The Best Retail Company You're Not Investing In

There you are, standing in a Gap (NYSE: GPS  ) store, trying on jeans or a cardigan and thinking, "Gap is really doing well these days -- I sure am glad I bought stock." You should be: Gap has had a 107% increase in value over the last five years, and it's been on a roll recently. But if you think you've bought into the top of the food chain, think again.

While Gap boasted an impressive $15.7 billion in sales last year, and comparable sales were up 5%, Inditex (CATS: ITX) is doing even better. The company is more difficult for Americans to buy, since it doesn't have an ADR, and trades only on a European market on the Madrid exchange in Spain. There are some great reasons to make the extra effort, though, and I'm here to tell you that it's probably worth it.

Supersized growth
Inditex was founded by the richest man in Spain, Amancio Ortega. According to Forbes, Ortega is worth around $57 billion, and is the third-richest man in the world. The company initially consisted of just the clothing brand Zara, but since then it has added other apparel and accessory brands. Inditex has more than 6,000 locations compared to Gap's more than 3,300.

The bigness doesn't stop at the size -- did I mention that the company employs over 120,000 people? Let's start at the top of the income statement, with over $20 billion and comparable-store sales up 6%. Already, it's clear that we're dealing with a different beast. In fact, Inditex is the world's largest fashion retailer, comprising a portfolio of brands that are slowly moving into the U.S. The lead brand is Zara, which had a year-over-year sales increase of 18% last year, up to $13.7 billion.

In fact, of the company's five brands with over $1 billion in annual sales, none had annual revenue growth of less than 10%. That translated into a gross margin of 59.8% and earnings before tax of 19.5%. Now, we're looking at something between Gap and Michael Kors (NYSE: KORS  ) . The high-end handbag designer managed a 31% operating margin over the last nine months.

Even more growth on the horizon
The best part of this story for investors is where all that income is coming from: Europe. A full 21% of the company's sales came from Spain, with another 45% coming from the rest of Europe. North America barely scratched the surface, accounting for just 14% of sales last year. That's a market that's primed for what Inditex has to offer. North American sales accounted for 90% of Kors' sales last quarter, and Zara has seen success in many North American cities already.

In short, Inditex is well positioned to turn its massive gaze on the U.S., and investors here can take advantage of that. To do so, check with your broker to find out what fees are associated with buying on international markets, and make sure you run it all by your accountant -- there are important tax implications to owning foreign stocks. Once you clear those hurdles -- about 30 minutes of work -- you're well on the way to getting in on one of the best-run companies in the world.

A retail winner closer to home?
Michael Kors is one of today's hottest high-end fashion brands, and that's translated into one of the best-performing stocks in retail -- since its debut on the market in late 2011, the share price has more than doubled. But with all that growth, has the stock finally become too expensive, or is there still room left to run? The Motley Fool's premium report on Michael Kors gives investors all the information they need to make the right decision. We cover the key must-watch areas, opportunities, and threats to the company that investors need to know. To claim your copy, simply click here now for instant access.


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