Inditex: Fashion FX What happens when a market darling in retailing, priced for its perfect future, disappoints? The stock gets crushed. Just ask Asos, whose profit warning last Thursday resulted in a 30 per cent share price drop. Inditex, Spain’s largest listed retailer and parent of fast fashion brand Zara, is also beloved. The list of holders reads like a who’s who of blue-chip investors. The shares rallied on Wednesday, after the company announced a drop in first-quarter net profit of 7 per cent. The results were better than feared. But this seems like a limp cause for cheer in a stock trading at an expensive 27 times forecast earnings. Fans of Inditex point to its consistent historical double-digit growth: 11 per cent in revenues and 14 per cent in net income (after minorities) on average a year between 2007 and 2013. But these numbers bury the fact that 2013 net income was flat even as sales rose. The company cites two factors for the drag: currencies and the high base effect of a stellar year in 2012. Inditex should be lauded for a good performance then, and currency impacts are also volatile, hard to forecast and tend to reverse. Investors may choose to forgive: Inditex has a centralised distribution model with a high proportion of costs in euros. This, after all, gives the company its fast fashion edge. But the currency issue may not be so easily dismissed. International expansion is part of the growth story – plenty of room to grow in markets where Inditex has an estimated 1 per cent market share – and exposure to emerging economies increases the appeal. But the forex complexities that attend such markets may make steady growth increasingly hard to deliver. Investors dislike uncertainty and tend not to pay highly for it. The stock may not derate like Asos. But even if profit growth returns, the ride may be about to get bumpier.