Macro data and an analysis of pricing and promotional activities by specialty apparel retailers indicate that the healthy momentum witnessed in 4Q had deteriorated in 1Q, especially March. Goldman Sachs’ Lindsay Drucker Mann maintained a Cautious Stance on the Specialty Apparel Retail segment.
Although there had been a sequential improvement in retailer promotions and markdown rates in April, it was insufficient to offset the March weakness, analyst Lindsay Drucker Mann stated. She added that the industry’s gross margins are likely to contract from the 4Q run rate.
American Eagle Outfitters
The price target is at $12. Improved inventory management and promotional discipline had enabled American Eagle to record AUR growth in FY15. Mann said, however, that tougher comps and a slowdown in gross margin recovery and comparable sales growth had resulted in the company reporting disappointing 4Q results.
A strong start in February 2016 was followed by weakness in March, signaling a poor 1Q performance. The EPS estimates for 1Q16 and FY16 have been reduced from $0.18 to $0.17 and from $1.13 to $1.12, respectively.
Abercrombie & Fitch
The price target is at $13. The company’s efforts to turn around the Abercrombie and Hollister brands through improved merchandising and other changes had resulted in sequential stabilization in comps and gross margins.
Abercrombie & Fitch reported its 4Q results ahead of expectations, driven by improved comparable sales at both Hollister and Abercrombie. The analyst said, however, that the improvement is likely to have been lower than that achieved by other companies.
The turnaround momentum also appears to have softened in 1Q, Mann noted. The EPS estimate for 1Q16 has been reduced from -$0.50 to -$0.56.
The price target is at $17. The company’s promotional activity picked up significantly in 1Q16, but was lower on a y/y basis. Mann mentioned that promotional activity had inflected higher during the last two weeks of April, indicating a slowdown in comps and margin recovery momentum.
|Apr 2016||BMO Capital||Downgrades||Outperform||Market Perform|
|Apr 2016||Deutsche Bank||Initiates Coverage on||Hold|
|Jan 2016||BB&T Capital||Downgrades||Buy||Hold|
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