With investors looking past the Covid-19 pandemic, with hopes for a return to normalcy via vaccine at some point in 2021, the picture is brightening for apparel stocks. Yet
warns that a rising tide won’t lift all boats, especially given the growing divide in digital.
Analyst Alexandra Walvis takes a look at the sector Thursday, writing that she expects it will rebound next year as people once again leave their houses, yet companies can’t count on macro tailwinds alone. That’s because the pandemic accelerated the rise of direct-to-consumer (DTC) e-commerce. The trend is here to stay, and those that haven’t made investments may fall behind.
Of course, e-commerce had been taking share across much of the retail sector even before the pandemic. Yet the “pace of change prior to Covid was slow, and for many brands it represented a headwind to profitability,” Walvis writes. That’s very different today, as companies with strong DTC online presences have been reaping gains. So what was once a drag on profits—building out an omnichannel platform isn’t cheap—has now become a major tailwind for companies that did invest. She writes that online DTC will “become the most important channel in U.S. apparel by 2030.”
In this scenario, brands that can control their own destiny and online presence stand to do capture even more market share, while bricks-and-mortar wholesalers and department stores will continue to feel pinched.
That leads her to reiterate her Buy rating on
(ticker: NKE), which is on the firm’s Conviction Buy list, and find opportunities elsewhere as well. She double-upgraded
(RL) to Buy from Sell, and more than doubled her price target to $141 from $69; Levi Strauss (LEVI) also received a double upgrade to Buy from Sell, with its target going to $23 from $11. In addition, she upgraded
(CPRI) to Buy from Neutral, more than doubling her target to $44 from $20.
By contrast, she downgraded
Canada Goose Holdings
(GOOS) to Sell from Neutral, warning that recent search data has shown declining consumer interest and “fading brand momentum” will cause it to lag peers. Still, she raised her price target to $26 from $25.
Write to Teresa Rivas at email@example.com