Kohl’s downgraded and broader department store targets have been cut to BofA (NYSE:KSS)

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Weakening consumer demand prompted Bank of America analyst Lorraine Hutchinson to moderate department store retailers’ estimates on Thursday.

In a note to clients reassessing the industry, Hutchinson cut annual earnings estimates for stocks hedged by an average of 16% as inflationary pressures, slowing sales and rising inventories bode ill for the sector. As such, the price targets in its coverage which includes Nordstrom (JWN), Kohl (NYSE: KSS), Dillard’s (DDS) and Macy’s (M) were reduced by an average of 35%.

With recessionary risks rising, she pointed to even steeper declines than previous pullbacks might be in store. In fact, she suspected that the action in space might be even worse than that seen during the Great Recession.

“2021 has been a year of strong revenue growth driven by pent-up demand and above-peak margins driven by lower inventory and higher-than-expected sales,” Hutchinson acknowledged. “We believe the key debate around the estimates can be divided into two categories: how much of the pent-up demand and pandemic recovery margins will be sustained and [to what degree] the unwinding of these factors will be exacerbated by a recession.

Consistent with the estimate, Hutchinson’s view on these issues took on a more pessimistic slant. Headlining the overpowered targets was Kohl’s (KSS), which saw its price target not only cut nearly in half from $50 to $26, but was downgraded to a sell equivalent of “Neutral “.

“We are downgrading Kohl’s (KSS) to Underperform to realign it with our negative view of the department store industry; we were concerned about the fundamentals, but were neutral given the possibility of a pullback,” Hutchinson explained. “With a deal on the table, we see risk to estimates and the stock here.”

Shares of Kohl fell about 2% in the hours leading up to market Thursday.

Learn about Kohl’s broader revaluations as a standalone entity.