On Thursday, Telsey Advisory Group adjusted its outlook on Inditex (BME:ITX:SM) (OTC: IDEXF), increasing the price target to €54 from the previous €54 while sustaining a Market Perform rating on the stock. The decision comes after the fashion retailer exhibited a slowdown in sales growth, despite achieving a solid 7% topline growth for the quarter, which aligns with the growth from the same period last year.
Inditex, known for its Zara brand among others, reported third-quarter results that slightly missed analyst expectations in terms of sales, gross margin, and expenses, leading to a minor shortfall in earnings per share (EPS). The company had previously enjoyed double-digit sales increases from the first quarter of 2021 through the second quarter of 2023, but recent quarters have seen a deceleration to high single-digit (HSD) range.
Despite the slowdown, Inditex continues to demonstrate robust topline momentum into early December. The company's effective inventory control, with a 2.6% reduction in the third quarter, and prudent expense management were highlighted as key focuses, alongside maintaining a responsive and efficient supply chain.
Telsey acknowledges Inditex as a top-tier operator in the fashion industry, outshining competitors with consistent global growth across various regions and sales channels. This performance is achieved even as the company operates a smaller number of stores, enhancing sales productivity.
However, the firm notes ongoing economic challenges that impact Inditex's core middle-income consumer base and the intensifying competition in the global fashion market, including from lower-priced fast fashion brands. Despite these headwinds and the company's solid operational strengths, Telsey maintains the Market Perform rating. The revised price target of €54 is based on a 24.5x multiple applied to the two-year forward EPS estimate of €2.20, which is in line with the company's ten-year historical next twelve months (NTM) average multiple of 24.3x.
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