The second half of the year will likely be slow for retailers as weak sales and higher costs pressure some companies, an analyst said Tuesday.
Jeff Black of Citi Investment Research said in a client note that he was lowering American Eagle Outfitters Inc.'s rating to "Hold" from "Buy."
"American Eagle Outfitters change in strategy to fund basics coupled with elevated inventory and higher costs raises the risk profile and we think prospects for an aggressive promotional backdrop could require downward revisions to the full-year earnings per share estimate," he wrote.
But Black added Ann Taylor Stores Corp. to his Top Picks Live list, saying the women's clothing company executed well in the second quarter, with its Loft stores offsetting softness at its Ann Taylor locations. The analyst added that Ann Taylor stores are doing better in the third quarter on fewer promotions and a better product assortment.
Black raised Ann Taylor's price target to $30 from $28. Ann Taylor shares closed at $23.76 on Monday.
Looking to the second half of the year, Black anticipates Abercrombie & Fitch Co., Ann Taylor and Chico's FAS Inc. having the strongest earnings growth, while Urban Outfitters Inc., Gap Inc., American Eagle and Aeropostale Inc. are likely to report declines in earnings per share.
Black increased Chico's price target to $16 from $15 and lowered Urban Outfitters to $29 from $31. The analyst also cut Abercrombie & Fitch's price target to $72 from $86, reduced DSW Inc. to $54 from $56 and trimmed rue21 Inc. to $26 from $28.
On Monday, Chico's closed at $13.93, Urban Outfitters finished at $25.46, Abercrombie & Fitch ended at $63.45, DSW closed at $47.21 and rue21 finished at $25.70.