Wedbush On Softlines: 'Encouraged' By Lululemon New Tops, Estimates Cut On Chico's, Urban Outfitters

In a report published Tuesday, Wedbush analyst Morry Brown mentioned that, following Mall checks, the estimates had been reduced for Chico's FAS, Inc. CHS and Urban Outfitters, Inc. URBN due to higher clearance sales. The analyst also noted the positive impact of "newness" within the tops assortment at Lululemon Athletica inc. LULU. Chico's increased its promotional activity, offering 40 percent discounts on the entire purchase for non-card members and 45 percent discounts for members during week two of July, from last year's figures of 35 percent and 40 percent, respectively. The company also offered an additional 20 percent off clearance this year, up from 10 percent last year. "We believe last week's promotion could indicate some softening in the business during July," Brown wrote. The EPS estimates for 2Q15, 2015 and 2016 have been reduced from $0.24 to $0.22, from $0.82 to $0.80 and from $0.94 to $0.92, respectively. Brown has a Neutral rating on Chico's and a price target of $17. Referring to Urban Outfitters, the Wedbush report stated that Anthropologie's Summer Tag Sale was running "longer than last year," with the company still offering an additional 20 percent off as of July 20, as compared to wrapping up its additional 20 percent discount on July 14 last year. "We note, the sale also started a week earlier YOY, resulting in two weeks of incremental 20% off versus LY, so far." "Within the clearance, we note a marked increase in tops, indicating the potential that the merchandise challenges the company discussed on its 1Q conference call could be spreading beyond dresses," Brown added. The EPS estimates for 2Q15, 2015 and 2016 have been reduced from $0.49 to $0.48, from $1.90 to $1.89 and from $2.20 to $2.19, respectively. Brown has a Neutral rating on Urban Outfitters and a price target of $34. Lululemon ran an online warehouse sale during week two of July. "Our checks have indicated solid traffic levels and minimal clearance in stores. We have also noticed newness within the tops assortment, with an increased number of separates versus built-ins," Brown mentioned. Wedbush has an Outperform rating on Lululemon and a price target of $78.