UBS cuts softlines retailers, including Foot Locker, as view becomes increasingly bearish

By Sam Boughedda

UBS downgraded retailers Ross Stores (NASDAQ:), Burlington Stores (NYSE:), Urban Outfitters (NASDAQ:), and Foot Locker (NYSE:) to Sell in a note Wednesday, cutting Bath & Body Works, Inc. (NYSE:) to Neutral.

UBS analysts told investors the firm has become increasingly bearish on softlines stocks.

On BBWI, the analysts said that while they believe the company will drive growth over the long term due to product innovation, e-commerce growth, and international expansion, they expect a recessionary environment to weigh the stock in FY23 and FY24. They cut the firm’s price target on the stock to $35 from $58 per share.

Meanwhile, they believe there is not enough for Burlington and Ross Stores to avoid a sales slowdown. They explained that the companies have benefitted from consumers choosing off-price retailers, and while they expect the trend to continue, they feel that Wall Street doesn’t realize how much pressure their core consumers will continue to be under over the next 12-18 months. Burlington’s price target was cut to $120 from $209, while Ross Stores’ was lowered to $77 from $117.

For Foot locker, which is down over 1% Wednesday, the analysts lowered the firm’s price target on the stock to $30 from $36. They stated they do not believe the company will be able to grow with Nike (NYSE:) over the long term. “Nike as a percentage of FL’s sales is on track to decline to 55-60% from 70% over the course of the next 12-18 months,” they said. “We believe this percentage will fall further from 55-60%.” In addition, the analyst explained that they believe Nike is establishing deeper ties with some of FL’s competitors, making it even harder for Foot Locker to grow with Nike over the long term.

Finally, the analysts said their firm doesn’t think Urban Outfitters will be able to drive sales growth during a recession. “URBN is exposed to some of the most challenged parts of the softlines industry,” they stated. The firm believes URBN’s customers will “significantly pull back” on discretionary purchases in a recession. URBN’s price target was reduced to $19 from $23 per share.