Hennes & Mauritz (H&M) AB and TJX Cos. have the highest U.K. exposure among retailers and could be impacted the most by the "Brexit" vote, according to analysts at Stifel. Karl-Johan Persson, chief executive of H&M said this week that the clothing market in the U.K. during the first half of the year had been "poor," perhaps in part because uncertainty swirling around the Brexit vote dampened consumer confidence. The U.K. is H&M's third largest market after Germany and the U.S. "We expect this softness to continue in the near term, driven by weakened consumer confidence," Stifel analysts said in a Friday note. "Additionally, the weakening British pound will negatively impact H&M's results as profits are translated into the Swedish krona." The bank rates H&M shares hold. TJX, whose brands include T.J. Maxx (T.K. Maxx in Europe), Marshalls and HomeGoods, has 5% exposure in the U.K., according to Stifel's estimates, so it, too, could see a near-term sales impact from the referendum's impact. "However, we believe sales pressure will be limited as consumers tend to flock to off-price during times of economic uncertainty," bank analysts wrote. "Additionally, the company's flexible business model enables TJX to successfully navigate through economic downturns." The bank rates TJX shares buy. Stifel believes there are buying opportunities for TJX because of the minimal impact of the Brexit vote. Analysts also see opportunity in American Eagle Outfitters Inc., which has limited U.K. exposure, and Kohl's Corp., which sees 100% of its sales in the U.S. Stifel rates American Eagle and Kohl's shares buy. Analysts at Cowen & Company said in a Friday note that they believe Signet Jewelers Ltd., TJX, and Wal-Mart Stores Inc. could experience the biggest currency exchange headwinds, with the depreciating euro most impacting Fossil Group Inc., Hudson's Bay Co., Movado Group Inc. and Michael Kors Holdings Ltd. On the other hand, the bank recommends that investors "flock" to Ross Stores Inc., Target Corp, and Ulta Salon Cosmetics and Fragrance Inc. All three company stocks are rated outperform. "Each of these retailers has 0% foreign sales penetration, should see partial benefits on the sourcing side from a stronger U.S. dollar, and have a customer base that should not be distracted by the global macro headline noise," the company wrote. "[R]ecent weakness in Ross Stores and Target present attractive entry points, in our view. Lastly, Ulta has seen continuing top-line momentum and bottom-line beats in recent results and we expect the secular trend toward beauty to drive continued upside in 2016." Cowen analysts also believe that a stronger U.S. dollar will reduce the purchasing power of foreign tourists, which will have a particular impact on Hudson's Bay, especially the Saks Fifth Avenue flagship store in New York City, Tiffany & Co. and Macy's Inc. Source: MarketWatch
