This Analyst is Bearish on These 15 Retail Stocks Amid ‘Soft Landing’ Expectations

Published on July 25, 2022 at 9:18 am by Aima Zaheer in Hedge Funds, News

In this article, we discuss the 15 retail stocks that Jim Duffy at Stifel is bearish on. If you want to skip our discussion on the analysts’ forecasts for the sector, go directly to This Analyst is Bearish on These 5 Retail Stocks Amid ‘Soft Landing’ Expectations.

On July 20, Jim Duffy at Stifel slashed the earnings estimates, price targets, and ratings for multiple retail and lifestyle brands. He thinks the sector is heading towards a contraction due to rising inflation and interest rates. The analyst interpreted a high level of inventories, the decline in footfall in online and physical stores, and early promotions as an early sign of an economic slowdown. In accordance with these observations, he was forced to make adjustments to his forecasts for the retail and lifestyle sector. However, it must be noted that Duffy has revised his forecast in anticipation of a soft landing and not a recession. This thesis assumes that the interest rate hikes by the Federal Reserve are expected to combat inflation successfully and cause the US economy to possibly go flat and not head towards a contraction.

In the past, the US has been able to achieve a soft landing once during Alan Greenspan’s tenure as the Federal Reserve Chair in 1994 – 1995. Meanwhile, there have been five instances where the US inflation crossed the 5% inflation level, and the economy headed into recession as the Federal Reserve tried to cool down the heating economy by cutting interest rates.

Bearish Outlook for the Retail Industry

On average, Duffy slashed his EPS forecast for the stocks in the retail and lifestyle sector by 9%. He noted that the current forecast by the Street is too bullish, and history suggests that these estimates need to be reset for the stocks to reach a bottom. Multiple revisions can be required for the forecasts to reset. As companies have started to report Q2 2022 results, Duffy anticipates inventory levels to rise across the board. He expects the revenue weighted average forward days inventory for the stocks under his coverage to be around 126.3 days as opposed to the pre-pandemic baseline of 110.9 days.

Based on location data obtained from cell phones, the trailing seven-day footfall traffic on the retail stocks tracked by Stifel has been down since May 15. Meanwhile, apparel retailers have seen a decline in YoY footfall traffic from May 29 onwards. The analyst has attributed the impact of rising inflation and the shift of discretionary spending towards services as the possible reasons for the decline in footfall.

Despite the raging inflation that reached the 9% mark in June, Duffy anticipates a low single-digit rise in prices during the first half of 2022 by the companies under his coverage and a mid-to-high single-digit rise in prices from July 2022 to December 2022. Due to the weak traffic and rising inventories, the retail and lifestyle companies would be forced to offer more promotions, and the consumers are expected to be more open to such endeavors. The sticky increase in prices and a more promotional environment can keep the margins for retail and lifestyle brands such as NIKE, Inc. (NYSE:NKE), Crocs, Inc. (NASDAQ:CROX), and Under Armour, Inc. (NYSE:UA) under pressure until early 2023.

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Our Methodology

In this article, we will take a look at the 15 stocks that have either received a downgrade in rating, a decrease in target price, or both by Jim Duffy at Stifel on July 20. We will discuss the analyst’s comments on the future prospects of these companies under the current economic situation.

15. Allbirds, Inc. (NASDAQ:BIRD)

Number of Hedge Fund Holders: 13

Allbirds, Inc. (NASDAQ:BIRD) is a San Francisco, California-based footwear and apparel brand with a high focus on environment-friendly products and sustainable growth.

Allbirds, Inc. (NASDAQ:BIRD) received a downgrade from a Buy to a Hold rating by Duffy. The target price was also lowered from $7 to $5. There are concerns about whether Allbirds, Inc. (NASDAQ:BIRD) will be able to sustain a YoY growth of more than 20% in the top line, given the industry outlook. Analysts believe investors should remain selective in their picks with attractive entry points coming up.

As of Q1 2022, Allbirds, Inc. (NASDAQ:BIRD) was owned by 13 hedge funds.

