Clothing retailers enjoyed an exceptional 2023 thanks to price rises but 2024 is going to be more challenging, reckons Bank of America, leading to it downgrading several well known sector names.
In a note entitled 'from boom to gloom', the bank now has only three of the 12 companies it covers on positive ratings, with downgrades for Next PLC (LSE:NXT), Zalando and Dr Martens PLC (LSE:DOCS), which all had their 'buy' ratings moved to 'neutral'.
Top picks for the bank in the sector are Spain's Inditex and Marks and Spencer Group PLC (LSE:MKS), both of which are 'buy'-rated.
This followed a year when record price increases fuelled sector revenue growth and the combined market cap of the 12 major listed European clothing retailers rose by over 50%.
But for 2024, the bank said it expects revenue growth to "slow across the whole sector as volumes fail to offset the price declines".
Gross profit margins should rise, but ongoing operating cost inflation – especially labour – will likely cap EBIT margin uplift, it reckons.
BofA said its views were more negative than other analysts, with its forecasts around 3-4% below consensus for financial 2024 and 2025.
Others to get downgraded were H&M and France's SMCP, both of which were cut to 'underperform' from 'neutral'.