Shop Talk

Retailers, consumers and prices

Check Out Line: Retail analysts mixed on industry outlook

June 28, 2010

ABERCROMBIE&FITCH/Check out Wall Street analysts having mixed views about different areas of retail.

Eric Beder of Brean Murray, Carret & Co raised his rating on long-suffering Abercrombie & Fitch to Hold from Sell, noting that the stock is currently trading 2 percent below his previous price target. With investors now assuming weak same-store sales and inventory overhang, and with international growth somewhat lower than expected, Beder said the risk/reward potential has improved enough for him to raise his rating.

“That said, we do not see the potential for a turn in (the second quarter),” Beder said in a research note.

Meanwhile UBS analyst Roxanne Meyer said her latest store check at Abercrombie revealed a big year-over-year uptick in the breadth of promotions. She said about 60 percent of the men’s merchandise and about 75 percent of women’s merchandise was on promotion, up from 30 to 35 percent a year earlier.

“We saw a meaningful amount of men’s cargo shorts and women’s dresses marked down,” Meyer said.

Despite the weather being better than it was last year, Meyer said sales trends have been choppy in June, with about half the retailers she covers seeing increased promotions. Aside from Abercrombie, she said American Eagle, Gap, J Crew and Ann Taylor LOFT stores had bigger promotions than last year.

Top U.S. retailers will give us all a better sense of how things are going when they report June sales next Thursday, July 8th.

Then there is the market for home improvement goods, which are subject to different pushes and pulls.

The so-called hardline group — which includes home-improvement retailers like Home Depot and Lowes and office supplies retailers like Staples and OfficeMax — has seen their shares fall about 18 percent from a recent April peak, underperforming the S&P 500, which declined 11 percent over the same period, noted Credit Suisse analyst Gary Balter.

With the stocks now catching up to the relative deceleration in their earnings potential, and with valuations reflecting less optimism than they did two months ago, further losses may be limited, Balter said.  

“While it is in vogue to be negative right now, consider the group’s positives,” Balter said about the home improvement chains, citing their “oligopoly pricing, domestic bent to purchasing, easy comparisons on big ticket sales, supportive share buybacks and strong expense management”.

Balter said he likes shares of Home Depot better than Lowe’s or Bed, Bath & Beyond.

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