14. Wolverine World Wide, Inc. (NYSE:WWW)

Number of Hedge Fund Holders: 15

Wolverine World Wide, Inc. (NYSE:WWW) is a Rockford, Michigan-based footwear manufacturer with leading brands like Hush Puppies, Merrell, and Wolverine Boots and Shoes under its umbrella.

Duffy downgraded Wolverine World Wide, Inc. (NYSE:WWW) stock from a Buy to a Hold rating and also lowered the target price from $26 to $23. The company is set to announce its Q2 2022 results on July 27. Analysts anticipate Wolverine World Wide, Inc. (NYSE:WWW) to report revenue and adjusted EPS of $740.11 million and 65 cents, respectively. Duffy sees Wolverine World Wide, Inc. (NYSE:WWW) stock as having an “unfavorable risk/reward” profile.

Diamond Hill Capital had a stake worth over $75.9 million in Wolverine World Wide, Inc. (NYSE:WWW) at the end of Q1 2022.

13. Clarus Corporation (NASDAQ:CLAR)

Number of Hedge Fund Holders: 17

Clarus Corporation (NASDAQ:CLAR) is a Salt Lake City, Utah-based company that targets outdoor consumers by offering lifestyle products and outdoor equipment.

The price target on Clarus Corporation (NASDAQ:CLAR) was lowered from $27 to $24 by Duffy. The company is set to report Q2 2022 results after the market closes on August 1. The revenue forecast for the quarter stands at $110.13 million, and the adjusted EPS forecast is at 39 cents. Clarus Corporation (NASDAQ:CLAR) reported an EPS of $0.37 in Q1 2022, lower than the consensus estimate of $0.39.

Maran Capital Management shared its stance on Clarus Corporation (NASDAQ:CLAR) in its Q3 2021 investor letter. Here’s what the firm said:

“In my 2Q 2018 letter, I shared my (then) perspective on Clarus’s potential. The stock was trading at approximately $8 per share, and I laid out a potential path to $35 per share. Careful readers may recall the math:

15 + 5 + 5 + 3 + 7 = $35

I have written occasionally about the importance of continually re-underwriting theses given changing information – of frequently checking one’s hypothesis, in a Bayesian-Laplacian manner, against new data. Had I put a firm “price target” of $35 on Clarus three years ago, perhaps I would consider trimming or selling the stock as it approaches that level.

Instead, given a recent detailed re-underwriting of the company, I have updated my opinion about Clarus’s potential value several years out. Given meaningful progress on apparel, footwear, retail stores, the company’s sporting segment, and capital allocation (including the recent acquisition of Rhino-Rack, with more to come), I now believe the stock could climb above $60 per share over the next three years.

Here’s the updated math:

25 + 15 + 10 + 10 = $60

Black Diamond could be worth approximately $1bn, or $25+ per share, on $400mm+ of sales at a 15% EBITDA margin. 2.5x sales would not be particularly aggressive for a business of this caliber.

Rhino-Rack could grow to approximately $500mm+ of value, or $15 per share, as EBITDA doubles over the next few years to $40mm+.

Sierra + Barnes: $350mm+, or $10 per share, of potential intrinsic value on $125mm+ of highmargin revenue.

Free cash flow generation and capital allocation could create another $10 per share of value over the next several years.

This week, Clarus conducted a secondary offering to raise additional capital to invest in further growth and M&A. While the share count will grow by ~8%, I believe the capital will be put to accretive use in short order. Clarus has been an extraordinary steward of capital and deserves the benefit of the doubt with respect to capital allocation decisions.

The secondary offering caused the stock to pull back by over 15% from recent highs. We used this volatility to add meaningfully to our already large position. Near-term catalysts include the 3Q earnings call (results, already pre-announced, were fantastic), the potential announcement of additional accretive acquisitions (one of the stated uses of capital raised in the secondary), and perhaps additional sell-side research coverage (as two banks that don’t yet cover the stock assisted on the secondary). I believe there is a long runway for Clarus results to continue to “meet or exceed” expectations and that its growth prospects are far better than what the current valuation implies. Management remains aligned with shareholders via its ~20% equity ownership position.”

