Map of Pull & Bear Stores Shows a
Heavy Exposure to Russia and China 102
174 Overview of Massimo Dutti 103
175 Massimo Dutti Is Targeted at Consumers in Their 20s-30s, Offering
an Elegant, More Work Appropriate, Conservative Style 104
176 Since 2001, Sales Have Grown at a c.15% CAGR and EBIT Margin
Has Expanded +690 bp 104
178 Going Forward We Expect a Sales CAGR of c.10% to 2017E and
c.+250 bp of Margin Expansion 105
179 We Expect Space Growth to Decelerate from 2012 Levels Then
Decline Steadily to High-Single-Digit Levels 105
180 The Majority of Massimo Dutti Stores Are Located in Europe 105
181 Massimo Dutti — a Geographic Heat Map of Stores Shows
Targeted Expansion in China and Mexico 106
182 Overview of Bershka 106
183 Bershka Offers a Younger, More Urban Style Than Other Brands 107
Has Expanded +360 bp 108
an Average of c.19% Since 2002 108

c.+40 bp of Margin Expansion 108
187 We Expect Space Growth to Decline Steadily Going Forward But
Remain at Double-Digit Rates 108
188 Bershka Is Majority Oriented to Europe 109
189 Bershka — Geographic Heat Map of Stores Shows Rapid
Expansion in China, Russia and Mexico 109
190 Overview of Stradivarius 110
191 Stradivarius Offers Only Womenswear, in a Fashionable But More
Classic Style 111
Has Expanded +1,500 bp 111
193 As of FY2012 Stradivarius Was Present in 52 Geographies via 780
Stores 111
194 We Expect a Sales CAGR of c.12% to 2017E and 100 bp of EBIT
Margin Contraction 112
195 We Expect Space Growth to Decline Steadily Going Forward 112
196 About 80% of Stradivarius Stores Are in Europe With Only a
Limited Footprint Elsewhere 112
197 Stradivarius — Geographic Heat Map of Stores Shows Fastest
Expansion from Spain Into Poland, Russia and China 113
198 Overview of Oysho 113
199 Oysho Offers Women's Lingerie and a Limited Range of Other
Items 114
200 Since 2001, Sales Have Grown at a c.47% CAGR and the Brand
Has Moved from Loss to a Profit 115
an Average of c.28% Since 2002 115
202 We Expect a Sales CAGR of c.9% to 2017E With c.+50 bp of EBIT
Margin Expansion 115
203 We Expect c.8% Space Growth p.a. Going Forward 115
204 Roughly 79% of Oysho Stores Are in Europe With a Small
Presence in Latin America, Asia and the Middle East & Africa 116
205 Oysho — Geographic Heat Map of Stores Reveals That the Brand
Has Expanded Fastest in Italy and Russia, Followed by China and
Mexico 116
206 Our Pricing Survey Suggests That Oysho Is Positioned to Be
Cheaper Than Market Leader Women's Secret 117
207 Overview of Zara Home 117
208 Zara Home Offers Textiles and Homewares 118
209 Since Being Founded in 2003, Sales Have Grown at a c.47% CAGR
and the Brand Has Moved from Being Loss-Making to Reporting
an EBIT Margin of 11.7% in 2012 118
c.+140 bp of EBIT Margin Expansion 119
212 We Expect Space Growth to Decline Steadily But Remain at
Double-Digit Levels to 2017E 119
213 About 83% of Zara Home Stores Are in Europe, With Only a
Limited Footprint Elsewhere 119
214 Zara Home — Geographic Heat Map of Stores Reveals That
Expansion Has Been Fastest in Proximity Markets Like Italy and
Portugal, But Zara Home Is Also Building a Presence in Priority
Countries Like Russia, China and Mexico 120
215 Our Pricing Survey Suggests Zara Home Is Generally More
Expensive Than IKEA 120
216 Overview of Uterqüe 121
217 Uterqüe Was Founded by Inditex in 2008 and Offers Accessories
and a Limited Range of Clothing 122
218 Since Being Founded in 2008, Sales Have Grown at a c.44% CAGR
But the Brand Has Never Reported a Profit 122
219 Space Growth Has Averaged c.35% Since 2009 122
220 Going Forward We Expect a Sales CAGR of c.7% to 2017E and for
the Brand to Move to Profitability 123
221 We Expect Mid-Single-Digit Space Growth p.a. Going Forward 123
222 Uterqüe Is More International Than the Other Brands Bar Zara,
With a Significant Exposure to the Middle East & Africa 123
223 Uterqüe — Geographic Heat Map of Stores Reveals Low Stores
Counts Outside of Spain 124
224 Our Pricing Survey Suggests That Uterqüe Is More Expensive Than
Either Blanco or Zara 124
225 Inditex's Absolute NTM P/E Has Returned to Historical Levels in
Recent Months… 125
226 …and Continues to Trade at a Significant Premium to the MSCI
Europe 125
227 There Is, Typically, a Significant Correlation Between a Company's
NTM P/E Multiple and YoY Earnings Growth Expectations… 127
228 …as Can Be Seen Since 1997 at Bed Bath & Beyond… 127
229 …and Best Buy 127
230 The Correlation Largely Dissipates Once a Retailer, Like M&S, Is
Considered Mature and Cyclical 127
231 Many Well-Known, Global Retailers Have De-Rated Significantly
from Peak NTM P/E Multiples… 128
232 …as Year-on-Year Earnings Growth Expectations Have Declined 128
233 Earnings Growth Deceleration Is, We Believe, Largely a Function
of Three Operational Factors: LFL Sales Deceleration, Space
Saturation and/or Margin Contraction 128
234 Inditex Derived Just 21% of Sales from Its Domestic Market in
2012/13, a Significantly Lower Proportion Than for the Fallen
Angels 129
235 There Was a Clear Fall in Gap's NTM P/E Multiple in Both 2000
and, for a Sustained Period, Since 2003… 129
236 …as LFL Sales Have Consistently Declined Since 1999 129
237 Bed Bath and Beyond's NTM P/E Multiple Has Halved Since
2004… 130
238 …as Space Growth Has Consistently Declined 130
239 Benetton's NTM P/E Fell on the Back of Economic Concerns in
Retail… 130
240 …Which Were Proved Justified Given Benetton's Margin

