U.S. Markets open in 7 hrs 49 mins

Edited Transcript of ITX.MC earnings conference call or presentation 11-Sep-19 7:00am GMT

Half Year 2019 Industria de Diseno Textil SA Earnings Presentation

La Coruna Oct 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Industria de Diseno Textil SA earnings conference call or presentation Wednesday, September 11, 2019 at 7:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Carlos Crespo González

Industria de Diseño Textil, S.A. - CEO & Director

* Ignacio Izuzquiza Fernández

Industria de Diseño Textil, S.A. - CFO

* Marcos López García

Industria de Diseño Textil, S.A. - Capital Markets Director

* Pablo Isla Álvarez de Tejera

Industria de Diseño Textil, S.A. - Executive Chairman

================================================================================

Conference Call Participants

================================================================================

* Alexander Richard Edward Okines

Exane BNP Paribas, Research Division - Research Analyst

* Andrew Hughes

UBS Investment Bank, Research Division - MD and Head of the Pan-European Non-Food Research

* Anne Critchlow

Societe Generale Cross Asset Research - Equity Analyst

* Paul Rossington

HSBC, Research Division - Analyst

* Rebecca Anne McClellan

Grupo Santander, Research Division - Equity Analyst

* Richard B. Chamberlain

RBC Capital Markets, LLC, Research Division - MD of Consumer Retail

================================================================================

Presentation

--------------------------------------------------------------------------------

Pablo Isla Álvarez de Tejera, Industria de Diseño Textil, S.A. - Executive Chairman [1]

--------------------------------------------------------------------------------

Good morning to everybody and welcome to Inditex Half Year's -- Half Year 2019 Results Presentation. I am here today with our CFO, Ignacio Fernández; and our Capital Markets Director, Marcos López. On this occasion, I am also joined by Carlos Crespo, our recently appointed CEO, who will focus on our strategic digital transformation.

This half year has been very much about the continued rollout of our long-term strategy. The result has been a very satisfactory level of growth. Let me commence by highlighting that Inditex operates a highly differentiated, unique business model.

The model that we've developed allows us to operate our stores and our online business in such a highly integrated manner that it is practically seamless. This brings with it highly attractive growth opportunities going well into the future.

The half-year period saw our unique business model come into its own, with a very strong execution. Like-for-like sales came in strongly at plus 5%, with positive like-for-like growth across all geographical areas, across all concepts and importantly, in both physical stores and online.

We have continued to pursue the rollout of our fully integrated online offering on a global scale. Net income grew 10%. The strong operating performance and the healthy working capital evolution has resulted in very strong cash generation. These results position us nicely for the attractive growth opportunities ahead. We have continued to consolidate our global presence over the first half of 2019 as you can see on this chart, which demonstrates a high level of geographical diversification.

I am going to pass you over to Ignacio, who will provide you with an overview of the financial performance of the group over the period.

--------------------------------------------------------------------------------

Ignacio Izuzquiza Fernández, Industria de Diseño Textil, S.A. - CFO [2]

--------------------------------------------------------------------------------

Thank you. A quick reminder around the implementation of IFRS 16. IFRS 16 came to effect early this year and has been duly adopted. As pointed out in March of this year, the changes have no impact on either the cash flows or the business itself. The new reporting standard would result an estimated increase of 2% to 4% net income fiscal year 2019 versus the former IFRS 17.

Over the period, we saw growth in net sales of 7% to EUR 12.8 billion; growth in gross profit of EUR 7 billion to EUR 7.3 billion. Profit before tax grew 9% to EUR 2.2 billion, and net income increased 10% to EUR 1.5 billion. The impact of PBT of leases under the new IFRS 16 rules in the half year was plus EUR 61 million, but the equivalent impact on net income was EUR 46 million.