12. PLBY Group, Inc. (NASDAQ:PLBY)

Number of Hedge Fund Holders: 19

PLBY Group, Inc. (NASDAQ:PLBY) is a Los Angeles, California-based media and lifestyle company that overlooks Playboy magazine and other assets.

PLBY Group, Inc. (NASDAQ:PLBY) is the third stock on Jim Duffy’s list that was downgraded from a Buy to a Hold rating. Meanwhile, the target price was slashed from $11 to $7. The downgrade came because the analyst thinks that PLBY Group, Inc. (NASDAQ:PLBY) stock offers an unfavorable risk and return profile under the current economic scenario along with a significant reduction in potential upside offered.

Of the 912 hedge funds in Insider Monkey’s database, 19 funds held a stake in PLBY Group, Inc. (NASDAQ:PLBY) as of Q1 2022.

11. Fox Factory Holding Corp. (NASDAQ:FOXF)

Number of Hedge Fund Holders: 19

Fox Factory Holding Corp. (NASDAQ:FOXF) is a Duluth, Georgia-based designer, manufacturer, and distributor of all-terrain vehicles (ATVs), bicycles, and side-by-side vehicles.

Duffy reduced the price target on Fox Factory Holding Corp. (NASDAQ:FOXF) from $90 to $88 and maintained a Hold rating on the stock. The company is set to report its Q2 2022 results on August 4. The revenue estimate stands at $399.13 million with an adjusted EPS forecast of $1.22. Fox Factory Holding Corp. (NASDAQ:FOXF) has outperformed the revenue and EPS estimates for the past eight consecutive quarters. However, inventory imbalances are expected to adversely impact the performance of Fox Factory Holding Corp. (NASDAQ:FOXF) stock in the near future.

Fox Factory Holding Corp. (NASDAQ:FOXF) was discussed in the Q2 2021 investor letter of Baron Funds. Here’s what was said about the company:

“We sold our entire position in Fox Factory Holding Corp., a neat growth stock that was a terrific investment. It traded up to a price that we thought discounted many years of expected growth.”

At the end of Q1 2022, Factory Holding Corp. (NASDAQ:FOXF) was held by 19 funds with a cumulative stake of $97.6 million.

10. On Holding AG (NYSE:ONON)

Number of Hedge Fund Holders: 20

On Holding AG (NYSE:ONON) is a Zurich, Switzerland-based premium athletic footwear and apparel company that includes tennis legend Roger Federer as one of its co-entrepreneurs.

Duffy slashed the target price for On Holding AG (NYSE:ONON) from $31 to $28. On Holding AG (NYSE:ONON) is at risk of losing a major proportion of sales if customers look to trade down to value-priced products. The company has a higher average selling price (ASP) which usually caters to high-end consumers’ demand. Earlier in March, Jim Cramer also shared his bearish views on On Holding AG (NYSE:ONON) stock during his Featured Stock program.

On Holding AG (NYSE:ONON) stock has also seen a decrease in hedge fund sentiment, with 20 funds having a stake in the company at the end of Q1 2022, down from 22 in the preceding quarter.

9. Gildan Activewear Inc. (NYSE:GIL)

Number of Hedge Fund Holders: 21

Gildan Activewear Inc. (NYSE:GIL) is a Montreal, Canada-based manufacturer of basic apparel ranging from activewear, hosiery, legwear, socks, and innerwear.

Duffy cut the price target on Gildan Activewear Inc. (NYSE:GIL) from $43 to $29 and reiterated a Hold rating on the stock. Analysts think that the rising inflation and interest rate hike are expected to harm the prior Q2 2022 guidance shared by Gildan Activewear Inc.’s (NYSE:GIL) management. This is setting up the company for a disappointing quarter. Gildan Activewear Inc. (NYSE:GIL) stock offers a long-term growth story, but the near-term targets need to be revisited.

Gildan Activewear Inc. (NYSE:GIL) was held by 21 hedge funds at the end of the first quarter of 2022.

