Inditex

Selling its winner to fund new ventures. Can Naspers get it right?

A Naspers Story

Naspers, South Africa’s largest company by market capitalisation, began its journey in the print media industry. It later expanded into pay-TV, launching M-Net, which became a household name across the continent. However, the company’s most transformative move came in 2001, when it acquired a 46.5% stake in Tencent, the Chinese social media and gaming giant. 

Tencent operates two of China’s most popular social platforms: Weixin and WeChat. These multifunctional apps allow users to chat, shop online, and make payments—all within a single ecosystem. As of its latest results, Tencent reported 1.4 billion users across these platforms, with the vast majority based in China. 

Over the years, Naspers has gradually reduced its stake in Tencent. In June 2022, it held 28.5%, and as of its most recent financial report, that figure now stands at 23.5%. The rationale behind this sell-down is to narrow the gap between Naspers’ market valuation and the net asset value (NAV) of its holdings. Holding companies often trade at a discount to NAV, and Naspers is no exception. According to the company, its NAV per share is R8,473.50, while its share price on 20 June 2025 was R5,235.40—reflecting a 38% discount. 

Proceeds from the Tencent stake reduction have been used to expand Naspers’ e-commerce footprint. The company is focusing on lifestyle e-commerce businesses across Latin America, India, Europe, and South Africa. In the past 12 months, Naspers invested $7.8 billion in mergers and acquisitions, while divesting $2.6 billion from underperforming assets, including its stake in Superbalist. New management seem to be making good progress on its e-commerce businesses, the latest results show most of these businesses being cash flow and earnings positive.  

However, this strategy is not without risk. Selling down a high-performing asset like Tencent to fund new ventures presents a significant challenge: replicating such outsized returns is notoriously difficult. Tencent has been a once-in-a-generation success for Naspers, and finding the next equivalent may prove elusive. 

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Inditex – Cut above the Rest

Last week, Inditex—the parent company of Zara—released its Q1 2025 results. Net sales for the quarter reached €8.2 billion, marking a modest 1.5% year-over-year increase. Net income rose to €1.3 billion, up 0.8% from the same period last year. While growth has slowed, largely due to market uncertainty surrounding tariffs, recessionary fears, and a strong euro. The company noted that in constant currency terms, sales would have increased by 4.2%.

Inditex’s hallmark is its highly flexible supply chain, which allows the company to adjust production in real time based on demand signals from both its online and physical stores.

This agility is particularly valuable during periods of economic uncertainty. With demand softening, Inditex is well-positioned to avoid excess inventory, reducing the risk of markdowns and impairments on its financial statements.

Since the COVID-19 pandemic, Inditex has been actively optimizing its store portfolio. The company has closed smaller, less productive stores while expanding larger ones and opening flagship locations in prime retail areas. This strategy has led to an increase in net sales per square metre, as customers tend to spend more when they can physically browse a broader selection of products.

Despite its focus on physical retail, Inditex continues to invest heavily in its e-commerce and logistics infrastructure. For FY24 and FY25, the company plans to allocate an additional €900 million annually in capital expenditure to enhance its logistics capabilities, supporting both online and offline growth.

Inditex maintains a strong financial position, with a net cash balance of €10.8 billion—down slightly from €11.6 billion in Q1 2024. This robust liquidity provides the company with significant strategic flexibility, enabling it to invest, expand, and navigate a market slowdown.

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Lunar Capital (Pty) Ltd is a registered Financial Services Provider. FSP (46567)
Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/
Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/
The Lunar BCI Worldwide Flexible Fund Fact Sheet  can be read here.
This stocktake is prepared for the clients of Lunar Capital (Pty) Ltd. This stocktake does not constitute financial advice and is generated for information purposes only.

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Zara Fit Check

Inditex, the Spanish business which owns of fashion brands such as Zara, Bershka, Oysho, and Massimo Dutti, published its H1 2024 results last week. Net sales for the period reached €18.1 billion, reflecting a 7.2% increase year-over-year. The cost of sales rose slightly slower than net sales, leading to a 7.5% rise in gross profit to €10.5 billion. Net income climbed by 10.5%, reaching to €2.8 billion. This translated to a net margin of 15.3% for the period, up from 14.9% during the same period last year. The improvement in margin was mainly attributed to amortization and depreciation remaining unchanged from the previous year.  