The sales performance over the period was satisfactory, with net sales growth of 7%. As highlighted just now by Pablo, like-for-like sales growth was strong over the period of plus 5% on top of a 4% comparable in the prior year. We are pleased to say that like-for-like sales were positive in all geographical areas across all the concepts in both the stores and online. The strong execution of the business model in the first half of 2019 is well reflected in the gross margin performance. The gross margin increased 12 basis points to 56.8%. The gross profit itself increased by 7% to EUR 7.3 billion, all the while maintaining our usual commercial policies unchanged.

Once more, we continued to demonstrate tight control over operating expenses over the first half period. Operating expense growth without the impact of leases under IFRS 16 rules in the half would have been plus 6%. The financial results line on the P&L includes an impact of leases under IFRS 16 rules of EUR 75 million. The flexibility of the model we operate can be clearly seen in the healthy working capital performance. It's helped to drive the strong growth in operating working capital of 15% and the growth in the cash position of 15%.

Bringing in mind the idea of providing an attractive and predictable remuneration to our shareholders relating to fiscal year 2018, the AGM approved a dividend increase of 17%, EUR 0.28. EUR 0.44 was paid on the 2nd of May and EUR 0.44 is due to be paid on the fall of November 2019.

I will now pass you over to Marcos, who will update you on the performance of the concepts.

--------------------------------------------------------------------------------

Marcos López García, Industria de Diseño Textil, S.A. - Capital Markets Director [3]

--------------------------------------------------------------------------------

We have continued our global expansion over the first half of 2019, having opened stores in 31 markets so far this fiscal year. Global online launches have also continued rapidly. Zara represents approximately 70% of group sales and the younger concepts represent around 30%. The younger concepts group together continued developing their operations satisfactorily.

I would like to highlight the strong sales of the group of the first -- over the first half of 2019, all of them with positive like for likes. So far, this year, Stradivarius has performed particularly strongly, while we have seen ongoing store optimization activity in Bershka and Pull&Bear.

I'll hand you over to Carlos now to make a few comments on some initiatives we've been working on over the period.

--------------------------------------------------------------------------------

Carlos Crespo González, Industria de Diseño Textil, S.A. - CEO & Director [4]

--------------------------------------------------------------------------------

I would like to start by mentioning that our operations are increasingly seamless in terms of how our physical stores and our online operations interact with each other in order to provide our customers with exceptional level of service they have come to expect.

Take a look at this photo, for example, which illustrates the new online Click&Collect silo at the Zara store in Milan, Corso Vittorio Emanuele. Many of these initiatives are made possible by the rollout of such programs as the RFID program and the inventory integration program, both of which are due to be fully rolled out across the globe by 2020.

But in March of this year, we launched Zara online in Brazil to a very warm welcome. This was quickly followed in May with online launches for Zara in Saudi Arabia, United Arab Emirates, Lebanon, Egypt, Morocco, Indonesia, Serbia and Israel.

Then came August, and we launched Zara online in Bahrain, Oman, Kuwait, Qatar and Jordan. In keeping with this rapid pace of online launches, in September and October of this year, we expect to launch in South Africa, Colombia, Philippines and Ukraine. On the 17th of this month, Zara Home will launch on the Zara website in the United Kingdom.

And now I'll hand you back to Pablo.

--------------------------------------------------------------------------------

Pablo Isla Álvarez de Tejera, Industria de Diseño Textil, S.A. - Executive Chairman [5]

--------------------------------------------------------------------------------

Thank you. Our long term strategy continues to be to invest in our stores in order to further enhance the differentiation of our commercial offer. This will be further supported by our efforts to make all stores fully digital and sustainable by the year 2020, in conjunction with the fully global online rollout we expect to complete in the same year.

We will also continue to develop further coordination of the commercial offer, particularly across the concepts with initiatives like the previously mentioned launch of Zara Home onto the Zara U.K. webpage due to take place in September.

Let me comment on 2 recent initiatives to increase the differentiation of our stores. Just take a look at this wonderful new store image developed by Zara Man or the powerful new store image of Zara Kids. I would like to refer to some very important enlargements, all of them exceeding 4,000 square meters in size.

