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On Tuesday, UBS analyst Jay Sole provided an industry outlook for the US softlines retail sector, indicating a weakening outlook and the potential for a slowdown in sales growth. This sentiment aligns with recent data from InvestingPro, showing 14 analysts revising their earnings expectations downward for key players in the sector. Sole emphasized the importance of softlines companies maintaining a premium image and operating a robust direct-to-consumer business to ensure future success.
The analyst outlined seven characteristics essential for softlines companies to achieve solid organic sales growth, high or improving profit margins, and strong cash flow. These traits include disciplined brand management, independence from declining channels, strategic segmentation within healthy channels, consistent full-price selling, ongoing product innovation, regular brand marketing investments, and consistent inventory control. For instance, sector leaders maintaining these characteristics have achieved gross profit margins above 43% and revenue growth exceeding 9% in the past year, according to InvestingPro data.
Sole highlighted that companies like On Holding, Skechers, and Deckers have multiple avenues for driving growth, starting with a premium position. Growth can also be spurred by leveraging strong category tailwinds, expanding into new categories or markets, and continuously innovating products.
Furthermore, the UBS outlook suggests that earnings growth is not only tied to sales increases but also to margin expansion. Strategies such as pricing, product mix, and cost savings plans are all methods that companies can utilize to boost their margins and, consequently, their earnings growth.
While the outlook points to challenges in the sector, it also identifies opportunities for companies that can align with the outlined success traits. These businesses are poised to navigate the weakening environment more effectively and potentially outperform their peers in the industry. To gain deeper insights into company valuations and performance metrics across the softlines retail sector, investors can access comprehensive Pro Research Reports for over 1,400 US stocks through InvestingPro.
In other recent news, Burlington Stores (NYSE:BURL) reported fourth-quarter earnings that exceeded expectations, driven by higher-than-anticipated sales and improved gross margins due to reduced freight and merchandise costs. UBS analyst Jay Sole raised Burlington’s price target to $405, maintaining a Buy rating following the company’s strong quarterly performance. Bernstein analysts also expressed optimism, setting a price target of $380 and highlighting Burlington’s progress in its multi-year turnaround and potential for significant earnings growth.
BMO Capital Markets reiterated an Outperform rating with a $293 price target, acknowledging Burlington’s effective management of selling, general, and administrative expenses. Evercore ISI increased the price target to $345, noting a 6% increase in same-store sales and higher-than-expected EBIT margins. Citi analysts adjusted their price target slightly to $340, maintaining a Buy rating and recognizing Burlington’s strong fourth-quarter sales performance compared to competitors. These developments reflect a generally positive outlook from multiple analysts, who note Burlington’s resilience and potential for continued growth.
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