Contraction 130
241 Western Europe Has Seen Apparel Market Decline Over the Last
Five Years… 131
242 …With Higher Growth Seen in Emerging Markets, Such as China
and Russia 131
243 We Believe c.48% of Inditex's Revenue Is Derived Outside of
Western Europe… 132
244 …a Significantly Higher Proportion Than for the Other Apparel
Names Under Coverage 132
245 We Believe the Americas Achieved 9% LFL Sales Growth in FY
2012/13, While Asia Achieved c.12% 132
246 Western Europe Is Expected to Continue to Show Muted Growth in
2013, But There Should Be Far Higher Growth in the Emerging
Markets, Where Inditex Has an Increasingly Strong Presence 133
247 The Fallen Angels We Believe De-Rated Due to Space Have
Actually Tended to Open More Space Than Those That De-Rated
Due to LFL Deterioration or Margin Contraction 134
248 While We Expect Space Growth to Continue to Be the Dominant
Driver of the Top Line, We Also Forecast LFLs to Provide a
Significant Contribution of c.4.5% per Year 134
249 Outside of Its Home Market of Spain and Neighboring Portugal,
Inditex Shows a Lower Level of Penetration and Market Share… 135
250 …While Zara's Market Share Doesn't Reach Double Digits in Any
Market, and Is Below 2% in Most — Even of the Top 20 Markets
by Sales 135
251 Inditex Has Increased Its Reported Net Cash… 136
252 …and Its Leverage Ratio on a Lease-Adjusted Basis Is Relatively
Low at 1.5x 136
253 Inditex FCF Yield 136
254 Inditex Dividend Yield 136
255 SCB Three-Year FCF vs. EPS CAGRs 136
256 Inditex Has a Low Working Capital Balance That Ticked Up
Slightly in FY12/13 137
257 Inditex Has Maintained a Negative Cash Conversion Cycle Driven
by Long Payables Days… 138
258 …a Pattern Continued in 2012/13 138
259 Our Efficiency Ratio (Δ Y-O-Y Working Capital/Capex) Suggests
Inditex Has Been Effective in Improving Working Capital to Fund
Capex 138
260 We Expect Lease and Goodwill-Adjusted ROIC to Improve Over
the Next Three Years 139
261 We Expect Inditex's Returns on New Invested Capital to Remain
Above 30% Over the Next Four Periods 139
262 On Average, Inditex Has Been Able to Convert More Than 100% of
This Capex Into Incremental Sales Over the Past 10 Years 140
263 We Expect Capex as a Proportion of Sales of c.7.0% 140
264 We Expect Capex to Remain Above €1 Billion as Inditex Continues
to Expand 140
265 Inditex Has Reduced Its Capital Intensity Over the Last Six Years 141
266 We Estimate a c.21% FCF CAGR to 2015/16 at Inditex 141

