Investing.com — RBC Capital Markets in a note dated Monday rated , and Sainsbury’s as outperform picks in European retail as the Iran conflict drives up fuel, freight and food costs while pushing central banks toward rate hikes rather than cuts.
The brokerage downgraded to underperform and to sector perform, citing earnings risk from competitive pressure on Primark and geopolitical exposure respectively.
“We expect to see polarized performance within the sector, some concentration of spend at major grocers, and potentially defensive M&A as we move further into a tougher period for consumer spending,” the brokerage said.
RBC placed Inditex at a €62 price target against a closing price of €53.40, with a CY26 P/E of 24.7x and an EBIT margin forecast of 20.1% for FY26.
Next carried a 15,500p target against 13,435p, trading at 16.8x CY26 earnings with a 13.5% EBIT margin. Sainsbury’s was set at 385p against 353p at 14.1x CY26 P/E.
UK household cashflow post savings was forecast to grow just 0.5% in 2026 and 0.6% in 2027, down from 7.9% in 2025, according to RBC estimates citing ONS and OBR data. Lower income consumer cashflow was projected to fall 1.7% in 2026 and a further 0.6% in 2027.
On interest rates, market pricing had shifted to reflect hikes from the ECB and Bank of England of potentially two moves each, with the US Fed Funds rate expected to remain flat rather than cut, RBC said citing Bloomberg data.
Total cost inflation estimates for 2027 range from a decline of 2.1% at to increases of 4.7% at Marks & Spencer and Next, according to RBC estimates. Associated British Foods is seen facing cost inflation of 4.3%, driven by labour cost growth of 5.3%.
RBC said Inditex has the strongest pricing power in the sector, with a combined score of 6.0, compared with a negative 2.4 for Currys.
Next disclosed £15 million in additional conflict-related costs comprising £8m in outbound costs to the Middle East, £4 million in higher inbound UK freight and £3m in UK energy costs, offset by efficiencies and not affecting guidance, the report noted.
Aluminium prices were up approximately 30% year-on-year with WTI crude at $114 per barrel in H2 2026 versus $66.10 in full-year 2025, per Datastream and RBC Capital Markets data. The stood at 2,139 in H2 2026 against a 2025 average of 1,620.
Foreign exchange tailwinds are expected to boost Inditex’s gross margin by 272 basis points in fiscal 2026, compared with 151 basis points for Next plc and 92 basis points for H&M, according to RBC estimates. H&M is also projected to face a 4% negative impact on revenue from currency translation.
3i Group, the owner of discount retailer Action, was rated “underperform” by RBC, which set a price target of 2,250 pence versus a closing price of 2,698 pence.
The broker forecasts a three-year earnings per share compound annual decline of 17.9% over 2025-2028.