The US softline consumer market is at a turning point, UBS lists winners and losers
With the return to school shopping and improving consumer confidence, US softline product spending is expected to increase slightly. UBS Group AG stated that US softline consumer stocks are benefiting from rate cut expectations, with current valuations lower than the S&P 500 index. Consumer trends affect different companies, with some benefiting from back-to-school shopping while others are driven by holiday spending. Improved consumer financial conditions and the growth of online shopping provide opportunities for "solo players" in the industry, with companies such as X, Y, and Z expected to emerge as winners
According to the Wisdom Financial APP, in the second half of 2024, with the improvement of back-to-school shopping and consumer confidence, spending on soft-line products in the United States is expected to slightly improve.
The P/E ratio of US soft-line consumer stocks is 24% lower than the S&P 500 index, with the usual discount level at 13%. The opportunity to buy into this industry on dips has matured, especially after Federal Reserve Chairman Powell raised the possibility of a rate cut in September. Rate cuts will boost consumer confidence, alleviate financial constraints for individuals and businesses.
Soft-line products, also known as soft goods, typically include clothing, bedding, linens, imitation jewelry, luggage, and handbags made of fabric, textiles, or soft materials. The impact of consumer trends varies for each company, with some benefiting from back-to-school shopping while others directly benefit from holiday consumption.
Data compiled by UBS shows that inflation remains a major concern for US consumers, with more shoppers increasingly looking for value for money. Meanwhile, month-on-month data for August looks "not so bad". UBS's "Happiness Index" shows that consumer sentiment improved in August, across all income groups. Consumers' financial conditions are also more secure, with 35.3% of consumers feeling financially secure in August, up 50 basis points from July.
UBS believes that American Eagle Outfitters (AEO.US) will benefit from the back-to-school season due to solid fundamental strategies, favorable quantitative factors, denim fashion trends, and strong leverage.
The "stand-alone" strategy is a key factor in the strong performance of some soft-line consumer stocks. As consumers increasingly shift to online shopping, companies that can "stand alone" in online sales do not need malls or other third parties to drive consumer engagement and sales growth.
UBS states: "These companies may seize market share and become industry winners."
Companies in a "premium position" in the market have the best opportunity to "stand alone" and achieve growth, especially those operating profitable direct-to-consumer businesses, while also investing in product innovation and branding.
Companies most likely to succeed in the "stand-alone" model include O'Neal (ONON.US), Skechers (SKX.US), and Deckers Outdoor (DECK.US).
UBS believes that the most likely outperforming soft-line consumer stocks are those with strong growth prospects that have not yet fully reflected in stock prices, including Levi's (LEVI.US), Ralph Lauren (RL.US), Under Armour (AS.US), Birkenstock (BIRK.US), TJX Companies (TJX.US), Boot Barn Holdings (BOOT.US), Signet Jewelers (SIG.US), Deckers Outdoor (DECK.US), O'Neal, and Skechers.
On the other hand, UBS believes that companies such as Nordstrom (JWN.US), Macy's (M.US), Dillard's (DDS.US), Kohl's (KSS.US), and Buckle (BKE.US) have growth rates well below the average, and their downward trends have not yet been fully reflected in stock prices