First, the recent enlargement of the Zara flagship in Cevahir Mall in Istanbul opened last Friday.

Likewise, the enlargement of the Zara flagship in Dubai Mall will amplify our already strong presence there and will open tomorrow. And I would like to finish with our flagship in Barcelona in Paseo de Gracia. This enlarged store is due to open in November.

As you can see from this picture, next year, we aim to inaugurate a new building of 63,000 square meters to house the Zara online studios and other commercial functions. By 2020, we expect to announce that all concepts can offer online sales globally.

A good example of this seamless store and online execution can be seen in the Autumn/Winter campaign editorial or the addition of autumn collection and the Notes of Color collection. Join Life now features the Denim from Denim collection, aimed at improving the sustainability of denim garment.

A few final comments on the outlook. We expect strong organic growth to continue to feature to the end of 2019 as we pursue increased differentiation of our offering to customers. Ordinary capital expenditure is expected to come to EUR 1.4 billion this year, of course, accompanied by strong free cash flow generations. And our Autumn/Winter collections have been well received. Store and online sales in local currencies increased by 8% between the 1st of August and the 8th of September. We reiterate our expectation of a 4% to 6% like for like.

And that concludes the presentation today. We'll be happy to answer any questions you may have.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) The first question comes from Anne Critchlow from Societe Generale.

--------------------------------------------------------------------------------

Anne Critchlow, Societe Generale Cross Asset Research - Equity Analyst [2]

--------------------------------------------------------------------------------

My question is about the gross margin. Does this benefit this year due to IFRS 16, perhaps due to rents coming out of that line from distribution centers?

--------------------------------------------------------------------------------

Marcos López García, Industria de Diseño Textil, S.A. - Capital Markets Director [3]

--------------------------------------------------------------------------------

No. There is no impact from IFRS 16 in the gross margin because, as you know, all our logistics are freehold, so they're not affected by these regulations.

--------------------------------------------------------------------------------

Anne Critchlow, Societe Generale Cross Asset Research - Equity Analyst [4]

--------------------------------------------------------------------------------

Okay. And just a second one on advertising. I was picking up that there has been increased traditional advertising by Inditex recently. Is that the case? And has your strategy changed in any way?

--------------------------------------------------------------------------------

Pablo Isla Álvarez de Tejera, Industria de Diseño Textil, S.A. - Executive Chairman [5]

--------------------------------------------------------------------------------

No. Not really. The -- I mean, globally, our marketing expenditure is extremely low. You know that we believe very much -- we'll base much more on the quality of our products and the quality of our stores and on the quality of our online offer. And here or there, at a certain point in time, we could do a little bit, but nothing really has changed in terms of our strategy related with that.

In any case, you can see that if you analyze these first half results and taking out the IFRS impact that we have cost leverage during the period, which we think is extremely relevant. And you know that we always talk about analyzing our company, not on a short period of time, on a full year basis or at least on a 6-month basis. And you see cost leveraging our profit and loss account, which we think is extremely relevant, extremely positive and healthy, combining this fully integrated approach between the stores and online. And as we were saying during the presentation, with positive like for likes across all the different brands, all the different geographies and both in stores and online.

So we believe very much in the way we are executing our business model and at the same time, being able globally to achieve cost leverage.

--------------------------------------------------------------------------------

Operator [6]

--------------------------------------------------------------------------------

The next question comes from Richard Chamberlain from RBC.

--------------------------------------------------------------------------------

Richard B. Chamberlain, RBC Capital Markets, LLC, Research Division - MD of Consumer Retail [7]

--------------------------------------------------------------------------------

I had a question on the Americas, please. It looks like the performance there was pretty strong in the first half. I wondered if you wanted to call out any particular markets that are trading well ex currency and comment on the online performance there?

