BMO cautious on softlines, bearish on athletic names

Investing.com -- BMO Capital Markets has launched coverage of the softlines retail, apparel and footwear sector with a cautious stance, warning in a note that a weakening consumer and rising costs cloud the outlook for the group into fiscal 2027.

Analyst Kelly Crago said a softer consumer, sticky inflation and higher costs leave the firm cautious, and that it favors "stocks with a story to tell in FY27 to help offset rising macro headwinds."

So far this year, shoppers have turned out during peak periods, but Crago pointed to weaker lulls and more value-seeking behavior heading into the fall.

The firm was most downbeat on the athletic category. "We are most negative on the athletic sector, even on the recent sell-off, as we believe the market does not fully appreciate the negative impact on brands that are off-sides when a cycle moves against them," Crago wrote.

That view drove Underperform ratings on several athletic-exposed names, including Nike, with a $30 target, Deckers at $70, Dick's Sporting Goods at $110 and lululemon at $70, with earnings modeled well below consensus at each.

Elsewhere, BMO was more constructive on companies with self-help stories. It initiated Abercrombie & Fitch, Amer Sports, Carter's and Steve Madden at Outperform, citing brand turnarounds and growth drivers.

It started American Eagle, Gap, Ulta Beauty, Urban Outfitters, Victoria's Secret, Birkenstock, Bath & Body Works, On Holding and Academy Sports at Market Perform.

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