267 Inditex Currently Averages a 2.2% Dividend Yield, Below That of
the MSCI Europe 141
268 Inditex: Dividend History and Expectations 142
269 Inditex: Historical Dividend Yield 142
270 We Expect Inditex to Achieve a Dividend Payment CAGR of
12.8% to 2015/16 142
271 We Expect Dividend Yield to Edge Up, With a +36 bp Increase 142
272 Our DCF Suggests a Valuation of €129 per Share 143
273 Inditex: Income Statement (€ million) 147
274 Inditex: Balance Sheet (€ million) 147
275 Inditex: Cash Flow Statement € million) 148
276 Inditex: Segment Results 148
Disclosure Appendix
VALUATION METHODOLOGY
Inditex SA
In valuing Inditex over the next 12 months, we set a target price of 23x NTM EPS and equally weight this with our DCF analysis, for
which we apply a 2.5% terminal growth rate and 8% WACC, to give us a target price of €115. We rate Inditex outperform.
RISKS
Our 12-month price targets are contingent on companies achieving our forecast earnings and valuation multiples matching our
targets.
We base our forecasts on stable economic environments in domestic markets, and stable macroeconomic and political conditions
and exchange rates in international markets — any adverse impacts would impact our forecasts.
We assume that companies in our coverage will remain independent, and that they will keep broadly similar capital structures.
Significant change in ownership, bids for the companies or recapitalizations would impact our price targets.
Inditex SA
Significant global economic slowdown or considerable further downgrades in Spanish and Portuguese growth could cause
downgrades to our estimates.
Fashion misses that cause a major step-up in markdowns or any change in customer acceptance of the product that limited Inditex's
ability to sell at full price would also lead to lower earnings growth.
SRO REQUIRED DISCLOSURES

 References to "Bernstein" relate to Sanford C. Bernstein & Co., LLC, Sanford C. Bernstein Limited, Sanford C. Bernstein (Hong
Kong) Limited, and Sanford C. Bernstein (business registration number 53193989L), a unit of AllianceBernstein (Singapore) Ltd.
which is a licensed entity under the Securities and Futures Act and registered with Company Registration No. 199703364C,
collectively.
 Bernstein analysts are compensated based on aggregate contributions to the research franchise as measured by account
penetration, productivity and proactivity of investment ideas. No analysts are compensated based on performance in, or
contributions to, generating investment banking revenues.
 Bernstein rates stocks based on forecasts of relative performance for the next 6-12 months versus the S&P 500 for stocks listed on
the U.S. and Canadian exchanges, versus the MSCI Pan Europe Index for stocks listed on the European exchanges (except for
Russian companies), versus the MSCI Emerging Markets Index for Russian companies and stocks listed on emerging markets
exchanges outside of the Asia Pacific region, and versus the MSCI Asia Pacific ex-Japan Index for stocks listed on the Asian (ex-
Japan) exchanges - unless otherwise specified. We have three categories of ratings:
Outperform: Stock will outpace the market index by more than 15 pp in the year ahead.
Market-Perform: Stock will perform in line with the market index to within +/-15 pp in the year ahead.
Underperform: Stock will trail the performance of the market index by more than 15 pp in the year ahead.
Not Rated: The stock Rating, Target Price and estimates (if any) have been suspended temporarily.
 As of 08/29/2013, Bernstein's ratings were distributed as follows: Outperform - 39.5% (0.9% banking clients) ; Market-Perform -
48.2% (0.4% banking clients); Underperform - 12.3% (0.0% banking clients); Not Rated - 0.0% (0.0% banking clients). The numbers
in parentheses represent the percentage of companies in each category to whom Bernstein provided investment banking services
within the last twelve (12) months.
12-Month Rating History as of 09/02/2013
Ticker Rating Changes
ITX.SM O (RC) 06/25/12
Rating Guide: O - Outperform, M - Market-Perform, U - Underperform, N - Not Rated

