FASHION empire Inditex may have peaked and could be on the way down, according to a report from Morgan Stanley – which led to shares in Amancio Ortega's corporation plummeting 5.66% on Wednesday.
The Galicia-based firm – which started as a family-run tailor's and is now on high streets in nearly every country in the world – reported the greatest falls of all the IBEX 35 companies – Spain's top 35 largest – after the global financial analysts claimed it was showing 'signs of burnout' in its growth potential.
Morgan Stanley reduced its forecast objective share price by 19% in its recent report, from €26 down to €21, making it the second-greatest drop in the Spanish stock market and the largest since February 23 this year when share prices went down by 7.06%.
At the close of Wednesday, Inditex shares were selling for €26.69, although at one point during the day they fell to €26.14 – representing a gradual reduction of 6.76% since the beginning of this year.
As one of the few Spanish firms which not only weathered the crisis, but continued to grow and boom throughout it, US investment bank Morgan Stanley feels the bubble was bound to burst at some point, although predicted a slow deflation rather than a bang.
The textile manufacturer will experience a 'gradual fall' and 'an inevitable long-term reduction' due to competition on the high street and its 'increasing sensitivity to exchange rates'.
The latter has led to falls in its profit margins in the last five years, Morgan Stanley says.
UK analysts would have predicted Inditex's profits from its British operations would shrink, given the devaluation of the pound sterling giving less return on the euro, although in practice, the company's presence there is a drop in the ocean compared with the size of its high-street dominance in the rest of the world.
It is expected to rake in net profits of 4% per year in the next five years, Morgan Stanley believes, although other analysts have forecast closer to 12% up to and including the year 2022.
But even Morgan Stanley concedes that Inditex continues to be a world leader, and that this is unlikely to change in the foreseeable future.
Inditex is best known outside of Spain for its master brand Zara, a low-cost high-street staple specialising in classics and smart-casuals – and never holding back on bright colours – aimed at young, fashion-conscious women on a budget.
Its other prolific and popular brands in Spain stretch across the price range – Bershka, Zara's cut-price 'younger sister' aimed at teens and young adults; budget rock-chick streetwear label Pull&Bear; underwear chain Oysho; urbanwear and party-gear young fashions store Stradivarius; up-market interiors chain Zara Home; and the mid-upper high-street brands Massimo Dutti, specialising in demure classics and 'grown-up' smart-casuals, and Uterqüe, which focuses on elegant, subtly-dressy pieces.
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