Wells Fargo sees lower profit across apparel sector on tariff, recession risks

Investing.com -- Wells Fargo slashed 2026 earnings estimates across the U.S. apparel and footwear sector given the dual pressures of elevated tariffs on Chinese imports and expectations for a mild U.S. recession beginning in the second half of 2025.

The brokerage cut its 2026 EPS forecasts by 20-25% below Street estimates and downgraded several stocks, including Carter’s Inc and Victoria’s Secret&Co, to “underweight,” citing poor positioning to manage near-term headwinds.

Gap Inc (NYSE:GAP) and Nike Inc (NYSE:NKE) were both downgraded to “equal weight” from “overweight.”

“We now incorporate, current tariff headwinds and, assumptions for a mild recession into our model, both headwinds to begin impacting numbers in 2H25,” analysts wrote, noting a cumulative 145% tariff on Chinese imports and weak consumer sentiment.

By contrast, Levi Strauss&Co (NYSE:LEVI) was upgraded to “overweight” as a “winner” in the space, with Wells Fargo (NYSE:WFC) highlighting low China exposure and strong brand momentum.

Canada Goose Holdings Inc (NYSE:GOOS) and VF Corp (NYSE:VFC) were both upgraded to “equal weight” from “underweight,” as bear cases appeared “largely played out.”

Wells Fargo added that resale platforms such as The RealReal (NASDAQ:REAL) Inc and ThredUp (NASDAQ:TDUP) Inc were the only names in its coverage where it did not lower estimates, citing their counter-cyclical positioning and zero tariff exposure.