In a research note this morning, Goldman Sachs analyst Lindsay Drucker Mann downgraded Urban Outfitters (URBN) and Nordstrom (JWN) to Sell, while reiterating a Cautious coverage view on the Department Stores and Specialty retailers sector given the increasing headwinds being faced in the industry. 

UNDER PRESSURE: Goldman Sachs’ Drucker Mann told investors that apparel retail has been under pressure for several quarters, and fourth quarter results so far suggest that headwinds for traditional players are getting worse. According to the analyst, the challenges include traffic declines in brick and mortar, price deflation, and market share loss to Amazon (AMZN) and off-price. She reiterated a Cautious coverage view on Department Stores and Specialty.

SELL URBAN, NORDSTROM: As part of the broader note on the industry, the analyst downgraded both Urban Outfitters and Nordstrom to Sell from Neutral this morning. While the companies are among the best in their peer group in areas like brand equity and real estate quality, headwinds from declining store traffic, price transparency, and competitive share gains have overwhelmed their models and are likely to persist, Drucker Mann contended. The analyst lowered her earnings per share estimates for Nordstrom to reflect sustained flattish comparable sales and moderate gross margin pressure, while expecting a similar scenario for Urban Outfitters. Additionally, Drucker Mann reiterated a Sell rating on Kohl’s (KSS) and American Eagle (AEO). The analyst noted that she sees signs the American Eagle brand is rolling over after a period of strong growth and execution, having now decelerated materially over the last 6 quarters. Meanwhile, she believes persistent negative store traffic will weigh on Kohl’s comparable sales for the foreseeable future, and sees margin pressure stemming from the higher relative cost to the company of ecommerce versus brick and mortar, and deleverage from negative store comps.

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