Menswear retailers stuck in the doldrums

Here's why Barclays is suggesting investors to dump Trinity shares.

Barclays Capital rated the stock "underweight" noting that menswear tend to underperform during a down market.

"We expect Trinity to face challenges both near and long term, and thus, we initiate with an Underweight rating: 1) menswear is more cyclical in a down market; 2) our  estimates are already below consensus on lower margins, and we factor in lower  associate profits due to Ferragamo likely increasing its stake in its JV with Trinity; and 3) medium term, we also highlight challenges with respect to competition and  Trinity’s positioning," it said.

Here's more from Barclays:

As with most retail companies, Trinity’s same-store sales (SSS) growth has slowed
significantly this year, due to poor macro sentiment, and we do not see any catalysts to
cause spending growth to pick up near term. Most of the Chinese retailers we cover have
not seen, nor do they expect any pick-up in sentiment in 2H12.

According to a report from the Hurun Institute (a luxury publishing and events group that
researches on the luxury segment in China on a regular basis), high net worth individuals in
China have already been spending less (on a per individual basis) in 2011, and we expect no
change in 2012 unless economic sentiment picks up. Furthermore, the report goes on to state
that menswear is not among the most popular gift-giving items of high net worth individuals,
so the slowdown in spending reflects a decline in demand for personal use (vs gift gifting).
To make matters worse, menswear tends to underperform womenswear in a down-market.
 

According to a Bain/Altagamma luxury goods study (Oct 2011), Men’s luxury sales
declined 7% during 2007-09, compared to women’s which declined just 3%. In 1995-2006
and 2010-11E, growth of men’s luxury sales was actually stronger than for women’s. We
believe men’s buying habits are more cycical, because in a downturn, purchases are more
deferrable, especially for business formal and business casualwear, where styles vary less
(compared to womenswear). Please see our European luxury goods team’s recent report
“Global luxury goods: Matching growth with value”, published 3 September 2012, for more
details