8. Columbia Sportswear Company (NASDAQ:COLM)

Number of Hedge Fund Holders: 23

Columbia Sportswear Company (NASDAQ:COLM) is a Portland, Oregon-based manufacturer and distributor of footwear, outerwear, and sportswear.

Duffy reduced the price target on Columbia Sportswear Company (NASDAQ:COLM) by 19% to $81 and kept a Hold rating on the stock. The company is facing the possibility of rising raw material costs as the dollar is gaining strength against other international currencies. Columbia Sportswear Company (NASDAQ:COLM) is also likely to incur higher supply chain costs. The company was exposed to a slowdown in sales in China due to the pandemic-related lockdowns that took place during the second quarter.

Arrowstreet Capital reduced its stake in Columbia Sportswear Company (NASDAQ:COLM) by 39% during Q1 2022.

7. Hanesbrands Inc. (NYSE:HBI)

Number of Hedge Fund Holders: 23

Hanesbrands Inc. (NYSE:HBI) is a North Carolina-based clothing company.

Jim Duffy lowered the price target on Hanesbrands Inc. (NYSE:HBI) by $1 to $10. Some believe that the Hanes innerwear franchise and the Champion brand are not fully appreciated by the market. However, analysts think the company is looking at a level where revenue is likely to reset following two stellar quarters boosted by economic recovery after the pandemic. Hanesbrands Inc. (NYSE:HBI) brand can face a downturn due to customer fatigue in the current economic situation.

Diamond Hill Capital shared its insights on Hanesbrands Inc. (NYSE:HBI) in its Q1 2022 investor letter. Here’s what the firm said:

“The share price of Hanesbrands pulled back in Q1 due to concerns around the impact cost inflation might have on future profitability despite solid quarterly results and increased longer-term financial targets. As with other apparel companies, the market is growing increasingly concerned with the potential of a consumer spending slowdown and a return of promotional activity. Hanesbrands continues to trade at an attractive discount to our estimate of intrinsic value based on the opportunity to grow its Champion brand and for the innerwear segment to consistently achieve modest growth.”

The hedge funds also appear to be bearish on Hanesbrands Inc. (NYSE:HBI). During Q1 2022, 9 hedge funds sold their stake in the stock on a sequential basis.

6. YETI Holdings, Inc. (NYSE:YETI)

Number of Hedge Fund Holders: 25

YETI Holdings, Inc. (NYSE:YETI) is an Austin, Texas-based producer of bags, coolers, and drinkware.

YETI Holdings, Inc. (NYSE:YETI) caters to a high-income consumer segment that is expected to be relatively more resilient during a possible recession. This assumption has been supported after looking at the updated web traffic and Google search trends. If investors take these trends into account, the current level could be an attractive entry point. However, it is unlikely that investors would be willing to pay a premium on non-hobby hard goods, which makes it challenging to defend the stock’s short-term story with conviction. Keeping this in mind, Duffy at Stifel lowered the price target on YETI Holdings, Inc. (NYSE:YETI) from $50 to $48 and maintained a Hold rating on the stock.

Here’s what Artisan Partners said about YETI Holdings, Inc. (NYSE:YETI) in its Q4 2021 investor letter:

“YETI is a manufacturer of premium outdoor recreation products, including coolers and equipment, drinkware, and brand apparel and accessories. The company’s growth has remained solid despite some temporary supply chain pressures. We view the brand’s long-term growth potential as attractive—with potential to increase share in core product lines, enter additional categories and expand its international presence—and we used Q4’s growth stock selloff as an opportunity to add to our position.”

Overall, YETI Holdings, Inc. (NYSE:YETI) was reportedly owned by 25 hedge funds at the end of Q1 2022.

In addition to YETI Holdings, Inc. (NYSE:YETI), Jim Duffy is also bearish on popular stocks such as NIKE, Inc. (NYSE:NKE), Crocs, Inc. (NASDAQ:CROX), and Under Armour, Inc. (NYSE:UA).

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