--------------------------------------------------------------------------------

Pablo Isla Álvarez de Tejera, Industria de Diseño Textil, S.A. - Executive Chairman [8]

--------------------------------------------------------------------------------

Well, globally, I think -- we think that the most relevant element to mention is that we have had positive like for likes in all the geographies. I think this is the most relevant element to have in mind.

And then related with any particular period, you could have a higher growth in this or that area. But globally, we believe very much in this global execution of the model. You were asking us about the Americas. And yes, we have had a good performance in North and South America. But we think that is more meaningful than that, the fact of having positive like-for-likes in all the different geographies. And in every market, in every geographical area, we have this positive growth, both in stores and positive growth online. So we believe, as I was saying before, very much in the way we are executing our business model. We think we have a unique approach to this fully integrated approach between stores and online with a -- well, we have been talking about this before with the RFID, with the stock integration. You can see also how we are able to manage the inventories now because this has a lot to do with this fully integrated approach, with this stock integration.

So -- and that is why, as we are always saying, a short period of time, we prefer not to focus very much on this or that particular geographical area. We think that the most relevant thing is to have this global approach. And even if you think, for example, sometimes I mentioned Spain, the market in which we have been for so many years and we continue having a constantly this positive like-for-like sales growth evolution in this first half of the year. It is a 4% like-for-like sales growth evolution without any space increase in the Spanish market.

I mean -- so we believe very much in -- and it has to do also a lot with the, what we have been talking during the last few years, the store optimization program. We continue investing in the stores. We were presenting you today, well, we have 1 -- 2 very relevant openings tomorrow. One is Dubai Mall that we were mentioning, but the other one is in Madrid, in Preciados, we have enlarged the store. This is probably the most relevant high street in Madrid in terms of traffic and we used to have Zara. And now we have enlarged significantly, and we will reopen tomorrow after our full refurbishment, or Paseo de Gracia in Barcelona that, also after a huge enlargement, we will reopen in the month of November. So we continue investing strongly in all the different geographical areas and developing our business. Sorry to have been so long.

--------------------------------------------------------------------------------

Richard B. Chamberlain, RBC Capital Markets, LLC, Research Division - MD of Consumer Retail [9]

--------------------------------------------------------------------------------

That's all right. I mean it looks like strong like-for-like sales have continued into the third quarter. And I wondered if you could give us an idea of the comparable from last year versus that 8% you've reported this year for the most recent period, because I guess, we had pretty warm weather in -- across the Northern Hemisphere in early autumn last year. So presumably, the comparable was quite soft.

--------------------------------------------------------------------------------

Pablo Isla Álvarez de Tejera, Industria de Diseño Textil, S.A. - Executive Chairman [10]

--------------------------------------------------------------------------------

Yes. Well, also, you know that we don't like to focus very much on the very short-term performance. Within that, what is more relevant is that we reiterate this guidance related with -- 4% to 6% like-for-like sales growth for the full year, and of course, for the second half. In the first half, we have achieved 5%, which is totally in line with our guidance, and we prefer to focus like that.

Yes. As you remember last autumn that there were some months that were stronger or weaker. But globally, we have had a very healthy start of the season. Our collections have been quite well received as we were saying during the presentation. And that is why we reiterate this 4% to 6% like-for-like sales growth guidance, much more than to focus on a very short period of time.

--------------------------------------------------------------------------------

Operator [11]

--------------------------------------------------------------------------------

The next question comes from Andrew Hughes from UBS.

--------------------------------------------------------------------------------

Andrew Hughes, UBS Investment Bank, Research Division - MD and Head of the Pan-European Non-Food Research [12]

--------------------------------------------------------------------------------

I've got a question on space contribution. In the first half, clearly, you had sales growth of 7% and 5% like-for-like service space contribution, now down to 2%. It wasn't so long ago that space contribution was more like 5%. When do you think space contribution will hit 0? Do you think in the next 12 to 18 months, there won't be any space contribution at all across the group?

