Inditex SA, the powerhouse behind Zara, encounters an unusual ‘sell’ rating, courtesy of Deutsche Bank AG analyst Adam Cochrane, signaling concerns about the European retail landscape. While Inditex typically garners positive recommendations, Cochrane’s sell rating reflects uncertainties about the company’s competitive stance amid global clothing market challenges.
Cochrane, who initially issued a sell rating in August 2021 before adjusting to hold in February, questions the feasibility of high single-digit sales growth and EBIT margin expansion projections in the coming years. The stock experienced a 1.3% dip to €38.01 in Madrid, trimming its year-to-date gain to 52%.
Inditex, as per Cochrane’s analysis, necessitates strategic shifts to sustain sales growth, including increased marketing expenditure, collaborations with influencers, and added investments in stores for elevated service standards.
In a broader forecast, Cochrane anticipates a demanding 2024 for European retailers due to escalated wage costs and weakened consumer demand. He foresees a ‘time of shade’ for the sector as the prevailing spending bubble is expected to deflate amid inflation and interest rate hikes.
Deutsche Bank identifies Inditex, Hennes & Mauritz AB, Associated British Foods Plc (Primark owner), and Kingfisher Plc as the «least preferred» stocks in the sector, with Cochrane downgrading H&M to sell. However, he spots potential in Adidas AG, Zalando AG, B&M European Value Retail SA, and Marks & Spencer Group Plc, citing strategic changes yet to be fully acknowledged by the market.
This uncommon ‘sell’ rating for Inditex underscores prevailing uncertainties and challenges facing both the company and the broader European retail industry.
