Ahead of the Bell: 3 apparel retailers upgraded

Thomas Weisel Partners analyst Liz Dunn wrote in a note to investors on Monday that sales in the specialty apparel retail sector have dropped off "significantly" over the past two weeks amid turmoil in the financial sector. She revised her outlook on many companies she covered, and downgraded Kohl's Inc. and Urban Outfitters Inc., but she raised her rating on Abercrombie & Fitch Inc., Coach Inc. and Coldwater Creek Inc. due to recent declines in their share prices.

She upgraded Abercrombie & Fitch to "Overweight" from "Market Weight," as year-to-date, the share price has fallen by more than half. During the year the company's sales in stores open at least one year, a key retail metric known as same-store sales, have declined and it has missed earnings estimates. However, Dunn said that the stock is pricing in negative sentiment at this point. Plus, the company's opening Hollister stores in the U.K. and likely hiring of a chief financial officer are both positive catalysts that could send the stock price higher over the next three months.

She upgraded luxury handbag and accessories retailer Coach Inc. to "Overweight" from "Market Weight." The company's stock price has fallen 15 percent year-to-date and is down 45 percent from its 52-week high.

While the luxury segment has slowed, Dunn said, "we think those concerns are priced in and then some." She expects same-store sales will improve during the year.

Finally, Dunn raised her rating on Coldwater Creek to "Market Weight" from "Underweight." Though the women's apparel market remains "abysmal," she said Coldwater Creek has aggressively cut inventory and costs.

In addition, the company, whose share price has fallen about 10 percent since the beginning of the year, has beaten expectations during the past two quarters and is conservatively positioned for the rest of the year.

"We note that when the environment improves, Coldwater Creek still has about 40 percent of its growth still ahead of it to achieve its 550 store roll out goals," Dunn added.

In premarket trading, shares of Abercrombie & Fitch fell 15 cents to $38.70 and Coach shares lost 44 cents to $25.50. Coldwater Creek shares were unchanged from Friday's $6.05 close.