--------------------------------------------------------------------------------

Marcos López García, Industria de Diseño Textil, S.A. - Capital Markets Director [13]

--------------------------------------------------------------------------------

Andy, I think you should rephrase the question because you've mentioned space contribution was 5% first and then you mentioned 0. Were you referring to like for likes?

--------------------------------------------------------------------------------

Andrew Hughes, UBS Investment Bank, Research Division - MD and Head of the Pan-European Non-Food Research [14]

--------------------------------------------------------------------------------

It was the -- no, the space contribution maybe 2 years ago was 5%. And in the first half that we've just seen the space contribution was down to 2%. Should we continue to assume the space contribution declines and we may see no space contribution in the foreseeable future?

--------------------------------------------------------------------------------

Marcos López García, Industria de Diseño Textil, S.A. - Capital Markets Director [15]

--------------------------------------------------------------------------------

I don't think that you can extrapolate any negative or decline in the space contribution as such. Basically, what we have mentioned at the beginning of the year is where we're expecting 5% to 6% gross space growth. Obviously, due to the quality of the openings that you see, absorptions remain an important part of the strategy, so 4% net contribution and then with the usual conversion rates.

To look at the space contribution over a short period of time is a bit misleading because you have open -- you have a calendar of openings, the absorptions and also all the different optimization activity. So we sustain what we mentioned at the beginning of the year.

--------------------------------------------------------------------------------

Andrew Hughes, UBS Investment Bank, Research Division - MD and Head of the Pan-European Non-Food Research [16]

--------------------------------------------------------------------------------

Okay. All right. And then just as a follow-up. In terms of online sales, can you put a figure on what proportion of your online sales are fulfilled from store stock now? I mean I assume that's an increasing percentage given all the work you're doing.

--------------------------------------------------------------------------------

Pablo Isla Álvarez de Tejera, Industria de Diseño Textil, S.A. - Executive Chairman [17]

--------------------------------------------------------------------------------

Well, we prefer not to elaborate very much about that. As you know, currently, on the full year basis, we disclose our global online sales growth. And this, in terms of stock integration, is something very relevant in the sense of the way we operate our business and being able to operate the business with less inventories is something which is becoming more and more relevant, but we prefer not to elaborate very much.

We always say that when we analyze this or that, a limited part of the business, sometimes you have the risk of losing the global perspective, and our approach to the management of the company is always thinking about the globality of the company in all the different areas, the stores, online store integration. You also know that we offer online sales from the stores with the iPods, and then, at the same time, we have stock integration, then we have in-store deliveries, in-store returns. So it's a combination of the whole approach, which is a fully integrated approach between stores and online and in a very unique way, I would say, the way we are running and developing our business from this point of view.

--------------------------------------------------------------------------------

Operator [18]

--------------------------------------------------------------------------------

The next question comes from Rebecca McClellan from Santander.

--------------------------------------------------------------------------------

Rebecca Anne McClellan, Grupo Santander, Research Division - Equity Analyst [19]

--------------------------------------------------------------------------------

Just a couple of short questions. Firstly, is there any way you can split out what was full-price sales growth out of the first half in comparison to the constant currency reported?

And secondly, has the sort of global rollout of online had any sort of notable contribution to the overall constant currency sales growth in the first half?

--------------------------------------------------------------------------------

Pablo Isla Álvarez de Tejera, Industria de Diseño Textil, S.A. - Executive Chairman [20]

--------------------------------------------------------------------------------

Well, regarding the first part of your question, we prefer to keep the global like-for-like sales growth figure. And in terms of the activity during the season, there is nothing particularly relevant in terms of promotions or anything like that. You know that most of our sales are full-price sales because of our business model and because of the way we operate our business, so there is nothing relevant from that point of view of nothing different from the global like-for-like sales growth figure.

