Goldman Sachs Slashes Estimates on Apparel Retailers (BKE, CHS, GPS, LULU)

Goldman Sachs is out with a research report this morning, where it trims estimates on apparel retailers. The analysts said that there are few reasons to buy the sector assuming a slow recovery. The GS analysts noted, “We cut our 2010/2011/2012 estimates by an average of 7%, our 6-month, multiple-based targets by an average of 14%, and downgrade both Urban Outfitters Inc. URBN and AnnTaylor Stores Corp. ANN to Neutral from Buy. Two key issues underpin these changes: 1) “Risk to estimates: In a slow recovery with little sequential improvement in employment, sector sales have averaged <2% with flattish margins; this implies ~9% risk to Street forecasts. History suggests downside risk to estimates in a double dip is roughly 2x the upside in a robust recovery. 2) Little justification for relative multiple expansion: While the sector has sold off, so has the market; we see little reason for multiple premiums for slow growth names (trading at an avg of 13x vs. S&P at 12x); and some short-term risk to growth premiums where estimates look vulnerable.” Goldman Sachs also trimmed its Buy exposure as well, changing their estimates to reflect concerns over sector wide issues. It has a Sell rating on Buckle Inc. BKE, Chicos Fashion Inc. CHS, and Gap Inc. GPS. It has Buy ratings on Lululemon Athletica Inc. LULU, Abercrombie & Fitch Co. ANF, and Express Inc. EXPR. It has a “Buy to Neutral” rating on AnnTaylor Stores and Urban Outfitters.