Rating Actions: IC - Initiated Coverage, DC - Dropped Coverage, RC - Rating Change
OTHER DISCLOSURES
A price movement of a security which may be temporary will not necessarily trigger a recommendation change. Bernstein will advise
as and when coverage of securities commences and ceases. Bernstein has no policy or standard as to the frequency of any
updates or changes to its coverage policies. Although the definition and application of these methods are based on generally
accepted industry practices and models, please note that there is a range of reasonable variations within these models. The
application of models typically depends on forecasts of a range of economic variables, which may include, but not limited to, interest
rates, exchange rates, earnings, cash flows and risk factors that are subject to uncertainty and also may change over time. Any
valuation is dependent upon the subjective opinion of the analysts carrying out this valuation.
This document may not be passed on to any person in the United Kingdom (i) who is a retail client (ii) unless that person or entity
qualifies as an authorised person or exempt person within the meaning of section 19 of the UK Financial Services and Markets Act
2000 (the "Act"), or qualifies as a person to whom the financial promotion restriction imposed by the Act does not apply by virtue of
the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, or is a person classified as an "professional client"
for the purposes of the Conduct of Business Rules of the Financial Conduct Authority.
To our readers in the United States: Sanford C. Bernstein & Co., LLC is distributing this publication in the United States and
accepts responsibility for its contents. Any U.S. person receiving this publication and wishing to effect securities transactions in any
security discussed herein should do so only through Sanford C. Bernstein & Co., LLC.
To our readers in the United Kingdom: This publication has been issued or approved for issue in the United Kingdom by Sanford
C. Bernstein Limited, authorised and regulated by the Financial Conduct Authority and located at 50 Berkeley Street, London W1J
8SB, +44 (0)20-7170-5000.
To our readers in member states of the EEA: This publication is being distributed in the EEA by Sanford C. Bernstein Limited,
which is authorised and regulated in the United Kingdom by the Financial Conduct Authority and holds a passport under the Markets
in Financial Instruments Directive.
To our readers in Hong Kong: This publication is being distributed in Hong Kong by Sanford C. Bernstein (Hong Kong) Limited
which is licensed and regulated by the Hong Kong Securities and Futures Commission (Central Entity No. AXC846). This
publication is solely for professional investors only, as defined in the Securities and Futures Ordinance (Cap. 571).
To our readers in Singapore: This publication is being distributed in Singapore by Sanford C. Bernstein, a unit of AllianceBernstein
(Singapore) Ltd., only to accredited investors or institutional investors, as defined in the Securities and Futures Act (Chapter 289).
Recipients in Singapore should contact AllianceBernstein (Singapore) Ltd. in respect of matters arising from, or in connection with,
this publication. AllianceBernstein (Singapore) Ltd. is a licensed entity under the Securities and Futures Act and registered with
Company Registration No. 199703364C. It is regulated by the Monetary Authority of Singapore and located at 30 Cecil Street, #28-
08 Prudential Tower, Singapore 049712, +65-62304600. The business name "Sanford C. Bernstein" is registered under business
registration number 53193989L.
To our readers in Australia: Sanford C. Bernstein & Co., LLC, Sanford C. Bernstein Limited and Sanford C. Bernstein (Hong
Kong) Limited are exempt from the requirement to hold an Australian financial services licence under the Corporations Act 2001 in
respect of the provision of the following financial services to wholesale clients:
 providing financial product advice;
 dealing in a financial product;
 making a market for a financial product; and
 providing a custodial or depository service.
Sanford C. Bernstein & Co., LLC., Sanford C. Bernstein Limited, Sanford C. Bernstein (Hong Kong) Limited and AllianceBernstein
(Singapore) Ltd. are regulated by, respectively, the Securities and Exchange Commission under U.S. laws, by the Financial Conduct
Authority under U.K. laws, by the Hong Kong Securities and Futures Commission under Hong Kong laws, and by the Monetary
Authority of Singapore under Singapore laws, all of which differ from Australian laws.
One or more of the officers, directors, or employees of Sanford C. Bernstein & Co., LLC, Sanford C. Bernstein Limited, Sanford C.
Bernstein (Hong Kong) Limited, Sanford C. Bernstein (business registration number 53193989L) , a unit of AllianceBernstein
