Retailers look healthier than narrative suggests as margins near peak- Guggenheim

Guggenheim said U.S. retail remains widely viewed as “structurally sick,” but stocks like Amazon, Planet Fitness, Nike etc points to a sector that is proving more resilient than the narrative suggests, with many companies operating near peak gross margins.

Holiday demand, manageable tariffs and a rebound in share prices has helped the consumer discretionary sector.

Investor psychology continues to shape the sector, and Guggenheim notes that the most visible brands are not always the strongest performers and that stock moves often diverge from underlying fundamentals.

Guggenheim began coverage on sector with 10 Buy ratings and grouped into themes.

“The hottest brands are rarely the largest, and the loudest are rarely the most successful,” analysts at Guggenheim said.

Analysts have placed TJX, Planet Fitness, Ross Stores and Amazon in a category it described as “expensive for a reason,” citing growth and consistency.

It has labelled Nike, Birkenstock, National Vision and On Holding as growth stories facing some noise, and Capri Holdings and Under Armour as underperformers that are cheap enough to hold while waiting for improvement.

Neutral-rated names that the firm said could look more attractive on pullbacks include Victoria’s Secret, Peloton, Urban Outfitters, Tapestry and Bath & Body Works.

U.S. brands tend to settle at about $3 billion to $4 billion in annual retail sales. The analysts at Guggenheim says this level reflects a healthy degree of ubiquity even if hype cycles temporarily push sales higher.

Guggenheim said revenues remain the clearest measure of a brand’s size, while health can fluctuate with consumer sentiment.

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