And then related with the second part of your question, what we could say is that 99% of our online sales growth is organic. So when we were mentioning this worldwide web, this global online approach to all the different countries in the world, it has much more to do with making our product available for our existing or potential customers in the different countries. And I'm thinking that this is going to provide a huge amount of sales in the short term. So 99% of our online sales are organic.

--------------------------------------------------------------------------------

Rebecca Anne McClellan, Grupo Santander, Research Division - Equity Analyst [21]

--------------------------------------------------------------------------------

Okay. And sorry, just going back to the first question. So there hasn't been any sort of change in sort of change in clearance dynamics or activity?

--------------------------------------------------------------------------------

Pablo Isla Álvarez de Tejera, Industria de Diseño Textil, S.A. - Executive Chairman [22]

--------------------------------------------------------------------------------

No. No, nothing, nothing. It's the normal execution of the business model. You know the flexibility of our business model, the ability to react during the season, and the working capital position that you see is extremely healthy at the end of the period. And this is what is relevant for us.

--------------------------------------------------------------------------------

Operator [23]

--------------------------------------------------------------------------------

The next question comes from Warwick Okines from Exane.

--------------------------------------------------------------------------------

Alexander Richard Edward Okines, Exane BNP Paribas, Research Division - Research Analyst [24]

--------------------------------------------------------------------------------

I know you guide on square meter expansion, and you've reiterated the expansion today, but I just had a question about store openings and closures. Are you still expecting to open 300 stores and absorb 250 stores as you guided at the start of the year? Or has that slightly changed as you've moved through the year?

--------------------------------------------------------------------------------

Marcos López García, Industria de Diseño Textil, S.A. - Capital Markets Director [25]

--------------------------------------------------------------------------------

No. There is no change to the broad estimate. I think, as you have mentioned in your question, the main focus for us is the space growth and very especially, the quality of the space that we opened. I think we have illustrated in the presentation 3 recent enlargements in the case of Cevahir in Istanbul, which is a terrific store. The case of Dubai Mall, which needs no explanation because it's one of the key stores in the world. Also Barcelona, but we could have many other stores which we have recently opened like Preciados in Madrid, like Pamplona, an absolutely wonderful store.

It's very much about the quality of what you offer and in a very, very precise manner. I think this is -- has been the strategy since 2012. So in any quarter or in any short period of time, it's not something that worries us too much.

--------------------------------------------------------------------------------

Alexander Richard Edward Okines, Exane BNP Paribas, Research Division - Research Analyst [26]

--------------------------------------------------------------------------------

No. Sure. I'll just -- absolutely, I was just wondering because the net store numbers declined by 70 in the first half. Your original guidance implies an increase of about 120 net in the second half. I just wanted to check if that was still about the right estimate.

--------------------------------------------------------------------------------

Marcos López García, Industria de Diseño Textil, S.A. - Capital Markets Director [27]

--------------------------------------------------------------------------------

Again, the key factor for us and the one that impacts the P&L and our commercial presence is space growth and the quality of the space growth. A few more stores here and there do not -- we are not changing our view in a significant way. But the key of the strategy is the space you open and the quality of the space you open. That's very, very important.

--------------------------------------------------------------------------------

Operator [28]

--------------------------------------------------------------------------------

The next question comes from Paul Rossington from HSBC.

--------------------------------------------------------------------------------

Paul Rossington, HSBC, Research Division - Analyst [29]

--------------------------------------------------------------------------------

My questions on space, et cetera, have been answered. But can you just -- is there any color you could give on the Q2 gross margin at all? That would be appreciated.

--------------------------------------------------------------------------------

Pablo Isla Álvarez de Tejera, Industria de Diseño Textil, S.A. - Executive Chairman [30]

--------------------------------------------------------------------------------

That, as you know, we don't like to elaborate very much on the gross margin on a quarterly basis because this is not our approach. This is not the way we manage our company. The gross margin is a combination of many different things. You have, of course, the like-for-likes as growth. You have the product mix. You have the fashion trends. You have currencies. You have raw material costs. There are many, many elements involved in the gross margin. And globally, at the beginning of the year, in the month of March, we were guiding for a stable gross margin during the year. In this first half, we have achieved this stable gross margin, plus 12 basis points. And we keep this stable gross margin guidance for the full year.

