Inditex Slumps to Three-Year Low as Earnings Doubts Take Hold

Photographer: Pau Barrena/Bloomberg

Inditex SA tumbled in Madrid trading as JPMorgan cut its estimates and price target for the Zara owner, adding to jitters ahead of next month’s full-year results.

The stock fell as much as 7.1 percent, the steepest intraday drop since June 2016. At 25 euros, Inditex is at its lowest level in more than three years.

JPMorgan analysts led by Chiara Battistini said their sales estimates imply a slowdown in the second half of the fourth quarter. Revenue in the early part of the period was boosted by pent-up demand following a “very weak October,” while the company may have decided to concentrate all end-of-season clearance in January, leading to a smaller proportion of sales being at full price than a year earlier, they wrote in a note.

The brokerage expects the gross margin to have come under “significant pressure,” and cut its estimates by 5 percent to account for currency headwinds. JPMorgan also lowered its price target to 35.50 euros from 38 euros.

Friday’s share price drop extended Inditex’s decline for the year to 14 percent. Investors have been spooked by the troubles of nearest rival Hennes & Mauritz AB, and JPMorgan’s actions won’t have helped soothe nerves ahead of full-year results on March 14.

Still, the brokerage says it would view any further share price weakness as “an attractive entry point,” and maintains an overweight recommendation on the stock.

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