A difficult economic environment for traditional retail companies could be particularly worrisome for Kohl's , according to UBS. Analyst Jay Sole downgraded Kohl's to sell from neutral, saying in a note to clients Friday that inflation and the wind-down of federal stimulus programs could hurt retailers as a whole and lead to a big earnings miss for Kohl's this year. "Inflation has become a big Softlines theme over the last two months and is causing us to change our KSS stock thesis. We believe inflation, along with the combined impact of lapping fiscal stimulus, a likely industry-wide inventory build, and rising interest rates, will pressure KSS' sales and margins much more than the market expects," Sole wrote. If the company does show signs of decline in its fundamentals, its investor base may cut bait and sell, according to UBS. "If Kohl's sales decline and margins come under pressure as a result of these macro catalysts, we think it will put big downward pressure on the stock even if the stock's multiple looks low today. Our sense from speaking to investors is few would want to own Kohl's in a scenario when the business is downtrending," the note said. UBS slashed its price target on the stock to $38 per share from $66. The new target is 22% below where the stock closed Thursday. Shares of Kohl's fell 3.5% in premarket trading. -CNBC's Michael Bloom contributed to this report.
A view outside a Kohl's store in Miramar, Florida.
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A difficult economic environment for traditional retail companies could be particularly worrisome for Kohl's, according to UBS.