Coming off an inauspicious 2022 colored by elevated inventory levels and logistics costs, Wells Fargo analyst Ike Boruchow advised clients that opportunity remains in the retail space.
In order to access the opportunity, however, investors will need to remain cautious in his view. He suggested his clients take a “barbell approach” that combines defensive market share gainers with a higher degree of margin visibility with high-beta, “washed out” names on the rebound that could rise sharply should inflationary pressures abate. For the former group, Burlington Stores ( NYSE: BURL ) was named a “top pick” alongside other Buy-rated names Ross Stores ( ROST ), Lululemon ( NASDAQ: LULU ), and Nike ( NKE ). The latter included PVH Corp. ( NYSE: PVH ), Capri Holdings ( CPRI ), Farfetch ( FTCH ), and Kontoor Brands ( KTB ). Within those groups, both Lululemon ( LULU ) and PVH Corp. ( PVH ) were new upgrades to Buy.
On the more negative end, VF Corporation ( VFC ) and Ulta Beauty ( NASDAQ: ULTA ) were downgraded to Sell-equivalent ratings. VF Corp. ( VFC ) was viewed negatively due to deterioration of the Vans brand and turnover within the executive ranks . Ulta, meanwhile, has likely overshot a reasonable valuation into the expectation of a tougher 2023.
“We worry that demand trends simply have nowhere to go but down,” Boruchow said of Ulta.
As such, the two names were placed alongside Hanesbrands ( HBI ) as “top short ideas.”
Elsewhere, Stitch Fix ( SFIX ) was upgraded to a Hold-equivalent from a prior Sell-equivalent as he said the bear case “has played out” already. Boruchow also moved to the sidelines on Bath & Body Works ( BBWI ) and The RealReal ( REAL ).
Read more on Stitch Fix’s recent headcount reduction .
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Burlington named top buy, Ulta a top short candidate in Wells Fargo retail review