Wedbush Takes Neutral Stance On 4 Major Retailers

Wedbush analysts reviewed retailers including The Gap, Inc. GPS, Nordstrom, Inc. JWN, L Brands, Inc. LB and Kohl’s Corporation KSS. 

The Analyst

• Analyst Jen Redding initiated coverage of Gap with a Neutral rating and $32 price target;
• Nordstrom with a Neutral rating and $55 price target;
• L Brands with a Neutral rating and $33 price target;
• and Kohl's with a Neutral rating and $75 price target.

Gap

Strong brands should continue to drive momentum for the Gap, Redding said in a note. 

“We view the combination of strong comps and momentum in Athleta and Old Navy as continuing to gain market share, and reduced drag from maturing investments as key drivers of revenue and gross margin expansion over the next several years,” the analyst said.

“We have less visibility into core Gap brand over the second-quarter period, and remain on the sidelines for now absent of a positive inflection in proprietary data for the brand.”
Gap has executed an increase in total company gross margin to 39.6 percent sales versus the consensus estimate of of 39.95 percent, according to Wedbush's model. 

Nordstrom

Nordstrom’s has new, unique limited-distribution brands, localized market strategies and an effective omnichannel platform, Redding said. Each of these catalysts contribute highly to the company’s turnaround story, she said. 

Wedbush analytics revealed positive trends in Nordstrom's customer metrics, which act as a key driver for new customers as well as increased engagement from existing customers, Redding said. 

“Our data show more focused and effective marketing efforts with an improvement in delete rate of 18 points and improvement in deliverable rate to 84.7 percent from 81.7 percent in the comparable period last year. We look for strength in the second-quarter earnings and look for the company to turn in in-line EPS of $3.46 versus the consensus for EPS of $3.47,” Redding said.

“However, we believe expectations are high for Nordstrom into the second-quarter print and view current valuation as having priced in the potential for upside to gross margin on the very near-term horizon.”

L Brands

L Brands is showing strength in its core brands, which represent a rapidly growing channel, according to the Wedbush initiation note. Supply chain speed and agility will both directly impact revenue and expansion in the future, Redding said.

Kohl’s

Redding forecast short-term opportunity for improvement in categories such as private label, active, women’s, beauty and inventory management at Kohl's.

Kohl’s rewards and Amazon pilots contribute to overall growth too, the analyst said. 

“Longer-term, we favor the name and continue to see shares of U.S.-focused retailers like Kohl’s, Dillard’s, American Eagle Outfitters and Burlington Stores as good options in a year of a strong dollar, as bright US prospects fuel domestic spending in discretionary, and shares attract overseas investors seeking high dollar-denominated returns."

Wedbush analytics reveal strength in second-quarter margins, while the promo tracker shows mixed results and low visibility in terms of Kohl’s promotional efforts.

“Although we like the story, at this point, absent any positive inflection in our proprietary data, we believe recent accretion in share price erodes the upside potential near-term," Redding said. 

Price Action

• Gap shares were up 0.48 percent at $31.33 at the close Friday. 
• Nordstrom shares were up slightly at $52.58.
• L Brands shares were down 0.86 percent at $31.24. 
• Kohl’s shares were up 0.73 percentg at $75.66. 

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Public domain photo via Wikimedia.