Specialty retailers are much better equipped for a downturn than three years ago and would see meaningfully less volatility, if fears of another recession turn into reality, UBS said, resuming coverage of the sector.
UBS analyst Roxanne Meyer favors companies with a strong product line-ups and the least exposure to sourcing cost pressures. Off-price retailer TJX Companies Inc
Consumers have showed and we believe will continue to show a willingness to spend if the product is right, Meyer said.
Limited Brands Inc
Many companies in the sector have increased prices to counter rising costs.
(However,) the pain that retailers could feel if price increases don't stick could be underestimated, Meyer said.
When the product isn't right, margins will suffer from markdowns as well as the added kicker of the inability to mitigate sourcing cost pressure.
The analyst gave apparel retailers Aeropostale Inc
For the winter holidays, Meyer expects same-store sales in the sector to grow 1 percent, compared with a 2.5 percent rise, last year.
(Reporting by Ranjita Ganesan; Editing by Viraj Nair)