Retailers have been in trouble lately.
The S&P Retail Select Sector Index has fallen 33% so far this year.And Walmart (WMT) – Get the Walmart Company Report Shares fell 7.6% on Tuesday after the weak earnings report.
One factor hurting retailers is fears that a recession could be on the horizon. Given the economic threat, Bank of America analysts looked at specialty retailers, mostly apparel companies.
“We cut 2022-23 [earnings] Our apparel coverage is estimated to range from 29% to 32% to reflect our economists’ call for a recession in the second half of 2022,” they wrote in their comments.
Another factor in lowering the forecast: “Data showed a slowdown in apparel demand due to inflationary pressures and last year’s high levels,” the analysts said.
“In addition to slowing sales, high inventory levels and faulty content led to higher promotions,” they said.
Misfortune never comes singly, American Eagle
“Our estimates are now 26% to 29% below consensus. While inventories fell on the expected downgrade, we see risk [apparel retailer] around (RVLV) – Get Revolve Group Inc. Grade A Report (multiple still high) and American Eagle Outfitters (AEO) – Get American Eagle Outfitters Inc. Report. “
Analysts downgraded both stocks to underperform. Revolve was previously a Buy and American Eagle was previously a Neutral.
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As for Revolve, “While we continue to see the company as a long-term structural winner, we expect near-term macro factors to weigh on earnings, leading to multiple compressions,” the analyst said.
“We cut our 2022-23 forecast by 20% to 30% to reflect slowing demand, higher returns and promotional pressure. We expect downward revisions to result in multiple compression back to pre-pandemic levels.”
Speaking of American Eagle, “We expect near-term results to be lower than expected,” the analyst said.
“We cut our 2022-23 EPS forecast by 24% to 35% to reflect lower sales and a larger decline in gross margins.” To be sure, those losses will come through spending cuts, analysts said. ease.
However, “we are seeing a deceleration in trends in the teen apparel category and a continued shift from athleisure to occasion apparel.” Eagle’s Nest [American Eagle’s women’s clothing brand] The latter is underexposed. “
Things to Look for in Four Companies
On the bright side: Bank of America analysts say the outlook is not bleak for all.
“While discretionary apparel spending is the number one factor in the challenges facing a recession, we’ve seen some success for companies with differentiated product niches, category expansion or sustainable growth in customer numbers,” they said.
“We continue to love Lululemon Athletica (LULU) – Get lululemon sports company.Report About Category Expansion Opportunities and Bath & Body Works (BBWI) – Get Bath & Body Works Inc. Report Because of its agile supply chain and ability to drive consistent comparable sales over time. “
That’s not all. “We think Urban Outfitters” (URBN) – Get Urban Outfitters Inc. Report Profit Boosting Program Can Help Offset Rising Promotions And Check Out Victoria’s Secret (VSCO) – Get Victorias Secret & Co. Report Turning things around in tough environments as a differentiator. ”
Bank of America has buy ratings on all four stocks.