A malaise in the apparel retailing sector will make for a tough second-quarter earnings season and may extend farther into the year, an analyst said Thursday.
The sector is beset by sustained declines in pricing, overcapacity and a lack of direction in fashions, Bank of America's Robert F. Ohmes said in a note characterizing the industry's present state as a "malaise."
Other troublesome signs are a global inventory draw-down and the potential for big-ticked items like autos and home furnishings to crowd out apparel purchases.
One exception: athletic apparel, where average prices have been on the rise in recent months and customers confused by a lack fashion trends may run.
Ohmes maintained a Buy on Nike (NYSE: NKE) with an $88 target. A widening gross margin and improved performance in China should offset devalued currencies and higher costs from sources.
VF Corp. (NYSE: VFC) also rates a Buy in Ohmes' book, with a target of $70. The company owns a slew of brands including Northface and Timberland.
Athletic apparel and footwear seller Under Armour (NYSE: UA), also a Buy for Ohmes, may see a "breakout year" in footwear driven by new products in the running category.
Under Armour is "emerging as the next dominant global athletic brand," Ohmes said. Its core apparel may grow by double digits due to new products and increasing sales in the women and youth segments. Omes has a $60 target.
Also rated a Buy is Dicks Sporting Goods (NYSE: DKS) despite headwinds from its golf and hunting categories. Ohmes, with a $60 target, said the company is reallocating space from golf and fitness to "young athlete" and women's apparel. Its e-commerce expansion is "industry leading."
The more fashion oriented Ralph Lauren (NYSE: RL) gets a Neutral rating from Ohmes, with a price target of $165. The company has embarked on a global expansion and its costs "should pressure earnings upside through 2015," Ohmes said.
Casual fashion seller Guess (NYSE: GES) gets a Neutral rating from Ohmes, who noted declines in same-store sales and a glum outlook for operations in Europe, China and Korea. Ohmes' target is $23.
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