Specialty Retail & Department Stores: Coverage Resumption – Finding Mispriced Earnings Power

Research evidence excerpt

Specialty Retail & Department Stores: Coverage Resumption – Finding Mispriced Earnings Power

Foundation

July 5, 2026 11:09 PM GMT

Morgan Stanley & Co. LLCMSpecialty Retail & Department Stores | North Alex Straton

America Equity Analyst

Alex.Straton@morganstanley.com +1 212 761-5583

Katy Delahunt

Research AssociateCoverage Resumption – Finding Katy.Delahunt@morganstanley.com +1 212 761-6034

Lauren Levine

Research AssociateMispriced Earnings Power Lauren.Levine@morganstanley.com +1 212 761-4052

Shakhnoza Mamadalieva

We favor companies where we believe the market is Research Associate

Shakhnoza.Mamadalieva@morganstanley.com +1 212 761-2179

underestimating medium-term earnings power – whether by Bas R Jaspers

misjudging the durability of sales, the sustainability of margins, EquityBas.Jaspers@morganstanley.comStrategist

or the trajectory of turnaround execution – while avoiding

Retail, Specialty Retail

names where recovery expectations appear too optimistic. North America

Reflecting that framework, we’re Overweight rated M, TPR, Industry View Attractive

Retail, Department Stores

URBN, & VSXY, & Underweight rated KSS & LULU. M represents North America

Industry View In-Line

our most differentiated Overweight, & LULU is our most

See our ratings & price targets in Exhibit 1.

differentiated Underweight.MWe’re bullish on the Specialty Retail & Department Store sub-sectors. Our

constructive view reflects what we believe is an improving set-up into 2H26,

supported by a potential early-cycle backdrop, generally fair-to-beatable consensus

estimates, & several incremental consumer & earnings tailwinds that we do not

think are fully reflected in current expectations – including tariff relief/mitigation,

easing inflation, a resilient labor market, & potentially lower gas prices, among