Baird's Top Retail Picks Post-Brexit

Baird has listed out its retail picks amid post-Brexit volatility.

The brokerage's Outperform-rated stocks with limited U.K./European exposure include Ulta Salon, Cosmetics & Fragrance, Inc. ULTA (0 percent), Lululemon Athletica inc. LULU (<2 percent), Kohl's Corporation KSS (0 percent) and J C Penney Company Inc JCP (0 percent).

Baird also likes Nordstrom, Inc. JWN and Vera Bradley, Inc. VRA due to their negligible international exposure.

Other Elements To Keep In Mind

"F/X translation presents the greatest near-term risk to estimates following sharp currency moves today — although U.K. exposure is rather modest across our list," analyst Mark Altschwager wrote in a note.

Related Link: 4 Reasons The U.S. Is So Sensitive To Global Events Like Brexit

"Looking beyond currency exposure, we're mindful of the risks of a broader economic slowdown as events in Europe and the U.S. presidential election cycle add uncertainty to an already low-growth backdrop — all of which may pressure stock valuations (group relative valuation now 1 standard-deviation below 10-year average)," the analyst continued.

The analyst remains constructive on his 2016 top ideas including Ulta, Lululemon and Sally Beauty Holdings, Inc. SBH given stronger category growth (beauty, active) and company-specific sales and margin initiatives.

The analyst also sees tactical opportunities in the second half in the shares of Kohl's and JC Penney due to easy fourth-quarter sales/margin comparisons, no international exposure, inexpensive valuation and customer bases that are less sensitive to stock market volatility.

International Exposure

Baird also presented a list of stocks in its coverage that has international revenue exposure:

• Coach Inc COH international: "~42 percent of sales, although Europe (including U.K.) remains rather small (<3 percent)."
• Abercrombie & Fitch Co. ANF international: "~35 percent of sales, including U.K. ~5 percent and rest of Europe ~19 percent."
• Michael Kors Holdings Ltd KORS international: "~32 percent of sales, including U.K. ~3 percent and rest of Europe ~18 percent."
• Lululemon international: "~27 percent of sales; U.K./Europe exposure remains small today (<2 percent)."
• Gap Inc GPS international: "~24 percent of sales, including U.K. ~4 percent and rest of Europe ~1 percent."
• Sally Beauty international: "~19 percent of sales, including U.K. ~5 percent and rest of Europe ~4 percent."
• Urban Outfitters, Inc. URBN international: "~15 percent of sales, including U.K. ~2 percent and rest of Europe ~6 percent."
• L Brands Inc LB international: "~14 percent of sales (VS & BBW), including UK estimated <2 percent and rest of Europe <2 percent."
• Vince Holding Corp VNCE international: "~10 percent of sales, including Europe <2 percent."