Reading the Tea Leaves and Decoding Wall Street’s Take on Fashion
Every quarter, chief executive officers from the big publicly traded fashion and retail companies have their say — detailing their latest results and spinning them into a growth story for Wall Street.
And the stock analysts are there, hanging onto every word, remembering every promise and projection and trying to distill it all down to buy or sell for their clients in the investment set.
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The flurry of research notes from analysts during the last few weeks shows a Wall Street that is feeling at turns secure (in the rare case of Walmart Inc.), worried (on luxury spending among more aspirational U.S. shoppers) and watchful (on turnarounds at VF Corp. and Foot Locker Inc.).
Here, an annotated look at what analysts are saying now.
“The [fiscal year 2024] outlook wasn’t as bad as we feared, but we think it’s still too early to call this a turnaround, as Vans is still posting [double-digit] revenue declines and the wholesale environment around them is getting more challenging. The outlook also embeds significant accelerations throughout the year in revenue growth.” — Tom Nikic, Wedbush
Not as bad as feared is kind of a backhanded compliment, but maybe as good as VF could expect right now. The company is struggling to turn around its one-time powerhouse Vans, took $735 million in charges against Supreme last year and is looking for a permanent CEO to take over from interim chief Benno Dorer. And VF is promising that the momentum is about to pick up.
“Key drivers of the strong sales performance have been the robust rebound in domestic China demand and more resilient growth in Europe — both from locals and tourism. However, slowing to negative growth [year-over-year] in the U.S. is a building concern, especially given signs of softening demand from more economically sensitive aspirational consumers.” — Matt Garland, Deutsche Bank
This struck a chord with investors, who have been happy to ride luxury higher and this week were quick to jump off, prompting a broadly felt sell off that hit Hermès International, Moncler, Farfetch, LVMH Moët Hennessy Louis Vuitton and rest of the sector hard.
“The consumer remains ‘choiceful’ and value conscious [leading to] higher private label penetration at [up 110 basis points year-over-year], a preference for non-discretionary, and need for compelling opening price points. Story for Walmart stock is both offense and defense in: e-commerce ecosystem, higher convenience gaining wealthier consumers and digital advertising…and strong balance sheet.” — Oliver Chen, Cowen
As the biggest — and one of the savviest — players in retail, Walmart is set up well right now to power through hard times one way or another. A growing digital presence and inflation have higher-end consumers giving the retailer a fresh look, while the company’s $10.6 billion in cash on hand also gives investors a little extra piece of mind.
“The below consensus [second-quarter] EPS outlook, tepid top-line trends and weakening consumer backdrop don’t inspire confidence that the earnings/margin recovery will be swift or linear, and carries some risks.” — Simeon Gutman, Morgan Stanley
Wall Street is in wait-and-see mode on Target, which is being outshone by its larger rival Walmart at the moment. But Brian Cornell, chair and CEO, said the discounter is focused on delivering “affordable joy each and every day” and that, while discretionary categories, like apparel, have fallen, the retailer will continue to invest and “deliver fresh new items throughout the year.”
“We remain neutral on Foot Locker, despite near term headwinds impacting FL’s customer base amidst a difficult macro backdrop. On new CEO Mary Dillon’s strategy, we continue to look forward to seeing the improvements in top-line growth from better definition of the banners, the lift from the company’s revamped loyalty program, and its more urgent address of moving more of the real estate portfolio off mall over time.” — Kate McShane, Goldman Sachs
Dillon is very much a known quantity in the analyst circles after the work she did turning Ulta Beauty into a powerhouse. Now she’s looking to be the lightning that strikes twice at Foot Locker. Dillon’s standing and reputation buys her time, even though the stock cratered along with the latest quarterly update. But the CEO is still going to have to move quickly. Wall Street is a very “what have you done for me lately” kind of place.
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