Goldman analyst downgrades J.Crew to 'sell'October 13. 2008
Shares of apparel retailers largely rose on Monday, along with broader market, although an analyst said the sector is facing a deeper slowdown than expected and downgraded Manhattan-based retailer J.Crew Group Inc.
The market surged on Monday, paring some losses from the historic drop last week. As investors’ concerns were eased and governments globally pledged to further aid the banking sector, the Dow Jones industrial average jumped more than 900 points.
However, Goldman Sachs analyst Michelle Tan said in a note to investors that the slowdown in the apparel sector is deeper and broader than had been expected. Apparel retailers have been hit hard as consumers cut back on discretionary spending amid financial-market turmoil, rising food and energy prices and tightening credit.
"The updated Goldman Sachs consumer discretionary cash flow model now implies a much more muted 2009," Ms. Tan wrote. She downgraded J.Crew Group Inc. to "sell" from "neutral."
J.Crew's results might be hurt due to its aspirational and regional positioning as consumers cut back, along with high inventory levels, Ms. Tan wrote.
On a day when many stocks enjoyed huge leaps in value, J.Crew Group shares ended the day up just 10 cents at $20.54
Although the news is not good, it is also not unexpected. It will be interesting to see how J.Crew deals with its "high inventory levels" in the upcoming weeks- whether it be through more promotions, increasing emails announcing the promotions, increasing items "on sale", reducing sale prices even further, and the like. Especially considering the holiday season is coming up (which usually means more inventory on hand for retailers, then during other seasons).
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