By Tonya Garcia, MarketWatch
Among Wells Fargo’s top picks for 2020 are L Brands Inc., the parent company to Victoria’s Secret, which is struggling through a turnaround, and RealReal Inc., the luxury secondhand retailer that’s emerging from a controversy about the authenticity of its goods.
After a year in which investors sought safety in sectors like off-price and athletic gear, analysts think investors are ready to take more risk in 2020.
“[W]e see opportunity for investors to ‘play offense’ (especially in early 2020) by coming back to some of the beaten-down names that languished over the last 12 months,” analysts led by Ike Boruchow said.
As Victoria’s Secret struggled to regain favor in the past year, L Brands stock has tumbled nearly 34%. The company has taken steps to refocus on the lingerie brand, like shuttering Henri Bendel.
Wells Fargo notes that L Brands Chief Financial Officer Stuart Burgdoerfer highlighted the gap in results between Victoria’s Secret and the company’s beauty brand, Bath & Body Works, and the board’s willingness to consider “opportunities” to close that gap.
“[W]e believe that separating the Victoria’s Secret and Bath & Body Works businesses is more appealing than ever today, given that Bath & Body Works has remained one of the strongest concepts in the mall, while Victoria’s Secret comps have decelerated,” Wells Fargo said.
In the most recent quarter, Bath & Body Works same-store sales rose 9% while Victoria’s Secret’s fell 7%.
Wells Fargo thinks “resale will be the next big ‘disruptor’ in the retail industry,” and The RealReal /zigman2/quotes/212846592/composite REAL +10.06% , with its luxury focus, is poised to benefit.
“We estimate the luxury resale market to be roughly $7 billion today, and we believe that the only reason why the resale market isn’t already larger today is due to a lack of supply (almost $200 billion of inventory sitting in consumers’ closets but only 3% gets consigned annually),” Wells Fargo said. “We believe that The RealReal’s business model is key to unlocking greater supply in the marketplace.”
In response to reports that there are fakes sold on its site, The RealReal said it “authenticates every single item” that it sells.
Other top picks for the year are off-price retailer Burlington Stores Inc. /zigman2/quotes/203203718/composite BURL +0.62% , Ugg parent Deckers Outdoor Corp. /zigman2/quotes/203810494/composite DECK +1.30% , and UK-based Asos PLC /zigman2/quotes/209092221/delayed UK:ASC +1.31% .
Dow Jones Market Data Group