Benetton vs. Inditex Marco Morelli

Benetton vs. Inditex Marco Morelli marco.morelli@sdabocconi.it 1

INDITEX vs. Benetton (1) INDITEX Benetton Profitability ROI ROCE ROE NET INCOME MARGIN EBITDA MARGIN ROS Profitability ROI ROCE ROE NET INCOME MARGIN EBITDA MARGIN ROS 2009 2008 2007 2006 Numerator EBIT 20.7% 20.7% 23.3% 23.6% Total Assets Numerator EBIT 28.7% 29.9% 35.5% 35.2% LTL + Equity Numerator Net Income 24.6% 26.6% 29.8% 29.1% Equity Numerator Net Income 11.9% 12.1% 1% 13.3% 3% 12.3% Net sales Numerator EBITDA 21.4% 21.0% 22.8% 21.8% Net Sales Numerator EBIT 15.6% 15.5% 17.5% 16.6% Net sales 2009 2008 2007 2006 Numerator EBIT 7.3% 8.6% 9.0% 7.0% Total Assets Numerator EBIT 10.5% 13.4% 12.7% 12.3% LTL + Equity Numerator Net Income 8.1% 11.2% 10.6% 9.5% Equity Numerator Net Income 5.8% 7.3% 7.2% 6.7% Net sales Numerator EBITDA 15.1% 16.6% 16.0% 13.8% Net Sales Numerator EBIT 10.0% 0% 11.9% 11.7% 94% 9.4% Net sales MILANO FASHION INSTITUTE 2

INDITEX vs. Benetton (2) ITEX IND Operating efficiency Days of inventory on hand (DOH) Days of sales outstanding (DSO) Number of days of payables 2009 2008 2007 2006 Numerator 360 days 75.14 84.52 88.74 82.65 Inventory turnover Numerator 360 days 11.42 16.87 14.75 13.32 Receivables turnover Numerator 360 days 72.97 75.40 79.06 79.95 Payables turnover netton Be Operating efficiency Days of inventory on hand (DOH) Days of sales outstanding (DSO) Number of days of payables 2009 2008 2007 2006 Numerator 360 days 99.21 114.34 106.22 111.90 Inventory turnover Numerator 360 days 115.14 110.17 97.94 95.78 Receivables turnover Numerator 360 days 83.60 96.87 88.13 92.75 Payables turnover MILANO FASHION INSTITUTE 3

INDITEX vs. Benetton (3) Liquidity Current ratio Quick ratio Working Capital INDITEX 2009 Data 2008 Data 2007 Data 2006 Data Numerator CA 171 1.71 3,943,795 137 1.37 3,264,041 121 1.21 2,981,595 114 1.14 2,149,000 CL 2,304,960 2,390,848 2,458,067 1,885,000 Numerator CA - Inventories 1.28 2,951,225 0.92 2,209,201 0.80 1,974,382 0.70 1,325,000 CL 2,304,960 2,390,848 2,458,067 1,885,000 CA - CL 1,638,835 873,193 523,528 264,000 Operating working capital Crediti + Magazzino + Altri crediti - Debiti Commerciali - (746,217 ) (359,061 ) (571,031 ) (497,000 ) Liquidity Current ratio Quick ratio Working Capital Benetton 2009 Data 2008 Data 2007 Data 2006 Data Numerator CA 1.53 1,334,809 1.35 1,421,578 1.65 1,291,341 1.16 1,285,641 CL 869,864 1,053,182 782,206 1,103,694 Numerator CA - Inventories 1.19 1,034,180 1.01 1,062,640 1.21 949,507 0.86 947,900 CL 869,864 1,053,182 782,206 1,103,694 CA - CL 464,945 368,396 509,135 181,947 Operating working capital Crediti + Magazzino + Altri crediti - Debiti Commerciali - 648,906 688,161 606,280 588,899 MILANO FASHION INSTITUTE 4

