Goldman sees more softness in US consumption

Mon Jan 14, 2008 8:34am EST

(Adds details, price targets)

Jan 14 (Reuters) - Goldman Sachs changed its rating and price target on several U.S. retailers and said given recent weakening trends in the labor market, it now sees further softening in consumption, which will likely tip the United States into a mild recession during mid-fiscal 2008.

The brokerage said, in particular, a second half margin recovery could be at risk if retailers do not plan inventory levels prudently enough.

"The department stores' sales and margins get hit the hardest (EPS revised down 23 percent) due to their highly discretionary sales mix and season-driven inventory positions, and apparel manufacturers are second in line," Goldman said.

Goldman Sachs downgraded Coach Inc (COH.N) and Polo Ralph Lauren Corp (RL.N) to "neutral" from "buy," saying luxury spend was beginning to show signs of fatigue and there was no visible catalyst on the horizon.

The brokerage also cut Sears Holdings Corp (SHLD.O) to "sell" from "neutral," saying it expects the retailer to experience accelerated share loss and profit pressures in an increasingly tough macro back drop.

With consumer trends set to soften further, Goldman said it would continue to advise investors to maintain a defensive investing posture through first half of fiscal 2008 at a minimum.

It continues to recommend Wal-Mart Stores Inc (WMT.N) and Costco Wholesale Corp (COST.O), both with a "buy" rating, as their more defensive sales mix and value orientation should drive share gains, Goldman said in a note to clients.

Following are some of the price target changes COMPANY NEW TARGET OLD TARGET Wal-Mart Stores Inc $53 $51 Costco Wholesale Corp $71 $73 Coach Inc $31 $43 Polo Ralph Lauren Corp $58 $82 Sears Holdings Corp $82 $118

(Reporting by Nachiket Kelkar in Bangalore; Editing by Amitha Rajan)

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