Consumers will be more likely to seek out cheaper alternatives for jeans than for handbags in what is likely to be a ‘choppy’ year, Goldman analysts say.
Shoppers are getting choosier and the rush to refresh wardrobes is slowing, Goldman Sachs analysts say, leading to what is likely to be an uneven 2023 that will favor retailers with existing relevance, easier comparisons and tighter inventories.
“Within this framework for 2023, we look for brands with momentum , selectively stronger channel backdrops as a result of cycling 2022 inventory overhangs , and outsized margin recapture opportunity,” they continued. Along with Gap GPS, +0.50% and Tapestry TPR, +2.58%, the analysts said off-price retailers like Burlington Stores Inc. BURL, +0.32% and Ross Stores Inc. ROST, +1.31% were well equipped for a potentially bumpier ride up ahead.
The analysts said that their more upbeat take on Gap was based partly on improvements in the company’s supply chains following last year’s factory closures in Vietnam. However, they also said Gap had benefited from easier year-over-year comparisons than its U.S. rivals and that management’s performance over the past several years had been uneven. The stock’s value was already elevated, they added.
The analysts also said China’s loosening of COVID restrictions, stock buybacks and an easier backdrop for ocean and air freight would help the company. Risks, they said, included competition from rivals who are more willing to cut prices, a stretched middle-income consumer and strong results in months past boosted by higher prices and demand from younger consumers.For Levi Strauss LEVI, +3.66%, the analysts saw greater risk.
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