BMO Initiates Cautious Coverage on Retail, Issues Bearish Calls on Nike and Lululemon

BMO Capital Markets has initiated coverage of the softlines retail sector with a cautious outlook, warning that a weakening consumer and rising costs are clouding the forecast for apparel and footwear companies into fiscal 2027. The firm is particularly bearish on the athletic category, issuing Underperform ratings for major brands including Nike and Lululemon.

Cautious Outlook on Consumer Spending

In a note to clients, BMO analyst Kelly Crago cited a "softer consumer, sticky inflation and higher costs" as key reasons for the firm's cautious stance. The bank noted that while shoppers have appeared during peak periods this year, there have been weaker lulls and a clear shift toward more value-seeking behavior heading into the fall.

Given the challenging macroeconomic environment, BMO stated it favors "stocks with a story to tell in FY27 to help offset rising macro headwinds." This suggests a preference for companies with strong internal catalysts over those solely reliant on broad consumer trends.

Bearish Stance on Athletic Apparel

BMO expressed its most negative view on the athletic sector, arguing that the market may not fully appreciate the risks for brands when a product cycle turns against them. The firm's analysis led to several Underperform ratings, with earnings models set "well below consensus."

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Key ratings in the athletic-exposed space include:

• Nike (NKE): Underperform rating with a $30 price target.
• Lululemon (LULU): Underperform rating with a $70 price target.
• Deckers (DECK): Underperform rating with a $70 price target.
• Dick's Sporting Goods (DKS): Underperform rating with a $110 price target.

Select Opportunities and Neutral Ratings

Despite the overall caution, BMO was more constructive on companies with specific "self-help stories," such as brand turnarounds or unique growth drivers. The firm initiated coverage on Abercrombie & Fitch (ANF), Amer Sports (AS), Carter's (CRI), and Steve Madden (SHOO) with Outperform ratings.

A number of other prominent retailers were started with a Market Perform rating, including American Eagle (AEO), Gap (GPS), Ulta Beauty (ULTA), Urban Outfitters (URBN), Victoria's Secret (VSCO), Birkenstock (BIRK), and On Holding (ONON).