Weak U.S. Retail Sales May Mean ‘Back-to-School Blues,’ UBS Says

(Bloomberg) -- Back-to-school shopping won’t lift U.S.-focused department store and specialty retail stocks out of their doldrums, recent research from UBS show.

Macy’s Inc., Kohl’s Corp., Nordstrom Inc., the Gap Inc., and L Brands Inc. might look like compelling investment opportunities given 25%-38% declines so far this year, but UBS research suggests weaker U.S. consumer spending intentions. The Children’s Place Inc., which was bucking the retail trend year-to-date, fell as much as 6.9% on Monday.

“These stocks likely need improving sales growth to catalyze stock price upside and we think this scenario is unlikely over the next three months,” analyst Jay Sole wrote on Monday, describing the industry outlook as the “Back-to-school Blues.” The S&P Supercomposite Apparel Retail index was down 0.7% as of Monday afternoon.

The research firm’s U.S. Softlines Spending Forecast, which models out U.S. clothing and accessory store sales over the next 90 days, shows a 0.9% decline year-over-year in August and September, as well as a 0.5% decline in October. In addition, warmer weather forecasts do not bode well for Fall goods, though, temperature is expected to have a “neutral” impact on August clothing and footwear sales, Sole said.

U.S. economic indicators appear to corroborate UBS’ view for the next quarter as well as negative year-over-year sales growth. However, UBS’ general merchandise, apparel, accessories, furniture and other sales forecast is “sightly more positive.” “This suggests sales weakness is localized on clothing and accessories vs. other categories.”

The holiday sales outlook is cheerier. Intentions are “less bad,” wrote Sole. “Holiday 2019, at this point, looks more like 2017- 2018 than 2012-2016,” he said.

To contact the reporter on this story: Crystal Kim in New York at ckim426@bloomberg.net

To contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net, Steven Fromm, Morwenna Coniam

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