Spain's Inditex falls on currency concerns

MADRID Tue Feb 18, 2014 8:27am EST

MADRID Feb 18 (Reuters) - Shares in Zara owner Inditex , the world's largest clothing retailer, fell 2.8 percent on Tuesday as investors pondered whether negative currency effects in emerging markets would weigh on its earnings.

Inditex's shares, which have risen 5.9 percent in the last year, traded at 106.75 euros ($150) at 1218 GMT. On Tuesday, Citi downgraded the stock to "neutral" from "buy", cutting its price target to 120 euros from 130 euros.

"We have increased our full year 2014 adverse currency translation impact from -3 percent to -4 percent," Citi said in a note.

Emerging market currencies have been volatile this year due to jitters over the withdrawal of U.S. monetary stimulus and a possible slowdown of the Chinese economy.

Brokerage S&P Capital IQ upgraded Inditex after the Citi downgrade, which helped pare an initial 3 percent fall in the share price. The brokerage said it expected a solid recovery in demand in 2015 to drive a like-for-like sales rise of 4 percent.

Inditex has increased sales through an aggressive expansion to new markets like Asia and Brazil to tap fast-growing, fashion-hungry middle classes. That has boosted its sales but made it more exposed to currency volatility.

A Madrid-based trader said many investors remained bullish on Inditex because of the growth prospects in new markets.

"I think (Inditex shares) could fall further but perhaps the floor will be 102 euros or 100 euros," the trader said.

Inditex is due to post full-year results on March 19. Fast-fashion rival Hennes & Mauritz saw its fourth-quarter gross margin slip to 60.8 percent from 61.6 percent, a fall the company blamed on foreign exchange rates. ($1 = 0.7298 euros) (Reporting By Sarah Morris; editing by Tom Pfeiffer)