Inditex SA’s stock fell to its lowest level in three years in trading on the Madrid exchange as JPMorgan cut its estimates and price target for the Zara owner.
The stock fell as much as 7.1% to 25 euros, the steepest intraday drop since June 2016.
JPMorgan analysts said their sales estimates imply a slowdown in the second half of the fourth quarter. The analysts wrote in a note reported by several news outlets that 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.
The brokerage house 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 ($43.65 to $46.72).
In December, the company reported that net sales for the nine months through October grew 10 percent to $21.13 billion. The flagship Zara brand saw sales gains of 10 percent in the period. Net income in the nine months increased 6 percent to $2.71 billion, as gross profit rose 9 percent to $12.12 billion in the period. Earnings before interest and taxes increased 6 percent to $3.52 billion. Inditex is set to report its full-year results on March 14.
Friday’s share price drop extended Inditex’s decline for the year to 14 percent. Still, the brokerage house said it would view any further share price weakness as “an attractive entry point,” and maintains an overweight recommendation on the stock.
Reuters noted that Inditex reports in euros but makes around half of its sales in other currencies, meaning the fluctuations of the euro against a basket of dozens of other currencies affects earnings. Many of the Asian and Latin American currencies are dollar-linked meaning a strong euro and weak dollar negatively impact results at the world’s biggest clothes retailer.
The euro has risen 2.5% against the dollar since the beginning of the year.