Morgan Stanley has upgraded its rating on Inditex, the Spanish owner of Zara, to ‘overweight’ from ‘equal-weight’, following what it described as the retailer’s “clear peer outperformance” in the first quarter. The investment bank highlighted Inditex’s ability to deliver strong like-for-like sales growth of 7% in the period, well ahead of rivals such as H&M and Primark, which have struggled with weaker consumer demand and rising input costs.
The upgrade comes after Inditex reported net sales of €8.15bn for the three months to 30 April, up 13% year-on-year, with net profit climbing 11% to €1.17bn. The company’s gross margin also improved to 60.6%, reflecting efficient inventory management and a favourable mix of full-price sales. Morgan Stanley noted that Inditex’s integrated supply chain and data-driven stock allocation give it a structural advantage in responding quickly to changing fashion trends.
For UK investors, the news is relevant because Inditex is a component of several European equity funds popular among British pension holders and retail investors. The stock trades on the Madrid exchange but is widely held through exchange-traded funds tracking the Euro Stoxx 50 or the MSCI Europe index. A Morgan Stanley upgrade often triggers buying interest, which could support the share price and, by extension, the net asset value of funds that include the stock.
The broader European retail sector has faced headwinds from sticky inflation and elevated interest rates, which have squeezed household disposable incomes. However, Inditex’s performance suggests that well-run fast-fashion chains can still thrive by offering affordable, on-trend clothing. Analysts at RBC Capital Markets also recently raised their price target on Inditex, pointing to the group’s strong cash generation and potential for higher dividends.
Source: Morgan Stanley research note; Inditex Q1 earnings release.