Investing.com -- Wells Fargo forecast a stable consumer backdrop in 2025, supported by healthy U.S. demand, a strong holiday season, and stabilizing European trends, according to its retail sector outlook.
The brokerage upgraded Bath & Body Works (NYSE:BBWI) Inc and Capri Holdings (NYSE:CPRI) Ltd to "overweight," given their growth potential and valuation upside. Ross Stores Inc (NASDAQ:ROST) was downgraded to "equal weight" due to a more balanced outlook.
“We believe ROST's current upside potential is limited given a slowing comp trajectory as ROST still works to adjust their mix shift, and margins coming under pressure from their mix shift initiative, a lack of notable comp leverage, and persistent payroll pressure,” analyst added.
Wells Fargo (NYSE:WFC) highlighted inventory concerns and freight challenges as risks to already elevated margins, with gross margins about 400 basis points above 2019 levels.
Top long picks include Bath & Body Works Inc, Capri Holdings, RealReal (NASDAQ:REAL) Inc, Signet Jewelers (NYSE:SIG) Ltd, and Tapestry (NYSE:TPR) Inc. Short ideas target Hanesbrands (NYSE:HBI) Inc, Canada Goose Holdings Inc (NYSE:GOOS), Ulta Beauty (NASDAQ:ULTA) Inc, and VF Corp (NYSE:VFC), citing valuation and company-specific challenges.