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Investing.com -- UBS downgraded its outlook on U.S. softline retail stocks to neutral, noting deteriorating consumer sentiment and a weakening sales outlook.
The bank cited three consecutive months of declining consumer willingness to spend and concerns about the broader economic direction as key reasons for its shift in stance.
"New March consumer survey data indicates US consumers’ willingness to spend has deteriorated for essentially the third month in a row and the outlook is lackluster," UBS analysts wrote.
The firm previously expected consumer sentiment to improve but now sees elevated risk that softline industry sales growth will decelerate further.
If that happens, UBS believes stock valuations will remain under pressure, despite the group already trading 26% below its 10-year average P/E ratio.
Meanwhile, UBS says survey data suggests consumer spending intentions for soft goods over the next 90 days fell 1.7% year-over-year in March, marking a 395 basis point month-over-month deceleration.
The bank also noted that Easter apparel spending plans declined 1% year-over-year.
Despite these declines, the firm believes fear may be driving sentiment more than actual financial stress. While 54% of U.S. consumers expect more layoffs in six months, only 3.4% are said to be personally concerned about losing their job—a figure in line with historical averages.
Additionally, 40% of consumers believe they are saving enough for the future, a slight decrease from February but higher than last year.
UBS sees potential for sentiment to shift rapidly, but for now, it remains cautious. Among buy-rated softline stocks, the firm highlights AEO, ANF, BURL, DECK, LEVI, RL, TJX (NYSE:TJX), and SKX as potential opportunities for long-term investors