Consumer discretionary stocks are under pressure as investors weigh spending trends and margin concerns, but some names may offer longer-term upside as costs decline.
BNN Bloomberg spoke with Jamie Katz, senior equity analyst at Morningstar, about RH, Norwegian Cruise Line and Bath & Body Works as each works through near-term challenges.
Key Takeaways
- RH shares have fallen more than 20 per cent, with margin pressure tied to elevated investment spending expected to ease by 2027.
- Norwegian Cruise Line remains a turnaround story, with activist involvement and new leadership aimed at improving execution.
- Cruise demand remains resilient, particularly for value-focused travel, despite economic sensitivity.
- Bath & Body Works is refocusing on core products and expanding new channels, including Amazon and off-mall locations.
- All three companies are positioned for potential margin expansion as cost structures improve and strategic changes take hold.
Read the full transcript below:
ROGER: Time for Hot Picks. Today, we’re zeroing in on three consumer discretionary stocks. Our next guest has RH as his top pick. Here to break them down is Jamie Katz, senior equity analyst at Morningstar. Jamie, thanks, as always, for joining us.
JAMIE: Thanks for having me.
ROGER: It’s been a rough week for RH, but you’re liking it?
JAMIE: Yes. When you look at a more than 20 per cent drop in the share price after earnings, it creates an opportunity for investors looking to enter the stock. The biggest issue is that it’s still a heavy investment year, which has led to concerns about profitability and when margins will return to expansion rather than compression.
We think it may take some time before the shares move higher, but at current levels, we haven’t seen pricing like this since the beginning of the pandemic. There are costs that will roll off next year, which should allow 2027 to be a year of operating margin expansion again.
ROGER: This is very different from 2020. What gives you confidence it will bounce back?
JAMIE: We already know there are roughly 300 basis points of costs tied to the international expansion strategy, and those costs are largely coming off next year. That should make the cost structure easier to manage and improve operating efficiency.
This isn’t a business that will grow 20 per cent annually, but it is investing in innovation and launching its RH Estates business. That gives it an opportunity to grow faster than the broader market.
ROGER: All right, next up, Norwegian Cruise Line.
JAMIE: This is a strong turnaround story. The business has lagged peers like Royal Caribbean and Carnival. An activist investor recently took a stake, prompting a board refresh with five new members, and there’s a new CEO in place.
There were some self-inflicted decisions that will work through the income statement, but the focus now is on improving deployment and demand. Consumers are still cruising, and demand for value-focused vacations remains strong given economic sensitivity.
ROGER: What do you like about having an activist investor involved?
JAMIE: It helps accelerate change. Without that pressure, we may not have seen five new board members. It brings fresh perspectives and can help the business move more quickly to its next phase.
ROGER: And the new CEO?
JAMIE: He brings strong operating experience. It will be interesting to see whether he makes broader changes beyond deployment strategy. He was previously on the board, so he understands the business well.
ROGER: Moving on now to BB — Bed Bath and Beyond, right?
JAMIE: Close, but Bath & Body Works. That’s a common mix-up.
ROGER: I shop there regularly, as you can tell.
JAMIE: This is also a turnaround story. The men’s business is performing reasonably well. A new CEO joined from Nike last year, and the company is refocusing on its core strengths, exiting less productive lines and improving efficiency.
It’s expanding its off-mall footprint, launching an Amazon store and working to meet consumers where they are. There’s significant opportunity for margin expansion as the company refocuses on its highest-return opportunities.
ROGER: Is Amazon a channel where the company can thrive?
JAMIE: Previously, third-party sellers were offering its products, but now the company can control messaging and branding. For consumers who want convenience, it adds another touchpoint. Even if it generates $100 million in revenue in the first year, it’s still incremental growth and better control of the customer experience.
ROGER: Any concerns if higher oil prices pressure consumers?
JAMIE: Bath & Body Works falls into affordable luxury, so it may be more resilient. I’d be more concerned about Norwegian, particularly if geopolitical tensions affect travel to regions like the Mediterranean.
ROGER: We’ll leave it there. Jamie, thanks very much for joining us today.
JAMIE: Thank you.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| RH NYSE | N | N | N |
| NCLH NYSE | N | N | N |
| BBWI NYSE | N | N | N |
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This BNN Bloomberg summary and transcript of the April 2, 2026 interview with Jamie Katz are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