Zara represented 72% of Inditex’s sales for the first half of 2024. Zara’s sales increased by 5.4% compared to the same period last year. While most other brands experienced double-digit growth, their smaller size relative to Zara meant that Inditex’s overall net sales only rose by 7.2%. 

Inditex places a strong emphasis on logistics, planning to invest €900 million annually over the next two years. This extra expenditure increases Inditex’s usual annual capital expenditure of €1.8 billion by 50%. Part of the capital expenditure will deployed to increase store space by approximately 5%.  

Zara, famous for its quick turnaround time; has the ability to design, manufacture, and stock new items on store shelves within two to three weeks. The company maintains low inventory and has structured its manufacturing to ramp up production when certain items sell well; unlike competitors, who can take months to respond to trends.  

Inditex operates in a highly competitive market. Despite having an efficient supply chain model that allows them to compete on design, they are susceptible to supply chain disruptions, such as those witnessed during Covid-19 and the conflict arising from Russia’s invasion of Ukraine. 

Zara also believes that driving sales can be accomplished by attracting customers to their physical stores. To entice visitors, they lease historical and cultural buildings to add a unique appeal to their brand. However, if demand for their brand suddenly drops, they could end up paying higher-than-usual costs for unused space. 

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Lunar Capital (Pty) Ltd is a registered Financial Services Provider. FSP (46567)
Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/
Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/
The Lunar BCI Worldwide Flexible Fund Fact Sheet  can be read here.
This stocktake is prepared for the clients of Lunar Capital (Pty) Ltd. This stocktake does not constitute financial advice and is generated for information purposes only.

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A Day out Shopping

A Day out Shopping

Lululemon, the athleisure brand, and Inditex (owner of fashion brands such as ZARA, Oysho, and others) primarily share one similarity: they both make clothes. However, these brands are quite different in terms of their target audience, operational methods, and growth stages.

Lululemon, founded in Vancouver, initially made yoga clothing before expanding into other types of athleisure for various sports. Lululemon has just over 700 stores around the world. Lululemon targets the upper-income segment, focusing on creating high-quality products primarily for women. This approach contrasts with other major athleisure brands like Nike and Adidas. Lululemon also sponsors local trainers and influencers, believing they have a closer connection with their community compared to big stars. Lululemon generally sets trends for each season, attempting to design and produce enough to meet the needs of its client base.

Inditex, on the other hand, operates quite differently. Catering to middle and upper-middle income groups, they have just under 7,300 stores worldwide. Inditex’s biggest brand, ZARA, focuses on offering customers the latest trends. ZARA uses a Just-in-Time vertical integration method. Their scouts attend fashion shows to identify trends, which are then sent to designers. These designs are quickly produced in factories and appear on shelves within 2-3 weeks. Depending on demand, ZARA can easily ramp up or scale down production, producing closer to what is actually needed. This results in there being just enough items in their stores to meet demand.

Despite Inditex being just under 4 times bigger than Lululemon in terms of market cap, the graph below shows how similar their gross and operating margins are. The also both have a PE ratio of around 25.

Margin Levels for Lululemon and Inditex
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Last week, Lululemon and Inditex released their respective Q1 2024 results. Lululemon’s revenue for the quarter was $2.2 billion, up 10% year-on-year, while operating income was $432.6 million, up 7.7% year-on-year. Lululemon attributed the weakness in their sales growth to a limited colour range in certain women’s products in the US, missing an opportunity to meet demand. Combined with slowing overall demand in the US and Europe, heightened competition in the athleisure space, and the missed opportunity, Lululemon’s stock price has decreased by over 35% year-to-date.

Inditex, on the other hand, had a revenue of €8.2 billion for the quarter, up 7.1% year-on-year. While their operating income was €1.6 billion for the quarter, up 10.3% year-on-year. Inditex expressed that they are planning to spend €1.8 billion, over the next two years, on their supply chain as they look to bolster up their e-commerce offering, while also maintaining their physical presence with their stores.

