Zara-owner Inditex could see shares slump amid Covid-19 second wave

• Inditex to unveil half-year earnings on Wednesday 16 September
• The Zara-owner could see its shares struggle amid a second wave of Covid-19 cases
• Inditex shares down 28% year-to-date, weak euro supports retail group from falling further

Zara-owner Inditex could see its share price plummet if Covid-19 cases continue to surge across Europe and result in a second set of government-imposed lockdowns.

The stock could also come under pressure if its half-year (H1) earnings fail to impress investors on Wednesday 16 September.

In its first three months of trading, most markets where the group has a presence imposed restrictions on the operations of stores, which saw store and online sales in May decrease 51%.

However, the retail fashion group remains confident in its long-term strategy, despite the myriad of headwinds that it is wrestling with and will be hoping it can give investors something to smile about in its upcoming results.

Inditex closed 2% lower on Monday to €22.71 per share, with the stock down 28% year-to-date.

Inditex shares struggled compared to online-only rivals

High street fashion retailers like Inditex, Next and Hennes & Mauritz (H&M) have all struggled significantly amid the coronavirus pandemic, with lockdowns wiping out sales from physical stores and potentially do so again if new cases continue to surge across Europe.

Meanwhile, online-only retailers like Boohoo and ASOS continue to see their share prices move higher, with the pair up 2% and 42% respectively.

Online fashion is set to triple this year, accounting for around 23% of all European sales in 2020, with the shift away from the high street accelerated by the viral outbreak, according to analysts from Bernstein.

‘The sudden closure of all apparel retail stores across all major global markets has shaken up the channel mix in an unprecedented way this year,’ Bernstein analyst Aneesha Sherman said in a note. ‘[It's] five years' worth of growth achieved in about six months.’

Weaker euro supports Inditex share price

The euro has fallen against a host of global currencies, which will help support Inditex’s earnings and its share price slightly as it struggles to amid the economic fallout from the coronavirus pandemic.

EUR/USD has been attempting to regain ground after its recent decline into the critical $1.1754 support level last Wednesday, according to Josh Mahony, senior market analyst at IG.

The ability to maintain the wider bullish trend will come down to whether we break through $1.2011 (bullish continuation), or $1.1754 (bearish reversal), he said.

‘Until then, we are attempting to ascertain which of those is most likely,’ Mahony said. ‘The price respected the 61.8% Fibonacci resistance level last Thursday, pointing towards a potential bearish turn.’

‘However, with risk sentiment improving in stocks to the detriment of the dollar, there is grounds for further EUR/USD upside if that sentiment holds. As such, there are arguments on both sides, and a more confident outlook will only come once we start seeing those important levels break.’

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