Fashion apparel and accessories can be a lucrative investment sector if you research well before and pick the right companies. This sector can be fickle due to not only being affected by traditional underlying forces but also due to consumer taste and trends. A brand that is very popular one year can very well be put aside for another, very quickly, according to what is considered “in”.
Reputation and image is very important for the performance of retail stocks. There are a few metrics that you can use to gauge a brand including same store sales growth and gross margins.
Other risks to consider include the on-going trade war between the US and China that will include a further tariff on $60 billion of goods including categories that will affect Fashion stocks. The new tariffs will come into effect in June.
RYU Apparel Inc. (RYU-X)
A largely Canadian fitness apparel company that also has a presence in the US. They are strengthening their ecommerce and online presence. They are a fairly new company, trading for under 5 years. Currently, they are in their growth stage.
He would like to see a couple of good quarters out from them. It is thinly traded. You have to be prepared to watch it quarter by quarter.
Gildan Activewear Inc. (GIL-T)
A part Canadian and American manufacturer of unbranded clothing. They manufacture branded apparel on behalf of clients and businesses. The latest report has shown that they have great cash flow and are buying back stocks. A dividend increase has also been announced.
He's passed on this after reviewing it many times. They depend on retail sales in clothes, and face a lot of competition. They grew very quickly but have been plateauing. It craters on high cotton prices, though. It's a trade at best.
Le Chateau Inc. (A) (CTU-X)
A Montreal based specialty retailer. They are known for their contemporary designed clothing. A financing agreement of $1M was announced in February for working capital purposes.
This has been a very difficult stock. Recently reported a very bad quarter. He would stay away from this one. Inventory has gone up a lot and their margins have fallen. Cut the dividend totally. Thinks they are in a bit of trouble.
Canada Goose Holdings (GOOS-T)
A Canadian luxury winter apparel maker. Their coats are priced in the thousands. It’s a little expensive now with 40x valuation but they have a history of breaking earnings forecasts. They are expanding globally and are enjoying growing sales.
(A Top Pick Aug 11/20, Up 32.7%)Stockchase Research Editor: Michael O'Reilly We have been impressed with the pre-season rally and GOOS has achieved our first price objective. We are recommending to take 50% off the table here and trail the stop-loss up to $34, just above the intial Top Pick entry level.
Reitmans (Canada) Ltd. (A) (RET.A-T)
Brands under them include Reitmans, RW & CO and Penningtons. Tax loss selling affected them but they have been a steady name. They have been closing their worst stores. Some buy this just for the dividend, which is at 5.99%.
(A Top Pick Oct 22/18, Down 35%) He sold this at $3. They offered to buy 15 million shares of stock and the took the offer. He is glad to be out. Sales are falling and they have closed 48 stores. He wonders if management should be changed. Their online sales have been going up,…
Aritzia Inc. (ATZ-T)
A Canadian women’s fashion brand out of Vancouver. They have been experiencing good growth and are expanding in the US where brand recognition is high too. Their online presence is strong and investors are keeping a close eye for its potential.
(A Top Pick Sep 16/19, Up 5%) Loves it and bought more at $15. They have massive growth potential. They have over 100 store locations targeted in the US. About 30% of sales are online and the stores will catch up as stores reopen. He targets $25-30 and a long-term grower.
Macys Inc. (formerly Federated Department Stores) (M-N)
Big box stores have been facing increased headwinds from ecommerce and changing consumer patterns. Macys has been the better of the bunch in cost reduction and doing online business but there is vulnerability to Amazon and other online competitors.
A challenged company now, but you have to believe in both a vaccine to spark a wide recovery and a continued weakening US dollar in order to enter this.
Ross Stores Inc. (ROST-Q)
The second largest off-price retailer after TJX. They buy excess inventories from more recognized brands and acts as an outlet. When traditional retail companies aren’t doing well, these companies will do better. It was one of the only stocks to have a positive rate of return in 2008.