And we don't like to elaborate very much on the gross margin on a quarterly basis, as I was saying to you, because this is not our approach in terms of running -- of running the business. But globally, we can say that the season has been positive in terms of the gross margin evolution with this 12 basis points gross margin increase, which means a stable gross margin during the season, in line with our guidance. We always say that we work for the stability of the gross margin, that this is much more than focusing on trying to maximize in this particular -- in any particular season, the gross margin evolution. We are always thinking about the medium and the long-term evolution of the company.

--------------------------------------------------------------------------------

Operator [31]

--------------------------------------------------------------------------------

We are now finished with the telephone Q&A session to address the questions received through the webcast platform.

--------------------------------------------------------------------------------

Unidentified Company Representative [32]

--------------------------------------------------------------------------------

Good morning. There have been a couple of questions on the webcast platform, the first of which is: You've highlighted a number of openings of stores in Dubai and Turkey and Barcelona. How does this relate to your strategy, please?

--------------------------------------------------------------------------------

Pablo Isla Álvarez de Tejera, Industria de Diseño Textil, S.A. - Executive Chairman [33]

--------------------------------------------------------------------------------

I think we have covered during the presentation. This is an essential part of our strategy. The quality -- we always talk about quality, quality of our product, quality of our online offer and of course, quality of our stores. All these stores that we are opening are very, very, very unique. And here, we were mentioning Istanbul. We were mentioning Dubai. We were mentioning Barcelona. I have also mentioned Preciados in Madrid.

Then in the presentation, we were mentioning briefly, that if you take a look at the picture, the new Zara Man image, which is really unbelievable and Zara Kids that will be introduced in our stores from early next year. This new image, constantly upgrading the image of our stores, constantly increasing the quality, always investing, renewing, so this is -- and with this fully integrated approach between stores and online, so having the best possible environment for our customers, to always having the customers in mind, and this is an essential part of our strategy.

--------------------------------------------------------------------------------

Unidentified Company Representative [34]

--------------------------------------------------------------------------------

The second question relates to cash. Your cash position is the highest ever, despite stepping up dividend payments significantly. Can you give some color please on the cash generation and what we can expect going forward? Inditex continues to generate strong cash flows. What's the reason for the strong cash growth of 13% over the period, please?

--------------------------------------------------------------------------------

Pablo Isla Álvarez de Tejera, Industria de Diseño Textil, S.A. - Executive Chairman [35]

--------------------------------------------------------------------------------

Well, I think this is very relevant. We combine a significant sales growth with strong cash flow generation. You know that the first priority always in terms of our cash flow is just to invest in the long-term profitable growth of the company. But we are able to combine this with an attractive and predictable shareholders' remuneration policy.

We announced a new dividend policy in the month of March. And even after paying the 17% increase in the interim dividend, we see a very, very strong cash position at the end of the period. It has to do with the execution of the business model, with sales growth, with the fact that we are becoming less capital-intensive because of our strategy and also, of course, with the very healthy working capital evolution that has also a lot to do with the fully integrated approach between stores and online and with the stock integration. So globally, we believe that we will continue being able to combine this strong sales growth with the strong cash flow generation.

--------------------------------------------------------------------------------

Operator [36]

--------------------------------------------------------------------------------

Thank you. Ladies and gentlemen, this concludes today's conference call. You may now disconnect your lines.

--------------------------------------------------------------------------------

Pablo Isla Álvarez de Tejera, Industria de Diseño Textil, S.A. - Executive Chairman [37]

--------------------------------------------------------------------------------

Thank you. And we will continue in touch through our capital markets department. Thank you.