PARIS — Morgan Stanley is getting pessimistic on European retailers.
The investment bank on Monday delivered three separate downgrades on bellwether stocks: Hennes & Mauritz of Sweden, Spain's Inditex and France's PPR, which runs Gucci Group.
It said a consumer slowdown in Europe was sure to dent sales and earnings this year. Morgan Stanley, in a separate note, said the U.K. retailing landscape offered "misty" visibility at present and that tough times were ahead.
"Weak demand looks set to be compounded by acceleration in new space openings and increasing input inflation," the bank said in a note to investors on U.K. retailing. "The key question is whether this input inflation will be passed on — if not things could get really nasty."
Meanwhile, investors in the U.S. are anticipating a cut in interest rates and, on Monday, they gobbled up retail shares, reversing some of Friday's losses. The Commerce Department reported that home sales dropped 4.7 percent in December, and plunged 26.4 percent in 2007 compared with 2006, which could signal the Federal Reserve will lower interest rates when they meet this week.
As a result, the WWD Composite Stock Index grew 2.2 percent to 865.21, while the S&P Retail Index jumped 3 percent ending the day at 406.53. The Dow Jones Industrial Average closed up 1.5 percent to 12,383.89, while the broader S&P 500 grew 1.8 percent to 1,353.97.
Apparel maker Kellwood Co. made the New York Stock Exchange's list of biggest gainers, soaring 18.6 percent to $20.28. Gains came after the company announced on Sunday that it would allow shareholders to decide if they will accept the buyout offer made by Sun Capital Securities Group LLC. On Monday, the company also named George Sokolowski as chief marketing officer and vice president of strategy.
After being slammed for most of the year, shares of women's apparel retailers rebounded, as investors took advantage of steep discounts. New York & Company Inc. buoyed 10.5 percent to $4.95, AnnTaylor Stores Corp. increased 5.3 percent to $22.40, and Chico's FAS Inc. jumped 8.1 percent to close at $9.08. The biggest gainers were Charming Shoppes Inc., which shot up 13.6 percent to $6.01, and Coldwater Creek Inc., growing 11.4 percent to end the day at $5.26.In downgrading H&M, which is set to report fourth-quarter sales on Thursday, and Inditex, the operator of the Zara chain, Morgan Stanley analyst Claire Kent said the bank was "forced" to reassess its previous ratings on the stocks after disappointing results earlier this month from Britain's Marks and Spencer Group plc and Burberry Group plc.
Morgan Stanley double-downgraded H&M from "overweight" to "underweight" and revised its target price from 480 Swedish kronor, or $75.05, to 290 Swedish kronor, or $45.35. H&M's stock closed down 0.58 percent to 344.50 kronor, or $53.87, in trading on the Stockholm stock exchange. Currency conversions were made at current exchange rates.
Kent said she was "taking a more cautious view" on Inditex, too. She downgraded the Spanish firm's stock from "overweight" to "equal-weight" and lowered her Inditex target price from 60 euros to 35 euros, or $88.71 to $51.75.
Inditex shares gained 0.22 percent to close at 36.18 euros, or $53.49, on the Madrid stock exchange.
Though Kent said H&M and Inditex appeared to be headed into rough seas thanks to the "rapid" deterioration of consumer sentiment, she added that both companies offered excellent long-term growth opportunities.
Morgan Stanley also downgraded PPR from "overweight" to "equal-weight" and slashed its price target on the French retail and luxury group from 145 euros to 95 euros, or $214.39 to $140.46.
Last week, PPR reported better-than-expected fourth-quarter sales, driven by its luxury activities. Its stock, however, has come under pressure in recent months as investors sour on retail. PPR's retail operations include a furniture chain and a book and music seller.
PPR shares closed up 0.1 percent to 94.04 euros, or $139.04, in trading on Monday. In October PPR was trading above 140 euros, or $207.
As one of the most recognizable models in the world, Christy Turlington Burns has an insider’s view of the fashion industry and the allegations of sexual harassment swirling around it. “I can say that harassment and mistreatment have always been widely known and tolerated in the industry. The industry is surrounded by predators who thrive on the constant rejection and loneliness so many of us have experiences at some point in our careers,” Turlington told WWD, along with her suggestions for how the modeling world should protect younger women and men. Read more on WWD.com. Link in bio. (📷: Tony Palmieri) #wwdnews
@asics America has tapped a new brand ambassador: famed DJ/record producer @steveaoki. This initiative is intended to set the tone for the new brand identity and philosophy and will include partnerships with influencers and in-store and off-line activations that will continue into next year. This is Asics’ most significant marketing effort in two decades, and is expected to attract younger consumers to the brand. #wwdfashion
24-year-old Jean Prounis is redefining the rules of jewelry. Formerly a studio assistant to Jemima Kirke and a design apprentice at Ghuran, she focuses on handcrafted subtleties and ancient goldsmithing techniques. “There was a really sterile feel in the environment and I wanted to have jewelry with character that shapes how you wear it everyday,” Prounis said. Each piece is hand made in New York, either by Prounis or three other jewelers in the district. #wwdfashion
“These collections continue to build on that vision, empowering differently abled adults to express themselves through fashion,” said @tommyhilfiger of his line of adaptive apparel, which launches today. The line consists of 37 men’s and 34 women’s styles based upon the pieces from the spring Tommy Hilfiger sportswear collection. #wwdnews
“Stranger Things” is getting a new cast member for season 2. Meet @sadiesink_, the 15-year-old who will be joining the Netflix series for its new season. You may recognize her from “The Glass Castle” with Brie Larson and Woody Harrelson, but the Texas native’s next role goes in an entirely different direction. She describes her character, Max, as “a rough and tumble skater girl [who] becomes friends with the boys at school.” The second season debuts on October 27. (📷: @jgreenery) #wwdeye
Amid the Harvey Weinstein controversy, there’s another sector that’s being put under the spotlight for sexual abuse: the modeling industry. While rumors about abuse and sexual harassment of female and male models — and the photographers, agents and others who perpetrated it — have circulated within the fashion world for years, model @cameronrussell started posting stories from models on Instagram last week about abusive situations they’ve encountered — from sexual harassment and molestation to attempted rape. Over 75 have weighed in so far. Read more on WWD.com. Link in bio. #wwdnews
To celebrate its 16th anniversary, @dylanscandybar tapped designers and celebrities to create mosaics out of candy. The mosaics will be auctioned off to support the philanthropic cause of each participant’s choice. Pictured here is the mural created by @aliceandolivia's Stacey Bendet. For a first look at some of the other artwork being unveiled tonight, go to WWD.com. #wwdeye
The annual Veuve Clicquot Polo Classic in Pacific Palisades this weekend drew Kate Hudson, Tracee Ellis Ross, Laura Dern and more. See pictures of the star-studded event on WWD.com. (📷: @chelsealaurenla) #wwdeye
In his new book “Hollywood Royale,” Andy Warhol’s Protégé Matthew Rolston celebrates the Eighties revival of Hollywood glamour. Featuring more than 100 portraits taken by Rolston from 1977 to 1993, the book contains photos of icons like Michael Jackson, Cyndi Lauper, and @drewbarrymore, pictured here in 1991. “Hollywood Royale,” out today, will be accompanied by an exhibition opening at Los Angeles’ Fahey/Klein Gallery on March 1. #wwdeye