(Singapore) Ltd. which is a licensed entity under the Securities and Futures Act and registered with Company Registration No.
199703364C, and/or their affiliates may at any time hold, increase or decrease positions in securities of any company mentioned
herein.
Bernstein or its affiliates may provide investment management or other services to the pension or profit sharing plans, or employees
of any company mentioned herein, and may give advice to others as to investments in such companies. These entities may effect
transactions that are similar to or different from those recommended herein.
Bernstein Research Publications are disseminated to our customers through posting on the firm's password protected website,
www.bernsteinresearch.com. Additionally, Bernstein Research Publications are available through email, postal mail and commercial
research portals. If you wish to alter your current distribution method, please contact your salesperson for details.
Bernstein and/or its affiliates do and seek to do business with companies covered in its research publications. As a result, investors
should be aware that Bernstein and/or its affiliates may have a conflict of interest that could affect the objectivity of this publication.
Investors should consider this publication as only a single factor in making their investment decisions.
This publication has been published and distributed in accordance with Bernstein's policy for management of conflicts of interest in
investment research, a copy of which is available from Sanford C. Bernstein & Co., LLC, Director of Compliance, 1345 Avenue of
the Americas, New York, N.Y. 10105, Sanford C. Bernstein Limited, Director of Compliance, 50 Berkeley Street, London W1J 8SB,
United Kingdom, or Sanford C. Bernstein (Hong Kong) Limited, Director of Compliance, Suites 3206-11, 32/F, One International
Finance Centre, 1 Harbour View Street, Central, Hong Kong, or Sanford C. Bernstein (business registration number 53193989L) , a
unit of AllianceBernstein (Singapore) Ltd. which is a licensed entity under the Securities and Futures Act and registered with
Company Registration No. 199703364C, Director of Compliance, 30 Cecil Street, #28-08 Prudential Tower, Singapore 049712.
Additional disclosures and information regarding Bernstein's business are available on our website www.bernsteinresearch.com.
CERTIFICATIONS
 I/(we), Jamie Merriman, Senior Analyst(s)/Analyst(s), certify that all of the views expressed in this publication accurately reflect
my/(our) personal views about any and all of the subject securities or issuers and that no part of my/(our) compensation was, is, or
will be, directly or indirectly, related to the specific recommendations or views in this publication.
Approved By: NK
Copyright 2013, Sanford C. Bernstein & Co., LLC, Sanford C. Bernstein Limited, Sanford C. Bernstein (Hong Kong) Limited, and AllianceBernstein (Singapore) Ltd., subsidiaries of
AllianceBernstein L.P. ~1345 Avenue of the Americas ~ NY, NY 10105 ~212/756-4400. All rights reserved.
This publication is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of, or located in any locality, state, country or other jurisdiction where such distribution, publication,
availability or use would be contrary to law or regulation or which would subject Bernstein or any of their subsidiaries or affiliates to any registration or licensing requirement within such jurisdiction. This publication is based upon
public sources we believe to be reliable, but no representation is made by us that the publication is accurate or complete. We do not undertake to advise you of any change in the reported information or in the opinions herein.
This publication was prepared and issued by Bernstein for distribution to eligible counterparties or professional clients. This publication is not an offer to buy or sell any security, and it does not constitute investment, legal or tax
advice. The investments referred to herein may not be suitable for you. Investors must make their own investment decisions in consultation with their professional advisors in light of their specific circumstances. The value of
investments may fluctuate, and investments that are denominated in foreign currencies may fluctuate in value as a result of exposure to exchange rate movements. Information about past performance of an investment is not
necessarily a guide to, indicator of, or assurance of, future performance.
INDITEX: FASHIONING THE STRONGEST MODEL IN APPAREL RETAIL
Copyright of Bernstein Black Book - Inditex: Fashioning the Strongest Model in Apparel
Retail is the property of Sanford C. Bernstein & Co., LLC and its content may not be copied
or emailed to multiple sites or posted to a listserv without the copyright holder's express
written permission. However, users may print, download, or email articles for individual use.