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% Change YTD
Index / Fund / Rate
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188.33
Last Week
208.29
This Week
214.80
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14.06% Lunar Capital increasesymbol
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JSE ALSI
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76 893
Last Week
76 704
This Week
76 852 Lunar Capital increasesymbol
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15 011
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16 735
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17 133 Lunar Capital increasesymbol
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14.13% Lunar Capital increasesymbol
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4 770
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5 278
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5 347 Lunar Capital increasesymbol
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12.10% Lunar Capital increasesymbol
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Prime Lending Rate
Start of Year
11.75%
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11.75%
This Week
11.75%
% Change YTD
0.00%
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USD/ZAR
Start of Year
18.30
Last Week
18.80
This Week
18.88 Lunar Capital increasesymbol
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3.17% Lunar Capital increasesymbol
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Start of Year
20.17
Last Week
20.40
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20.42 Lunar Capital increasesymbol
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1.24% Lunar Capital increasesymbol
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76.97
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81.31
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Lunar Capital (Pty) Ltd is a registered Financial Services Provider. FSP (46567)
Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/
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The Lunar BCI Worldwide Flexible Fund Fact Sheet  can be read here.
This stocktake is prepared for the clients of Lunar Capital (Pty) Ltd. This stocktake does not constitute financial advice and is generated for information purposes only.

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Inditex: Changing Zara’s Fashion

Inditex, the parent company of the fashion brand Zara, is known for its innovative approach and willingness to challenge prevailing norms. They are recognized for employing a vertical integration business model, enabling them to conceptualise, design, manufacture, and stock clothing and homeware for sale in a matter of a few weeks. The company is dedicated to finding ways to actively engage with consumers who are looking for a seamless, on-demand experience.

Inditex is set to unveil their largest Zara outlet globally in Rotterdam. They’re also in the process of expanding the capacities of their other sizable stores, while phasing out a number of their underperforming smaller ones. This strategy stands in contrast to the trend seen among other fashion retailers, who are inclined towards smaller outlets to cut down on expenses. Zara’s objective is to accommodate their growing product range, such as homeware and sportswear; while also integrating these physical stores into Zara’s e-commerce operations. These outlets will also serve as compact warehouses and they will allow customers to collect or return online purchases at these locations.

Zara, like several other fashion brands, leverages their stores as a means to immerse consumers in their unique vision. However, this approach carries a potential risk. Bigger stores in expensive retail locations to be used for warehousing, could result in Zara paying more per square metre in storage costs compared to other businesses that use out-of-town warehouses.. This decision may not necessarily translate into increased customer foot traffic and usage of the stores beyond their initial intent.

Last week, Inditex released their half year results for 2023. Net sales increased by 16.6% to €16.8 billion. However, net income increased by 39%. This was primarily as a result of Inditex’s operating expenses, along with the depreciation and amortisation expenses, increasing at a lower rate compared to their sales growth. The net income margin for Inditex was 14.9% this half, compared to 12.1% a year ago.

Inditex is held by Lunar Capital’s offshore Portfolio Clients.

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141.43
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175.87
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179.66
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10 467
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S&P 500
Start of Year
3 840
Last Week
4 457
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4 450 Lunar Capital stocktake arrow down
% Change YTD
15.89% Lunar Capital increasesymbol
Index / Fund / Rate
Prime Lending Rate
Start of Year
10.50%
Last Week
11.75%
This Week
11.75%
% Change YTD
11.90% Lunar Capital increasesymbol
Index / Fund / Rate
USD/ZAR
Start of Year
16.98
Last Week
19.13
This Week
19.01 Lunar Capital stocktake arrow down
% Change YTD
11.96% Lunar Capital increasesymbol
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EUR/ZAR
Start of Year
18.44
Last Week
20.45
This Week
20.21 Lunar Capital stocktake arrow down
% Change YTD
9.60% Lunar Capital increasesymbol
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Brent Crude ($'barrel)
Start of Year
85.95
Last Week
90.27
This Week
94.06 Lunar Capital increasesymbol
% Change YTD
9.44% Lunar Capital increasesymbol
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Disclosures
Lunar Capital (Pty) Ltd is a registered Financial Services Provider. FSP (46567)
Read our full Disclosure statement: https://lunarcapital.co.za/disclosures/
Our Privacy Notice: https://lunarcapital.co.za/privacy-policy/
The Lunar BCI Worldwide Flexible Fund Fact Sheet  can be read here.
This stocktake is prepared for the clients of Lunar Capital (Pty) Ltd. This stocktake does not constitute financial advice and is generated for information purposes only.

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