Kohl’s, Abercrombie & Fitch, Canada Goose downgraded due to inflation expected to put pressure on fashion and retail in 2022
UBS analysts predict problems for the fashion and retail sector in 2022, largely due to inflation, leading to lower ratings for Kohl’s Corp., Abercrombie & Fitch Inc. and Canada Goose Holdings Inc.
was moved to sell from neutral and its target price dropped from $ 66 to $ 38. Shares fell 1.6% in trading on Friday.
Abercrombie & Fitch ANF,
was downgraded to neutral from buy and its price target was lowered from $ 68 to $ 37. Shares of Abercrombie & Fitch fell 3.8% on Friday.
And Canada Goose GOOS,
was also moved to neutral buy with its price target reduced to $ 35 from $ 59. Shares fell 5.4% on Friday.
Read: Dick’s Sporting Goods updated outlook suggests sales jumped after Christmas
“We are broadly bearish on the group, mainly due to inflation,” UBS wrote in its soft lines report with earnings expected to grow 1% in 2022 across the category. UBS cites data showing that 51% of consumers cited inflation as a negative factor for the U.S. economy in December 2021.
Analysts say companies such as Nike Inc. NKE,
Levi Strauss & Cie LEVI,
On Holding AG ONON,
and Ralph Lauren Corp. RL,
are among the names he favors despite the pressure. All of these stocks are listed as buy.
“We continue to believe that Softline companies must have business models capable of adapting to the changes that are occurring in the retail environment as a result of the shift to online shopping,” the report states.
“We call this business model a ‘Go It Alone’ model because businesses that can go it alone don’t need malls or many other third parties to drive consumer engagement and sales growth.”
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Kohl’s was downgraded over fears the department store retailer could be strangled by a number of factors.
“We believe that inflation, as well as the combined impact of the fiscal stimulus, a
The likely industry-wide inventory build-up and rising interest rates will put pressure on Kohl’s sales and margins much more than the market expects, ”UBS said, adding that the company had one of the “weakest” growth prospects for fiscal 2022 among softline companies.
However, the company could get some help from its partnership with Sephora.
“One of the main reasons our rating was neutral was optimism about the potential of the rollout of Kohl’s Sephora to have a very positive impact not only on Kohl’s beauty industry, but also on its other categories though. Kohl’s can get Sephora customers to buy the rest of the store, ”the report says.
In addition, Kohl’s has redesigned its product line to focus on sportswear, a category that still has potential for the coming year, as well as its efforts for its loyalty program and digital business.
But even after the pandemic is over, analysts say Kohl faces problems.
“Kohl’s has lost around 17% of its market share since 2011, mainly to non-price retailers, Amazon and brands. We believe that age-old forces like consumer migration to the Internet and the preference for value have contributed to this erosion and this will likely continue after the pandemic is over, ”UBS said.
And: Bed Bath & Beyond says even its printed flyers have suffered from supply chain disruptions and labor shortages
Abercrombie & Fitch will fight inflation although it is possible that the strength of the denim category could give the business a boost, according to UBS.
“We believe that inflation will put enough pressure on Abercrombie & Fitch’s sales and margins in FY 22 to limit the company’s earnings to grow year-over-year and its P / E to increase, ”the report says.
And for Canada Goose, UBS says uncertainty in China and a delay in recovering margins from omicron are the two factors leading to heightened pessimism about the luxury outerwear company.
“We continue to love the Canada Goose brand and management’s long-term strategy, so maybe a better entry point will emerge at some point,” the report says.
Kohl stock has gained 16% in the past year. Abercrombie & Fitch grew 36.8%. And Canada Goose is up 16% over the period.
The S&P 500 SPX index,
has increased 23.3% in the past 12 months.