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Apparel Stocks Heading Into The Holiday: BMO Sees Opportunity In Off-Price And Specialty Names

Apparel Stocks Heading Into The Holiday: BMO Sees Opportunity In Off-Price And Specialty Names

  • In a recent report, BMO Capital Markets analysts John D. Morris, Jennifer Redding and Thomas Andrews shared their outlook for the apparel industry’s holiday season.
  • The experts provided some “insights into current business trends and holiday outlooks” ahead of the third-quarter reporting season.
  • The firm sees opportunities ahead for a few select names.
  • The third-quarter apparel reporting season is kicking off next Monday with Urban Outfitters, Inc. (NASDAQ: URBN), which will announce its financial results after the market closes.

    Analysts from BMO Capital Markets noted that the selloff in retail, as fear dominates the space, seems quite overdone. The trend began with September’s unfavorably warm weather debilitating some retailers’ performances, and concerns continued to mount as other headwinds, like wage increases and interest rate hikes, became evident.

    On Wednesday, “Macy’s announced elevated inventories (~3 percent above plan) and 4Q liquidation plans,” the note added.

    Related Link: Is It All Doom And Gloom/ Bernstein's Retail Sector Outlook

    Off-Pricers' Opportunity

    Now, contrary to sentiment, BMO analysts see an opportunity available for off-pricers as department stores continue to cancel orders. In this line, there’s a buying opportunity for Burlington Stores Inc (NYSE: BURL). Additionally, the experts believe TJX Companies Inc (NYSE: TJX) “has the capability in place to capitalize on the full-price industry’s misfortune and bring cancelled goods to floors this season.”

    The report continued, stating that Ross Stores, Inc. (NASDAQ: ROST) and Burlington “can pack-away deals for next year.”

    “Yet given historically conservative management teams, we do look for prudent 4Q outlooks; and, hence see greater opportunity out of 3Q prints,” the analysts explicated.

    Specialty Apparel's Improved Performance

    In the specialty apparel space, the firm conceives 2015’s improved performance in fashion and denim as “a silver lining for select retailers.” Additionally, the anniversary of port issues and inferior back half cotton prices have created an opportunity for retailers.

    Strength Ahead For These Names

    Finally, the research note added, the BMO’s proprietary BBD Monitor shows strength at Express, Inc. (NYSE: EXPR) and Abercrombie & Fitch Co. (NYSE: ANF).

    On the other hand, the analysts remain cautious on Urban Outfitters’ Anthro brand, and, interestingly, “the BBD Monitor indicates possibility for newer issues at sister brand Urban Outfitters.”

    The firm believes Express and American Eagle Outfitters (NYSE: AEO) could be the big winners during the holiday season, “as competitors find footing and see positive commentary and upside to 4Q guides from both AEO and EXPR management teams.”

    Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.

    Image Credit: Public Domain

    Latest Ratings for URBN

    Nov 2019Initiates Coverage OnEqual-Weight
    Nov 2019MaintainsNeutral
    Sep 2019UpgradesMarket PerformOutperform

    View More Analyst Ratings for URBN
    View the Latest Analyst Ratings

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