Luxury Retailers Get Pushed Aside for These Names

Luxury-goods retailer Burberry Group recently confirmed that the global slowdown is affecting its business. Shares of the company plunged 21 percent in London trading on Tuesday, and even caused higher-end retailers in the United States to trade lower. However, retailers not involved in the high end of the consumer spectrum are outperforming.

Burberry announced that it expects adjusted pretax profit for the year ending March 31, 2013 to come in at the low end of market estimates. Furthermore, comparable-store sales year-over-year saw zero growth for the 10 weeks ended September 8. The news brought down U.S. luxury names such as Coach (NYSE:COH), Ralph Lauren (NYSE:RL) and Tiffany & Co. (NYSE:TIF).

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In a company press release, Burberry explains, “As we stated in July, the external environment is becoming more challenging. In this context, second quarter retail sales growth has slowed against historically high comparatives. Given this background, we are tightly managing discretionary costs and taking appropriate actions to protect short term profitability, while continuing to execute on our proven five key strategies.”

As the chart above shows, lower end retail names such as American Eagle Outfitters (NYSE:AEO) and Gap (NYSE:GPS) have been the stars of the sector year-to-date. Meanwhile, Coach shares are flat on the year and Tiffany & Co. is down nearly 6 percent.

On Wednesday, shares of American Eagle Outfitters and Kohl’s (NYSE:KSS) both jumped about 4 percent. American Eagle announced that its board declared a special cash dividend of $1.50 per share, in addition to a regular quarterly dividend of 11 cents per share. Robert Hanson, chief executive officer stated, “The special cash dividend is a component of our capital allocation plan, which balances continued investment in our business with top tier shareholder returns.” Kohl’s received a boost after being upgraded to Buy from Hold at Deutsche Bank, due to improving sales. The bank also raised its target price on shares to $62 from $49.

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