As department stores and clothing retailers struggle with a tough economy and changing consumer tastes, analysts at JP Morgan are “cautiously optimistic” that the problems in the sector will be resolved next year, although that sentiment is not universal.
This year, many retailers have been stuck with clothes, TVs and other appliances they couldn’t sell, after soaring prices forced more customers to stretch their budgets to cover groceries and gasoline. Some retailers have cut forecasts and analysts have questioned whether they can handle a variety of rising costs and supply constraints.
JPMorgan analysts, in a research note on Friday, said the prospect of cleaner inventories, low unemployment, easing of inflation and relaxation of supply chains, and a greater return to offices, vacations, business travel and other forms of what they called “occasional based”. dressing up,” could help struggling retailers before the end of the year. They also mentioned four “change” stocks worth watching: Burlington Stores Inc. BURL,
Victoria’s Secret & Co. VSCO,
and Foot Locker Inc. FL,
Those analysts also said management at most department stores and “soft line” specialty retailers, which sell things like clothing, bedding and shoes, expect to soften their inventories by the end of the third quarter.
“Importantly, 60% of companies expect to see right-sized inventory levels by the end of Q3/October, pointing to a sequential improvement in bottom-line results in Q4,” they said, “while the rest o the remaining 40% expect ‘appropriate’ inventory levels in their Spring 2023 assortment (both quantity and mix).”
But “cautiously optimistic” might not turn out to be cautious enough for those analysts. Cowen analysts, in a note also published on Friday, said there were still “record levels of inventory across the sector with demand slowing”. The feedstock inventories, they said, were the product of rising costs along with more items.
Cowen also said that US retail traffic in September, while still rising year-over-year, had slowed since Labor Day weekend and was below 2019 levels. But those analysts also noted points. brightest, writing that sporting goods sales held up, relative to other categories, in August. They said Dick’s Sporting Goods Inc. DKS,
target Corp Tgt,
Lululemon Athletica Inc. LULU,
Deckers Outdoor Corp. DECK,
and Ulta Beauty Inc. ULTA,
they were “better positioned” for the current context.
In terms of its response calls, JPMorgan noted new leadership additions at Burlington Stores and a strategy aimed at being more agile and trend-aware, and market share gains for Victoria’s Secret and Macy’s. They also mentioned new opportunities for Foot Locker’s incoming CEO, Mary Dillon, including e-commerce growth and new partnerships.
Echoing other analystsJPMorgan also said wealthier clients were holding up better than others. They said luxury and premium clothing brands continued to hold out, posting a 21% gain in sales in the second quarter compared to a 9% drop in non-premium brands. And they noted “$6.5 trillion of net wealth creation for the top 1% demographic income.”
Rising prices have hit low-income consumers harder than their wealthier counterparts, but analysts expect some relief next year. Analysts said JPMorgan economists expect 3.5% growth next year in the consumer price index, a gauge of the prices of consumer goods and services, compared with 7.8% this year. year. Economists forecast unemployment of 3.9% next year, with wage growth in the “mid single digits”.