Analysts at UBS are bearish on several U.S. retail stocks. A predicted consumer spending slowdown will trickle down to the industry’s earnings for the remainder of the year, they said.
Jay Sole downgraded five U.S. retail stocks and lowered 2023 calendar year estimates by 10%. The four stocks downgraded from a Neutral rating to Sell:
- Ross Stores Inc ROST
- Burlington Stores Inc BURL
- Urban Outfitters, Inc URBN
- Foot Locker Inc FL
Sole also downgraded Bath & Body Works Inc BBWI to Neutral from a Buy rating.
Retail industry calendar year earnings will decrease by 6% year over year, with sales rising 1% while the industry's operating margin deleverages by 70 basis points, UBS forecasts.
Sole’s conviction in his bearish view increased due to deteriorating reads from the UBS Evidence Lab Apparel Consumer Spending Intention Score, coupled with the recent shutter and consolidation of several regional banks.
Further, Sole said that Fed rate hikes will have a more negative impact than previously thought, and not enough bad news has been priced into the market yet.
The market is too focused on potential margin recapture and not focused enough on downside risks to sales, the analyst said.
To many market participants, UBS said a recession significantly weighing on soft good sales is still a bear case. For UBS, it is the base case.
UBS said it prefers the following retail stocks:
- Nike Inc NKE
- Deckers Outdoor Corp DECK
- Skechers USA Inc SKX
Sole said stocks with exposure to athletic footwear, China, and high-income consumers are best positioned.
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