A discount US retailer found in strip malls. They buy excess inventory from big department stores like Nordstrom. ROST is like Homesense. High margins, low debt. They will thrive as consumers watch their money. Like Dollarama, this is defensive. With some big retailer likely to close, like J. Crew this opens an opportunity for ROST…
Nordstrom Inc (JWN-N)
A chain of luxury department stores. They have a good presence in online retail and their ecommerce store is one of the best in the luxury space. Investors are expecting another strong earnings report since they have a history of beating expectations.
A great company, one of the leading retailers out there. Very good e-commerce platform. Growing sales. But they are going through a high investment cycle. They traditionally trade at around a 15X forward multiple of earnings, and now are close to 20 or 21 times, so they are on the expensive side.
Chico’s FAS (CHS-N)
A women’s fashion retailer. Sycamore Partners has submitted an offer to purchase the entirety of the business for $3.50 per share. A previous offer for purchase at $4.30 was offered but rejected by the board since they saw the offer undervaluing the company.
Women's fashion retailer. Had been very successful through the 90s. High-end fashions in the US. Sold his holdings about a year ago when management stubbed its toe by moving into accessories for the younger crowd.
A major player in retail with brands such as Old Navy, Gap, Banana Republic under them. They are reporting first quarter earnings on May 30, 2019. They are suffering from the general trend away from brick and mortar stores. A longer-term survivor.
Part of the "lag trade" of brick-and-mortar mall retailers that sold off this summer, but are coming back with room to run. Their Athleta line competes with Lululemon. People are buying comfortable clothing, now that they work from home (as opposed to business wear). In August's report, Athleta sales were up 19% while Old Navy…
Tapestry Inc. (TPR-N)
Coach, Kate Spade and Stuart Weitzman are key labels under Tapestry Inc. They renovated much of their physical stores are starting to see a revival in the Coach brand. The share buyback program is going well as planned.
Got an analyst upgrade today and the stock surged and lifted the entire retail clothing sector. He prefers tried-and-true Lululemon though.
DSW Inc (DSW-N)
A footwear retailer. They performed some acquisitions and are opening stores globally. Same-store sales rose more than 5% in the latest report. They have a good history of raising dividends and it currently sits at 4.5%.
(A Top Pick March 14/17 Up 40%) He liked this based on the overall valuation metrics. This shoe retailer has done well in a sector with stiff competition. They are expanding internationally, including Dubai. He does not expect a similar 40% bump, but still likes holding it.
Michael Kors Holdings (KORS-N)
They changed their name to Capri Holdings Limited (CPRI-N) in January of this year. They have Versace and Jimmy Choo under them and are looking to bolster their operations through the various brands. Their original brand, Michael Kors, has had trouble growing sales and maintaining status and image.
*Short* Bricks and mortar is getting killed. There are way more losers in bricks and mortar then winners. This one is a loser. Management is essentially guiding to lower margins, lower EPS, lower revenue and more store closings. (Analysts’ price target is $36.)
American Eagle Outfitters (AEO-N)
An American clothing and accessories retailer that focuses on the teen to young adult segment. They are focusing on expanding online retail and investors are beginning to put more confidence behind this company. They have grown 6.2% year-to-date compared to the industry’s 4.3% decline.
Part of the "lag trade" of brick-and-mortar mall retailers that sold off this summer, but are coming back with room to run. A teen retailer with a great segment, Aerie, their lifestyle brand including activewear which posted 20% same-store sales growth in 2019. Has a ton of room to expand. An analyst in August upgraded…
Guess Inc (GES-N)
An apparel and accessories company that has been gaining interest from hedge funds and other investors. They are starting to repurchase their common stock and are redistributing capital. They recently cut their dividends in favour of the buyback plan.
Nike Inc (NKE-N)
A spectacular growth story with global presence. Revenues from China grew well and have not been affected as much by the US-China dispute. Consumer confidence must be closely monitored since this company is particularly vulnerable to be hit if it falls.
Pro-China trade will return if Biden wins the presidency. Pro-China trade will return if Biden wins the presidency. Nike already thrives in China where sales led their recent blow-out quarter. Further, China has Covid under control with contact tracing and everyone wearing masks, so their economy is roaring. Nike is pricey now, but he targets…
L Brands Inc. (LB-N)
Flagship brands under them include Victoria’s Secret and Bath & Body Work. The tariff war has hit these brands particularly hard. It is a high quality brand but is facing increasing pressure from other online retailers.
