FBR Capital Apparel/Footwear Vendor 1Q Preview: Expect Decent Prints
Tweet
Share
E-mailGet Alerts NKE Hot Sheet
Price: $40.73 -1.21%
Rating Summary:
26 Buy, 28 Hold, 3 Sell
Rating Trend:
Down
Today's Overall Ratings:
Up: 13 | Down: 14 | New: 11
Rating Summary:
26 Buy, 28 Hold, 3 Sell
Rating Trend:
Down
Today's Overall Ratings:
Up: 13 | Down: 14 | New: 11
Join SI Premium – FREE
FBR Capital Apparel/Footwear Vendor 1Q Preview: Expect Decent Prints,
but Cost Pressures and Price Elasticity Remain in Focus
FBR analyst said, "While we believe near-term trends, with a "recovering" consumer, support decent 1Q prints for our apparel/footwear vendor coverage, current group valuations appear to largely reflect the positives and are rather dismissive of the potential inflationary headwinds mounting for 2H11. As vendors have been/will be locking in 2H11 costs, we continue to believe higher cotton prices (as well as labor/freight) should materially affect 2H11 gross margins, while demand elasticity at the consumer level remains highly uncertain. We think that 1Q's results will be roughly in line (better top line) with expectations but that investors' primary focus will be on FY11 outlook updates and how sustainable the consumer recovery is (beyond monetary and fiscal stimulus, which is key given the uncertainty of planned Federal Reserve action in June), relative to inflationary pressures (oil, food, clothing), which could both constrain discretionary spending and squeeze company margins. We continue to recommend that investors focus on names with attractive risk/reward and sound fundamentals, driven by dominant market positions, scale, and strong brand equity, that support pricing power to offset the higher input costs. Within apparel, we like names that (1) have less cotton/Asia manufacturing exposure, (2) have bought/hedged cotton more favorably, (3) have the ability to implement appropriate price increases with minimal impact on unit volumes, and/or (4) maintain attractive valuations (that arguably reflect risks), including NIKE, Inc. (NYSE: NKE)(Outperform) and Hanesbrands Inc. (NYSE: HBI)(Outperform). We think Under Armour, Inc. (NYSE: UA)(Market Perform) and V.F. Corporation (NYSE: VFC)(Market Perform) are fundamentally positioned better than most, but valuations mute risk/reward. And, while shares have begun to discount the risks, we continue to be cautious on Volcom, Inc. (Nasdaq: VLCM)(Underperform) and Quiksilver, Inc. (NYSE: ZQK)(Underperform), as fundamentals could be challenged, given product costs and promotional channels of distribution that mitigate pricing power."
but Cost Pressures and Price Elasticity Remain in Focus
FBR analyst said, "While we believe near-term trends, with a "recovering" consumer, support decent 1Q prints for our apparel/footwear vendor coverage, current group valuations appear to largely reflect the positives and are rather dismissive of the potential inflationary headwinds mounting for 2H11. As vendors have been/will be locking in 2H11 costs, we continue to believe higher cotton prices (as well as labor/freight) should materially affect 2H11 gross margins, while demand elasticity at the consumer level remains highly uncertain. We think that 1Q's results will be roughly in line (better top line) with expectations but that investors' primary focus will be on FY11 outlook updates and how sustainable the consumer recovery is (beyond monetary and fiscal stimulus, which is key given the uncertainty of planned Federal Reserve action in June), relative to inflationary pressures (oil, food, clothing), which could both constrain discretionary spending and squeeze company margins. We continue to recommend that investors focus on names with attractive risk/reward and sound fundamentals, driven by dominant market positions, scale, and strong brand equity, that support pricing power to offset the higher input costs. Within apparel, we like names that (1) have less cotton/Asia manufacturing exposure, (2) have bought/hedged cotton more favorably, (3) have the ability to implement appropriate price increases with minimal impact on unit volumes, and/or (4) maintain attractive valuations (that arguably reflect risks), including NIKE, Inc. (NYSE: NKE)(Outperform) and Hanesbrands Inc. (NYSE: HBI)(Outperform). We think Under Armour, Inc. (NYSE: UA)(Market Perform) and V.F. Corporation (NYSE: VFC)(Market Perform) are fundamentally positioned better than most, but valuations mute risk/reward. And, while shares have begun to discount the risks, we continue to be cautious on Volcom, Inc. (Nasdaq: VLCM)(Underperform) and Quiksilver, Inc. (NYSE: ZQK)(Underperform), as fundamentals could be challenged, given product costs and promotional channels of distribution that mitigate pricing power."
Serious News for Serious Traders! Try StreetInsider.com Premium Free!
You May Also Be Interested In
- Fiserv (FISV) PT Lowered to $60 at Freedom Broker
- BofA Securities Resumes American Eagle Outfitters (AEO) at Underperform
- Jefferies on Five Below (FIVE): 'Our latest channel checks reinforce our view that FIVE's momentum extends well beyond viral Squish trends'
Create E-mail Alert Related Categories
Analyst CommentsRelated Entities
Raising PricesSign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!
