Retail Isn’t Dead, It’s Just Hurting
The retail sector has had a hard time of it the last few months but now there are some opportunities emerging. Companies like Skechers (NYSE: SKX) and G-III Apparel (NASDAQ: GIII) corrected more than 35% on mounting fears of narrowing margins and slowing sales but those fears were misplaced. Now, with the Q1 results in the bag and at least a favorable if not bullish outlook for the second half, the analysts are starting to pick the winners from among the wreckage. It may be a few quarters before the broader market gets its feet back under it, until then we expect to see these names outperform their peers and the S&P 500.
G-III Re-Initiated At Barclays
G-III Apparrel was re-initiated by Barclays with a rating of Hold. This amounts to a Buy in our book and comes with a price target of $22. This target is in-line with the current price action and suggests a bottom, or at least a floor, may be in for the stock. In the eyes of analyst Paul Kerney, the Q1 results were favorable and show the risk/reward outlook to be balanced. He believes a shift away from “casualization” and into more fashion-oriented workwear will help support the company in the near term but there are industry-wide risks that may weigh on the stock longer term. Among those are rising inventory levels and slowing retail sales that may lead to wholesale order cancelations and increased discounting. The consensus of the 3 analysts with current ratings is a firm Hold leaning toward Buy with a price target nearly 50% above the recent action.
What spurred the re-initiation? G-III Apparrel had a strong Q1 in which it beat both the top and bottom line estimate and raised guidance. According to company CEO Morris Goldfarb, “Our strong momentum continued in the first quarter of fiscal 2023 exceeding both our top and bottom-line guidance, despite a challenging environment,” CEO Morris Goldfarb said. “Consumers are refreshing their wardrobes as they return to work and resume social activities, driving demand for our products.” In our view, G-III is among the better-positioned retailers due to its brand recognition and strong execution via DTC channels.
Skechers Upgraded At Argus
Analysts at Argus see value in Skechers and upgraded the stock to Buy from Hold with a price target of $44. This target implies about 22% of upside for the stock and is below the current Marketbeat.com consensus of $58. That target is 56% above the current price action and has been edging higher over the past year. According to Argus, the company meets our criteria for outperformance including strong brand recognition and DTC excellence.
“Skechers' supply-chain initiatives and strong brand are likely to boost revenue and earnings over the next two years. Our raised estimates reflect new products and wider margins driven by higher selling prices, as well as sales growth in its e-commerce, retail and wholesale channels.”
Turning to the chart, price action in Skechers hit a bottom earlier this year and confirmed the bottom following the last earnings report. Now, the stock has retreated to the $36.50 level where it is confirming support again but at a new, higher level. Price action is up more than 3.5% in the wake of the upgrade and will likely move higher in the near term. Assuming the market follows through on this signal we see the stock moving up to and above the $42.50 level and then working its way up to $47.50.
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