By Angus Robertson
U.S. retailers appear to be doing better than expected, despite poor weather, high gasoline prices and a later Easter. They reported a 1.7% year-over-year increase for March, better than the 0.7% decline that had been expected, according to Thomson Reuters’ tally of 25 major retail chains.
Separately, MasterCard Advisors SpendingPulse, which estimates spending across all categories, reported on Wednesday that March sales were reasonably good, according to The New York Times.
The luxury category was up 8.5 percent in March compared with the same month a year ago, MasterCard Advisors said. Apparel sales were up 4.4 percent, with children’s apparel performing the strongest. Footwear was the only apparel category to decline, by 1.6 percent, which McNamara said could legitimately be blamed on the weather.
A review of Alacra Pulse data shows that analyst upgrades and downgrades of U.S. retailers (excluding food and online only stores) were about equal during March.
Urban Outfitters (URBN) was cut to Neutral by Janney Capital and SunTrust Robinson Humphrey, but early in April Piper Jaffray boosted it to Overweight. Bank of America Merrill Lynch and JPMorgan both recently reiterated positive ratings.
Barron’s reports that Piper Jaffray conducted its semi-annual "Taking Stock with Teens" survey and upgraded some stocks based on their popularity with teenagers. Urban Outfitters, which has been criticized for its failure to keep up with fashion trends is still popular among many teenagers, wrote Piper analyst Neely Tamminga. The brand moved from Number 7 to Number 5 this year, and a new executive could help spruce things up.
"Adding to our conviction in URBN’s ability to get the party started is the recent addition of fashion maven, former Barney’s women’s merchant Judy Collinson. We do not know Ms. Collinson personally but her reputation in our industry checks is creating quite a positive buzz," Tamminga wrote.
Trefis notes that Internet sales helped drive Urban’s sales growth, representing about 32% of the incremental $340 million in annual revenues for 2010. The company believes that, at this rate, the Internet business can double in size over the next three years.
The Children’s Place Retail Stores (PLCE) was upgraded to Buy by BMO Capital and to Positive by Sterne Agee, adding to the upgrade to Positive it received in january from Susquehanna.
StreetInsider quoted CEO Jane Elfers as saying "We exceeded our bottom line financial goals for the fourth quarter, despite lower sales, due to expense reductions and solid gross margin expansion. Our disciplined inventory management resulted in fewer markdowns and the strongest fourth quarter gross margin rate in four years."
One the negative side, BMO and Susquehanna both downgraded American Eagle Outfitters (AEO) to neutral. Citigroup reiterated a Buy rating but cut is price target from $21 to $20.
Wall Street Strategies analyst Brian Sozzi labeled the company a "speculative play on a potential takeover." Morningstar rated American Eagle among its top 10 takeover candidate investment ideas for 2011 because a private equity deal might address some of the retailer’s issues, according to The Pittsburgh Post Gazette.
RBC Capital Markets had Aeropostale (ARO) as a Top Pick, but downgraded the retailer to Sector Perform with a $29 price target, and Wells Fargo reiterated an Underperform rating with a target of $23 to $25. Goldman Sachs also lowered its earnings estimates as the company is realizing lower margins and facing a higher tax rate. Goldman has a Sell rating and $25 price target.
In early April, KeyBanc upgraded ARO to Hold. Morningstar says Aeropostale has limited upside, as teens may trade up to premium brands as economic pressures ease.
Abercrombie & Fitch (ANF) added an upgrade to Buy from Bank of America Merrill Lynch, after being boosted to Outperform by Wells Fargo and to Positive by Susquehanna in February.
Wal-Mart (WMT) picked up another downgrade, to Market Perform from William Blair, on top of the three downgrades to Neutral or Hold during February (Deutsche Bank, JPMorgan, UBS), and from Goldman Sachs in January.