Wells Fargo sees recovery in specialty retail, upgrades Bath & Body Works

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.

Source: Investing.com