New market research showing weakening US consumer demand for soft goods has sparked analysts at UBS to reiterate their bearish view on Softline retail stocks in a report published on Monday.
Soft goods, or Softline goods, are nondurable products that are naturally ‘soft’ and are commonly used in textiles such as bedding, apparel, footwear, hats, curtains, towels, and belts.
“We believe Softline industry sales growth trends will deteriorate and this will lead to further P/E (price to earnings ratio) compression,” the analysts said, noting that Softline stocks have declined 5% in the year-to-date, on average, compared with the S&P 500's 9% gain.
They expect Softline stock prices can go even lower due to bearish industry fundamentals, including inflation’s negative impact on consumer spending, the belief that consumers will continue to feel the impact of lapping fiscal stimulus, such as student loans, over the coming quarters, as well as the elevated risk the US Federal Reserve's interest rate hikes will prove more harmful to consumer spending than anticipated.
The UBS analysts also pointed to market research showing that US consumers are deferring apparel purchases at a greater rate compared with any other category they tested.
Despite the gloomy sentiment, they continue to have ‘Buy’ ratings on apparel stocks such as On Holding AG, Skechers USA (NYSE:SKX) Inc, and Nike Inc (NYSE:NKE).
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