1Q26 Specialty Retail Preview: Cautious Consumer Sentiment In Focus

Research evidence excerpt

1Q26 Specialty Retail Preview: Cautious Consumer Sentiment In Focus

Global Research

May 19, 2026

1Q26 Specialty Retail Preview: Cautious Consumer■Retailing/Specialty Stores: Branded

Apparel Sentiment In Focus

■Retailing/Specialty Stores: Specialty Retail

Jonna Kim, CFA THE TD COWEN INSIGHT

646 562 1419

Specialty retail stocks on average compressed ~2x turns since 4/20, the recent peak in valuation since the Iran war, due to

jonna.kim@tdsecurities.com

concerns around high inflation and weaker consumer spend. At current valuation, we think most of the "bad" news could

Oliver Chen, CFA be baked in, but any negative commentary on QTD could send stocks lower. We lean more cautious on BBWI & GAP this

646 562 1424 quarter, and AEO and VSCO could fare better.

oliver.chen@tdsecurities.com

I. Key Points Ahead Of Earnings: Consumer Health, Margin Puts & Takes On Tariffs & Higher Oil Price & ValuationGabriella Garr

646 562 1356 ■Consumer Health: TD Strategy notes unemployment has remained relatively stable, with improving labor market

gabriella.garr@tdsecurities.com conditions among younger cohorts. However, inflationary pressures remain a key risk, and higher oil prices are likely to

weigh on consumer sentiment and near-term discretionary spending. Also, tax refunds have come in below expectations

Price Target Changes and skewed toward higher-income households, with a greater share used to pay down debt or increase savings.

AEO $18.00 (Prior $19.00)

BBWI $20.00 (Prior $26.00) ■Margin Considerations: Freight costs remain a key margin debate. We view tariffs as a near-term offset, with most

GAP $26.00 (Prior $32.00) company guidance assuming a ~20% tariff rate, suggesting the lower ~10% rate in effect from February through July

should provide a temporary tailwind.