BTIG consumer and retail analyst Janine Stichter this month initiated coverage on a variety of retail and consumer brands and highlighted certain companies that are in a strong position to grow in 2023.
Overall, Stichter advises investors to buy stocks that exist in resilient categories, have low inventory risk, a strong track record of profitability with a healthy balance sheet and the means to improve company structure.
With these elements top of mind, the analyst named Boot Barn, Foot Locker, Deckers Brands, Revolve Group and Lulu’s Fashion Lounge Holdings as top stock picks for 2023, initiating coverage with a “buy” rating for all five stocks.
“In particular, we highlight Boot Barn as a name that offers a rare combination of growth and stability, attractive in the current environment and has potential for both earnings upside and margin expansion,” Stichter wrote. Boot Barn has previously been lauded by other analysts as well, thanks to its expanding store count, exclusive brands and surge in women’s Western boots.
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“Amid a dearth of growth in the retail industry, Boot Barn stands apart as just one of a few retailers with remaining (and significant) unit growth ahead,” Stichter said.
More generally, Stichter said the first half of the year will be challenging for the retail sector, due to elevated inventory levels, a cautious consumer and a rough wholesale environment.
“We expect the first half to be choppy, as many companies face the concurrent headwinds of challenging compares from the last several years (driven by stimulus, pent-up demand) against the backdrop of a more cautious consumer,” Stichter said. However, she remained bullish on the second half of the year, citing easier year-over-year comparisons, an inventory reset and lower costs for freight and raw materials.
As for Foot Locker, the potential for structural change is one of the company’s strongest assets right now, Stichter said, adding that the company’s recently appointed CEO, Mary Dillon, represents the potential catalyst for growth.
“We believe Foot Locker is more of a ‘turn-up’ than a true turnaround, and we view Ms. Dillon as the right CEO at the right time for Foot Locker,” Stichter said, highlighting Dillon’s strong track record from Ulta, her previous employer.
For Deckers, Stichter called out the strength of the company’s portfolio of brands, especially Ugg and Hoka. In Q3, Hoka net sales jumped 90.8% to $352.1 million, another quarterly record for the brand. Ugg sales dipped 1.6% to $930.4 million, largely due to foreign currency exchange rate headwinds and lower wholesale revenues.
“In the current environment, we believe strong brands will fare best, and fit Deckers’ portfolio to a tee,” Stichter said. “Ugg’s continued strong execution and resonance with a younger consumer should support solid, steady growth, while we see Hoka continuing at a robust pace of expansion for years to come.”
She added that Deckers’ operating margins could grow as freight costs wane.
