Wells Fargo sees a very challenging catalyst path for retailers in 2023

© Reuters.

By Sam Boughedda 

Wells Fargo analysts made various rating changes in a note to clients Friday, upgrading lululemon athletica (NASDAQ:LULU) and PVH Corp. (NYSE:PVH) to Overweight, and Stitch Fix (NASDAQ:SFIX) to Equal-Weight, while downgrading V.F. Corp. (NYSE:VFC) and Ulta Beauty (NASDAQ:ULTA) to Underweight and Bath & Body Works, Inc. (NYSE:BBWI) and The RealReal, Inc. (NASDAQ:REAL) to Equal-Weight.

In addition, Wells Fargo named Burlington Stores (NYSE:BURL) as its "top pick."

In a note focusing on retailing, specialty softlines, and e-commerce, the analysts told investors the space is coming off its worst year since the Global Financial Crisis, declining 35% as demand broke down, inventory ballooned, and costs spiked, mainly on logistics.

"Unfortunately, we see a very challenging catalyst path heading into 2023 - with holiday results likely "OK" at best, a difficult 1Q setup looming, and Street numbers that will likely be coming down on weaker initial guidance," the analysts write.

However, with a reshuffled outlook within its coverage, the analysts said the firm sees ways to play the long side while also being more cautious where they see more challenging setups.

On Burlington, Boruchow said they "continue to see a highly favorable backdrop for off-price in 2023 and believe a strong recovery in both productivity and margins lies ahead - which can drive 2024 EPS Power well above current Street estimates."