INDITEX vs. Benetton (4) Long-term solvency Debt-to-equity ratio Debt-to-equity ratio* Rigidity of debt Fixed asset coverage Interest coverage Average cost of Debt Long-term solvency Debt-to-equity ratio Debt-to-equity ratio* Rigidity of debt Fixed asset coverage Interest coverage Average cost of Debt INDITEX 2009 Data 2008 Data 2007 Data 2006 Data Numerator LTL + CL 0.55 2,964,891 0.64 3,028,046 0.68 2,888,551 0.65 2,271,000 Equity 5,370,546 4,748,600 4,217,051 3,472,000 Numerator Interest bearing debts 0.01 40,054 0.05 247,278 0.10 413,634 0.06 192,000 Equity 5,370,546 4,748,600 4,217,051 3,472,000 Numerator LTL 0.22 659,931 0.21 637,198 0.15 430,484 0.17 386,000 LTL + CL 2,964,891 3,028,046 046 2,888,551 2,271,000271 Numerator Equity 1.22 5,370,546 1.05 4,748,600 1.02 4,217,051 0.97 3,472,000 Fixed Assets 4,391,642 4,512,605 4,124,007 3,594,000 Numerator EBITDA NA 101.25 2,186,856 328.37 2,148,843 105.29 1,790,000 Interest 21,599 6,544 17,000 Numerator Interest 00% 0.0% - 07% 0.7% 21,599 02% 0.2% 6,544 07% 0.7% 17,000 LTL + CL 2,964,891 3,028,046 2,888,551 2,271,000 Benetton 2009 Data 2008 Data 2007 Data 2006 Data Numerator LTL + CL 0.94 1,371,967 1.12 1,554,801 0.90 1,276,728 0.91 1,220,386 Equity 1,455,519 1,391,753 1,414,684 1,341,009 Numerator Interest bearing debts 0.50 720,507 0.61 852,442 0.45 632,831 0.44 593,275 Equity 1,455,519 1,391,753 1,414,684 1,341,009 Numerator LTL 0.37 502,103 0.32 501,619 0.39 494,522 0.10 116,692 LTL + CL 1,371,967 1,554,801 1,276,728 728 1,220,386 Numerator Equity 0.98 1,455,519 0.91 1,391,753 1.01 1,414,684 1.05 1,341,009 Fixed Assets 1,492,677 1,524,976 1,400,071 1,275,754 Numerator EBITDA 15.29 309,473 8.43 353,949 8.35 334,206 13.06 263,772 Interest 20,235 41,983 40,025 20,200 Numerator Interest 15% 1.5% 20,235235 27% 2.7% 41,983 31% 3.1% 40,025025 17% 1.7% 20,200200 LTL + CL 1,371,967 1,554,801 1,276,728 1,220,386 MILANO FASHION INSTITUTE 5

DOS: upside e downside Distribution structures Features Financial implications Directly operated stores Single brand stores Strict control from the company Control of merchandise Direct contact with production and customers Control over the brand image High start-up costs High capital commitments (Key money) Rental and store personnel costs Exit costs Capturing of the retail margin Franchises Same store format, with identical store looks but usually small size Lower risk Better understanding of local market (retail presence with ihlocal l partners) Lower financial commitments Lower risk Loss of the retail mark-up (and therefore lower gross margins) Lower operating expenses Third-party retailers (department & specialist stores) Products sold to department stores and specialist stores (broader distribution) Reduced control over products and sales Merchandising risk is allocated to retailers Prevalent in U.S. and Japan No fixed costs No financial commitment Loss of the retail mark-up (lower gross margin) Agents The control of the brand is mostly transferred to the agent No flexibility to manage inventory Potential damages for loss of control over products Increased distance between brand, retailer and final customer No fixed costs and low financial commitments Low inventory risk Low operating expenses Fonte: Rovetta MILANO FASHION INSTITUTE 6

Fashion & Luxury insight)(1) MILANO FASHION INSTITUTE 7