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

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UBS analysts see trouble ahead for the fashion and retail space in 2022, largely due to inflation, Kohl’s Corp., Abercrombie & Fitch Inc. and Canada Goose Holdings Inc.

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

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Abercrombie & Fitch ANF,
-3.26%
was downgraded from buy to neutral and its price target was lowered from $68 to $37. Shares of Abercrombie & Fitch fell 3.8% on Friday.

AND CANADA GOOS GOOS,
-5.70%
Its price target was lowered from $59 to $35. The stock lost 5.4 per cent on Friday.

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“We are bearish on the group as a whole, primarily due to inflation, with earnings expected to grow 1 percent in 2022,” UBS wrote in its Softlines report. UBS cited data showing that 51% of consumers described inflation as negative for the US economy in December 2021.

Analysts say Nike Inc. Companies including NKE,
-2.53%,
Levi Strauss & Co. Levi’s,
-2.02%,
On wearing AG ONON,
-1.08%
and Ralph Lauren Corp. RL,
-1.66%
are among the names that are in favor of it despite the pressure. All these stocks have buy rating.

“We believe that Softline companies should have business models that are able to adapt to the changes in the retail environment due to the shift to online shopping,” the report said.

“We call this business model the ‘go it alone’ model because companies that can do 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 concerns that the department store retailer would be affected by a number of factors.

“We believe that inflation, with the combined effect of reducing fiscal stimulus, will be a
The potential industrywide inventory build, and rising interest rates, will put more pressure on Kohl’s sales and margins than the market expected,” UBS said, adding that the company has one of the “weakest” fiscal 2022 growth outlooks among Softline companies. .

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

“One of the main reasons our ratings were neutral is the optimism around the potential for Kohl’s Sephora rollout to have a positive impact not only on Kohl’s beauty business, but also on its other categories if Kohl’s Sephora customers are to shop the rest. Can be found in store,” the report said.

In addition, Kohl’s is redesigning its business lineup to focus on activewear, a category that still has potential for the year ahead, as well as its loyalty programs and its efforts behind the digital business. are also.

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

“Kohl’s has lost ~17% of its market share since 2011, primarily to off-price retailers, Amazon and brands. We think secular forces such as consumers’ online migration and preference for value have driven this erosion. and this will likely continue after the pandemic ends,” UBS said.

And: Bed Bath & Beyond says even its printed passengers have suffered supply chain disruptions and labor shortages

According to UBS, Abercrombie & Fitch will fight inflation, although there is a possibility that a firm footing in the denim segment could boost the company.

“We believe inflation will put substantial pressure on Abercrombie & Fitch’s sales and margins in FY22, driving the company’s earnings year-over-year growth and expanding its P/E,” the report said. Happening.”

And for Canada Goose, UBS says uncertainty in China and delays in margin recovery due to Omicron are two factors fueling pessimism about the luxury outerwear company.

“We continue to like 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% in the past year. Abercrombie & Fitch jumped 56.5%. And Canada Goose is up 15.6% for the period.

s&p 500 index spx,
-0.41%
23% up in the last 12 months.

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