Analyst Betty Chen downgrades apparel retailers after a disappointing start to the spring selling season, that she expects will last through 2017.
Apparel retailers’ stocks were sharply lower Thursday, led by Men’s Wearhouse owner Tailored Brands Inc., after Mizuho downgraded five stocks and said weak traffic trends surfacing for the spring season may last through the year.
“While one may argue we are downgrading when these stocks already at the ‘bottom,’ we believe ongoing negative traffic trends and heightened competitive environment will either prolong a turnaround in the case of EXPR, GES and TLRD or lead to disappointing outlook at DSW and FINL,” Chen wrote in a note.
“Given the lack of positive catalysts and the propensity for investors to penalize retailers for execution mistakes despite discounted valuations, we are moving to the sidelines pending more constructive data points.”
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The sector is expected to replace oil and gas this year as the most distressed, according to the major debt-rating agencies. A number of retailers filed for bankruptcy protection filed for Chapter 11 protection this year, including Hhgregg; Eastern Outfitters , whose chains include Eastern Mountain Sports and Bob’s Stores; and the Limited, whose January filing led the company to close all stores.
In a sign of how investors have been withdrawing from the sector, the SPDR fund has seen outflows of $223.
