Kohl’s, Abercrombie & Fitch, Canada Goose downgraded with inflation expected to put fashion and retail under pressure in 2022

UBS analysts predict problems for the fashion and retail sector in 2022, largely due to inflation, which led to the downgrading of Kohl’s Corp., Abercrombie & Fitch Inc. and Canada Goose Holdings Inc.

Kohl’s KSS,
-1.67%
he was moved to sell from neutral and his price target was reduced to $ 38 from $ 66. The shares were down 1.6% in trading on Friday.

Abercrombie & Fitch ANF,
-3.26%
it was downgraded to neutral since the purchase and its target price was reduced to $ 37 from $ 68. Abercrombie & Fitch shares fell 3.8% on Friday.

And Canada Goose GOOS,
-5.70%
it was also moved to neutral from buying with its price target reduced to $ 35 from $ 59. Shares were down 5.4% on Friday.

Read: Dick’s Sporting Goods’ updated outlook suggests sales increased after Christmas

“We are bearish on the group as a whole, mainly due to inflation,” UBS wrote in its softlines report with earnings expected to grow 1% in 2022 across the category. UBS cites data showing that 51% of consumers indicated inflation as a negative factor for the US economy in December 2021.

Analysts say companies including Nike Inc. NKE,
-2.53%,
Levi Strauss & Co. LEVI,
-2.02%,
Holding AG ONON,
-1.08%
and Ralph Lauren Corp. RL,
-1.66%
are among the names he prefers despite the pressure. All of these stocks are classified as buy.

“We continue to believe that Softline companies need to have business models that can adapt to the changes that are happening to the retail environment due to the shift to online shopping,” the report said.

“We call this business model a ‘Go It Alone’ model because companies that can do it themselves don’t need shopping malls or many other third parties to drive consumer engagement and sales growth.”

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Kohl’s was downgraded out of concern that the department store retailer will be crushed by a number of factors.

“We believe that inflation, coupled with the combined impact of poor fiscal stimulus, a
the likely growth in industry-wide inventories and rising interest rates will put Kohl’s sales and margins under much more pressure than the market expects, “UBS said, adding that the company has one of the growth prospects. fiscal 2022 “weaker” among softline companies.

However, the company could get help from its partnership with Sephora.

“One of the main reasons our assessment was neutral was the optimism about the potential for Kohl’s Sephora launch to have a very positive impact not only on Kohl’s beauty business, but his other categories as well. if Kohl’s can persuade Sephora’s customers to buy the rest of the store, “the report reads.

Additionally, Kohl’s has redesigned its product range to focus on sportswear, a category that still has potential for the year ahead, as well as its efforts underpinning its loyalty program and digital business.

But even after the pandemic ends, analysts say Kohl faces problems.

“Kohl’s has lost around 17% of its market share since 2011, mainly due to off-price retailers, Amazon and brands. We believe that centuries-old forces such as consumer migration to online and a 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 its printed flyers have also been victims of supply chain disruptions and labor shortages

Abercrombie & Fitch will fight inflation even if there is a possibility that strength in the denim category could give the company a boost, according to UBS.

“We believe inflation will put pressure on Abercrombie & Fitch’s sales and margins in fiscal 22 to limit the company’s earnings from year-over-year growth and its P / E from expansion,” the report said.

And for Canada Goose, UBS says uncertainty in China and a delayed margin recovery due to omicron are the two factors driving greater pessimism about the luxury outerwear company.

“We continue to appreciate the Canada Goose brand and management’s long-term strategy, so perhaps a better entry point will emerge at some point,” the report said.

Kohl’s stock has gained 16% over the past year. Abercrombie & Fitch gained 56.5%. And Canada Goose was up 15.6% for the period.

The S&P 500 SPX Index,
-0.41%
has increased by 23% in the past 12 months.

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