He's not recommending this because of the ailing Victoria's Secret. Rather, the red-hot soap chain, Bath and Bodyworks, accounts for half the company's revenues. A huge driver will be the hygiene bull market that will endure after Covid, as consumers have improved their hygiene habits for good.
Abercrombie & Fitch (ANF-N)
A wildly volatile stock. They recently cut their COO position and some have questioned their accounting practices. A stock to watch but beware and do your due diligence.
Retail side of the market has been weak. There are too many questions on this one to be involved. Looking for a new merchandising manager, splitting the CEO and chairman positions and are basically saying that if an activist wants to come in, do so.
Tiffany & Co. New (TIF-N)
A luxury jewelry and specialty retailer famous for their diamonds and sterling silver. They were also affected negatively due to the US-China trade war since investors worry that diamonds and jewelry will be included in tariffed goods.
Investors buy luxury stocks at the bottom of a recession, because the rich part of a population hold up much better in a recession. Now is not a good time to enter luxury stocks. There's nothing wrong with Tiffany per se, but now is not the time and TIF is slightly exposed to China, which…
Under Armour (UA-N)
A sports and casual wear manufacturer. They are nearing the end of a three year transformation. They are particularly popular due to the athleisure movement and demand for smart looking workout clothing.
(Past Top Pick, May 10, 2018, Up 20%) Volumes are rising, the stock is coming alive and there's plenty of room for this stock to regroup. Those who have owned this since it's drop of the past few years will hold on now that it's starting to climb again, so they can get their money…
LuLulemon Athletica (US) (LULU-Q)
A Canadian company trading on the NASDAQ. They have gotten support for their athleisure and fashion forward apparel. The major bulk of their clientele are discerning millennial shoppers looking for good quality apparel.
Really expanded from home base. Highest sales per square foot of any retailer in US. Work from home has changed consumer clothing habits. China is a huge opportunity, as are digital sales and men's clothes. No dividend. (Analysts’ price target is $364.58)
Urban Outfitters (URBN-Q)
An American multinational consumer goods and apparel company. They announced strong results in the holiday quarter and are expected to announce their Q1 earnings on May 21.
*Short* They also have 2 other brands, which are 60% of their sales, and those are really struggling. There has been very poor mall traffic. Virtually every department store has been warning. You also have all the cyclicals in vagaries of getting fashion right, which is very hard. (Analysts’ price target is $32.88.)
TJX Companies (TJX-N)
The largest international apparel and home fashion off-price retailer. They change inventory quickly and are good at keeping up with consumer taste. In a recession environment, these types of companies thrive. Their brands include Marshalls, Winners and Home Senses.
He questions how good it is, because it's a retail store. Has good inventory. Doesn't scream higher. He sold some of his shares.
A leading undergarments and athletic apparel manufacturer. They posted the highest quarterly sales growth in eight years for the fiscal year 2018. Champion, one of their brands, has been growing internationally and is expected to continue its expansion.
It is a crowded industry with margins not so great. Their balance sheet is not so great so put it on the pile of undifferentiated commodities. Also there were recently some executive departures. He prefers NKE-N.
Carter’s Inc (CRI-N)
A children’s apparel company that supplies a lot of discount retailers under different names. Earnings were impacted by unfavourable currency rates and soft sales. However, a large majority of mothers shop at their stores and they are opening more stores than they are closing.
(Top Pick Mar 18/15, Up 6.73%) Every household with kids shop for this brand of clothing. They supply a lot of discount retailers under different names. The expansion into Canada is hampered by the currency. They are expanding into China who now has a two child per family allowance.
LVMH (Moet Hennessy Louis Vuitton) (LVMUY-OTC)
The biggest luxury-goods company in the world. It’s a good name to be defensive during the US-China tariff war as this is not expected to affect LVMH. High-end retail continues to do well and they are doing a great job with online commerce. A good stock to hold long term.
In a recession, the wealthy continue to support the luxury brands. Though they may gear down and buy smaller items. Tiffany will be joining the stable. Risk-adjusted returns are quite attractive. Yield is 1.29%. (Analysts’ price target is $406.85)