Citing unseasonably warm weather, analysts are concerned that a lack of “sweater weather” is negatively impacting certain specialty retailers as well as some larger chains.
Ike Boruchow, senior analyst at Wells Fargo, said in his research note today, that he’s “not seeing any sweater weather,” and that is troublesome for the specialty sector and off-price sector. “In the midst of the [third-quarter] earnings season, it’s apparent that unseasonably warm weather trends are affecting retailers across the space,” Boruchow said. “Without the catalyst to buy cold-weather categories, shoppers have little reason to head into stores, and retailers who have significant exposure to these categories may be disproportionately affected by these negative traffic trends — in November at the very least.”
Boruchow noted that the second and third weeks of November are forecast to be 8.6 and 9.2 degrees warmer, respectively, than the same month last year.
Eric Beder, analyst at Wunderlich Securities Inc., reiterated his “hold” rating and $30 price target on Urban Outfitters Inc., which is expected to report earnings on Monday. His bearish take on the retailer is “driven by a multitude of worries,” including the “continued pricing weakness in our monthly pricing surveys for Urban Outfitter” and “warmer weather, which probably hurt fashion-forward, somewhat sweater-and-coat-driven Anthropologie and Free People chains.”
Beder said the retailer is plagued by “what we believe could be issues with the new distribution center in Gap, Pa., which could drag down margins in the near term.”
Dana Telsey, chief executive officer at Telsey Advisory Group, said “expectations have been moderated heading into the specialty apparel earnings season.”
“There are concerns that warm weather contributed to weaker traffic through the quarter, leading to pockets of heavy inventory, particularly in outerwear, which could cause markdowns to begin crowding out holiday floor sets,” Telsey explained. “Against these moderated expectations, we look to stocks in two categories areas of interest: high quality names that have outperformed peers where market-wide sell-offs create a more attractive entry point — Limited Brands and American Eagle Outfitters — and names that have traded to significantly discounted valuations where we view the risk/reward at current levels as positive — Lululemon and Urban Outfitters.”