2013 Report - Inditex

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

2013 Report - Inditex

Uploaded by

Copyright:

Available Formats

Inditex: Fashioning the Strongest Model

Portfolio Manager's Summary

Jamie Merriman jamie.merriman@bernstein.com +44-207-170-0516

Exhibit 1 Financial Overview

TTM Performance 15.9%

Earnings Per Share

Significant Research Conclusions

Total Space LFL FX

Source: Corporate reports and Bernstein estimates and analysis.

1.0% 21.5% 19.9% 18.2% 16.4% 14.6% 12.6% 11.7%

Sales Constant Currency Sales Growth

Geographic Area Relative Price

(Europe - ex. Spain = 100)

Source: Oanda, corporate websites and Bernstein analysis.

Exhibit 13 Overview of Inditex's Brands

Textiles and home décor Founded 2003 350 11.7% 38% 357 35 93 261 3757 440

Source: Corporate reports and websites and Bernstein analysis.

Inditex currently trades at a 23.3x NTM P/E, representing an 89% premium to

Valuation Methodology Inditex SA

A Competitive Advantage in Apparel

Proximity Sourcing Near-Proximity Non-Proximity Sourcing

Zara HQ Floor Plan - Team Diagram

Sourcing Product Store Team Design

Primarily former store managers,

Stores send ideas to the

Source: Corporate reports and Bernstein analysis.

1.0% 21.5% 19.9% 18.2% 16.4% 14.6% 12.6% 11.7%

Exhibit 20 Inditex Is a Global Retailer With Stores on Six Continents

Inditex Global Presence 1996-2012

Source: Corporate reports and Bernstein analysis.

2005 to 2012 Drivers of Net Profit Growth

Source: Corporate reports and Bernstein analysis.

2005 to 2012 Drivers of Sales Growth by Geography

Source: Corporate reports and Bernstein analysis.

Spain 1 1 14.6% 3,351

Source: Euromonitor, corporate reports and Bernstein estimates and analysis.

2005 to 2012 Drivers of Sales Growth

Source: Corporate reports and Bernstein analysis.

Inditex Sales by Geography Zara Sales by Geography

Source: Corporate reports and Bernstein estimates and analysis.

Exhibit 29 Space Growth Allocation by Banner

Source: Corporate reports and Bernstein analysis.

0% Guidance (Low-Mid-High) Actual SCB Estimate

 We believe it is worth noting that Inditex's definition of LFL sales is very

Exhibit 32 We Forecast LFL Growth of 3-6% Through 2017…

Inditex LFL Forecast

Source: Corporate reports and Bernstein estimates and analysis.

SCB Estimated LFL by Geography SCB Estimated Spanish LFL

Note: Size of bubble indicates size of apparel market in 2012 in euros.

Note: Size of bubble indicates size of apparel market in 2012 in euros.

Exhibit 37 In 2013, We Expect Apparel Growth in the Emerging Markets to Be Significantly

2013e Apparel Market Growth

Sales Split by Geography

W. Europe E. Europe Americas

Source: Corporate reports and Bernstein estimates and analysis.

Exhibit 39 We Expect Space Growth to Continue to Be the Most Significant Contributor to

Total Space LFL FX

Source: Corporate reports and Bernstein estimates and analysis.

Source: Corporate reports and Bernstein estimates and analysis.

120 106 109 106

Europe ‐ ex. Spain Spain Americas ROW

Source: Bloomberg L.P., corporate websites and Bernstein analysis.

Is Mid-Teens Earnings Growth