Barclays on U.S. Retail: 2012 Outlook

Barclays on U.S. Retail: 2012 Outlook

Analyst, Robert S. Drbul, said, "As we look to 2012, we expect less drag from inflation at the consumer level and see a big benefit from lower material input costs at retailers and apparel/footwear companies. We expect modest consumption and income growth, but are cognizant of the decline in the personal savings rate...Our expectations for 2012 include continued solid top line momentum. Our initial estimates include a 4.0-4.5% sales increase for the Broadlines/Dept. Store group in 2012 (compared to 5% for 2011), and 2.0% comp growth (compared to 3% for
2011)."

"We note that similarly to 2010, the strength of the consumer was highlighted by the outperformance of the high-end (Nordstrom (NYSE: JWN), Saks (NYSE: SKS), Tiffany & Co (NYSE: TIF), Costco (Nasdaq: COST), and Coach (NYSE: COH)), a trend we continue to expect in 2012. For the Apparel/Footwear vendors, we expect top line to increase at least 10% in 2012 versus a 15% increase in 2011. Sales increases were aided by higher pricing (due to higher materials costs), and international expansion strategies."

"Our top picks for 2012 include Overweight rated Nike (NYSE: NKE), Tiffany, Warnaco (NYSE: WRC) and Macy's (NYSE: M). With its strong global brand, Nike remains our top footwear pick ahead of the upcoming London Olympics. In the past five years, Nike has outperformed the S&P in Summer Olympic years (24.5% on average). Our price target remains $125. Within the luxury segment, we believe Tiffany offers a compelling valuation at 15.6x FY12 EPS, with its foundation of a strong global brand and geographic diversification. Within apparel, we view the valuation of Warnaco, on an absolute and relative basis to many of its peers, as compelling at just 11.1x FY12 EPS. While its European exposure remains a risk, we believe Warnaco, anchored by its Calvin Klein businesses, is positioned for global market share gains and long term revenue growth, with expansion into higher margin regions. For investors who prefer less (or essentially no) international exposure, we continue to recommend Macy's, as we believe the company's scale and strategic initiatives position it well in the difficult retail environment and that it should see continued market share gains in 2012. We are raising our price target for Macy's to $40 from $35. (and FY12 EPS estimate from $3.00 to $3.25)"

Barclays maintains an OW rating on Columbia (Nasdaq: COLM), but lowers PT from $75 to $70 and cuts FY11/12 EPS estimate by $0.05 each, to $3.10 and $3.55, respectively.

Maintains an EW on Liz Claiborne (NYSE: LIZ) and raises PT from $7 to $10.

Maintains an OW on Wal-Mart (NYSE: WMT), raises PT from $62 to $65.

Maintains an OW on VF Corp (NYSE: VFC), raises PT from $150 to $160.

Maintains an EW on JC Penney (NYSE: JCP), lowers FY12 EPS estimate from $1.60 to $1.50.

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