The bear is growling angry right now on Wall Street, but that’s when savvy investors should be busy making shopping lists to pick up exposure to long-term growth opportunities currently on sale.
Every time this happens – the blood flows on the Street – most market participants make the mistake of getting swept up in crowd psychology, rather than coldly and rationally scanning for deep discounts on high quality names with strong growth prospects.
The market doesn’t go up forever. But it always comes back from dips eventually. When we see big swings to the downside, and fear rules the tape, that’s the only time you are ever going to have the chance to pick up exposure to interesting stocks without paying a premium.
One area that could be increasingly interesting right now is the trendy apparel space.
Sales of apparel took a hit during the pandemic, but that could ultimately be a story of pent-up demand as we move into the future. During the pandemic, people engaged in far fewer social activities and spent more time at home. Now, as the world reopens, it’s time to play catch-up in terms of consumer demand. That could bode extremely well for apparel names in the quarters ahead (1).
The revenue of the global apparel market was calculated at USD$1.5 trillion in 2021 and was predicted to increase to approximately USD$2 trillion by 2026. The United States and China account for most of this apparel demand (2).
With that in mind, we take a look at some of the most interesting stories in the apparel space below.
Skechers USA Inc. (NYSE:SKX) engages in designing, development, and marketing of lifestyle footwear for men, women, and children of all ages. It operates through its Domestic Wholesale, International Wholesale, and Direct-to-Consumer segments.
The Domestic Wholesale segment distributes footwear through the local wholesale distribution channels including department stores, specialty stores, athletic specialty shoe stores and independent retailers, as well as catalog and internet retailers. The International Wholesale segment includes international direct subsidiary and international distributor sales. The Direct-to-Consumer segment refers to e-commerce which operates through the concept stores, factory outlet stores, and warehouse outlet stores.
Skechers USA Inc. (NYSE:SKX) recently announced financial results for the first quarter ended March 31, 2022, including record quarterly sales of $1.82 billion, a year-over-year increase of 26.8%, wholesale sales growth of 32.7%, direct-to-consumer sales growth of 15.7%, and diluted earnings per share of $0.77, a year-over-year increase of 22.2%. The company also noted that it repurchased $25 million of common stock (3).
“First quarter sales of over $1.8 billion are a new quarterly sales record for Skechers, and reflect our broad-based global appeal and our team’s focus on successfully navigating supply chain constraints,” began David Weinberg, Chief Operating Officer of Skechers. “The sales achievement was driven by increases of 33% in our Wholesale and 16% in our Direct-to-Consumer segments. By region, the growth was the result of increases of 31% in the Americas, driven by double-digit growth in the United States; 49% in EMEA, driven by strong growth across Europe; and 4% in APAC, led by 9% growth in China. Several key APAC markets faced increasing COVID-related restrictions as the quarter evolved including China. Despite the on-going pandemic and other macroeconomic headwinds, we are especially encouraged by the phenomenal growth we experienced. We believe this momentum will continue as we strive towards our goal of $10 billion by 2026.”
While this is a clear factor, it has been incorporated into a trading tape characterized by a pretty dominant offer, which hasn’t been the type of action SKX shareholders really want to see. In total, over the past five days, shares of the stock have dropped by roughly -12% on above average trading volume. All in all, not a particularly friendly tape, but one that may ultimately present some new opportunities. Over the past month, shares of the stock have suffered from clear selling pressure, dropping by roughly -6%.
Skechers USA Inc. (NYSE:SKX) managed to rope in revenues totaling $1.8B in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 27.4%, as compared to year-ago data in comparable terms. In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($694.8M against $1.4B, respectively) (4).
FBC Holding Inc. (OTC US:FBCD) is a small but up-and-coming brand in the apparel space dedicated to individual identity and expression.
The company’s primary brand is “Formrunner” (https://formrunnerapparel.com/) (5).
FBC Holding Inc. (OTC US:FBCD) most recently announced that the company is looking to establish a Brand Ambassador as a potential outlet to expand the apparel line to get a better name around the world. According to its release, the company has been working diligently to enter the Entertainment/Music Industry through multiple connections and relationships to big Hip-Hop & Rap Artists.
This could potentially be a major catalyst if and when it hits, which is why we include it here despite the stock’s small market cap and lack of current fanfare.
As noted by the company, the apparel market encompasses every kind of clothing, from sportswear to business wear, from value clothing to statement luxury pieces. After difficulties in 2020 during the coronavirus pandemic, when sales across the apparel industry took a hit, the global demand for clothing and shoes is set to rise again.
FBC Holding Inc. (OTC US:FBCD) CEO and President, Lisa Nelson, stated, “By having a Brand Ambassador to represent our clothing line, this will make Formrunner Apparel reach its true potential along with explosive revenue and exposure… In 2022, Brand Ambassadors are the most impactful way to boost a brand. Brand ambassadors supply the human aspect to marketing campaigns. The more people get to know a brand, the more likely they are to buy. They can also help to build up positive online reviews and comments which affects the way potential customers view products.” (6)
Stitch Fix Inc. (Nasdaq:SFIX) bills itself as the world’s leading online personalized shopping experience. Founded in 2011, the company is building a “transformative and inclusive ecommerce model, an ecosystem of shopping experiences based on convenience and guided discovery that makes it radically simple and delightful for customers to discover and buy what they love.”
According to its communications, SFIX represents an interesting online personal styling service that delivers personalized fixes of apparel and accessories to men, women, and kids.
Stitch Fix Inc. (Nasdaq:SFIX) recently announced that it is joining forces with Emmy Award winning actor and producer Keegan-Michael Key for its new “Stitch Fix It” campaign. According to the release, fresh insights from a Stitch Fix-commissioned survey found that men hold onto old clothes for a number of reasons, with almost half (46%) citing sentimental value and lack of time as hurdles to a closet refresh. Informed by these results, Stitch Fix teamed up with Keegan-Michael Key, who admits he is among the 28% of men that regularly wear items more than a decade old. To kick off Key’s first-ever retail partnership, Stitch Fix is debuting an exclusive music video performed by Key, infused with the actor’s signature wit, encouraging men to join him in breaking up with their outdated wardrobe.
“I’ll admit, I’m guilty of hanging onto clothes for too long and at times need a nudge to keep me from falling into a style rut,” says Keegan-Michael Key. “For the 40% of men who say tossing their overworn clothing is worse than a break-up, Stitch Fix is the wardrobe wingman ready to arm you with personalized style recommendations and provide a time-saving solution for that wardrobe refresh.” (7)
SFIX shares have been murdered over the past year, but could represent a deep value opportunity given the company’s recent catalysts. The stock’s RSI reading is now near 30, which is an RSI score that often signals oversold conditions.
Stitch Fix Inc. (Nasdaq:SFIX) has a significant war chest ($266.9M) of cash on the books, which must be weighed relative to about $276.6M in total current liabilities. SFIX is pulling in trailing 12-month revenues of $2.2B. In addition, the company is seeing minor top-line growth, with y/y quarterly revenues growing at 2.5%. (8)
Other core names in the apparel space include Nike Inc. (NYSE:NKE), lululemon athletica inc. (Nasdaq:LULU), Farfetch Ltd. (NYSE:FTCH), TJX Cos. (NYSE:TJX), and Target Corp. (NYSE:TGT). (9)
References:
1. https://www.ipsos.com/en-us/news-polls/axios-ipsos-coronavirus-index
3. https://finance.yahoo.com/news/skechers-announces-record-first-quarter-200500993.html
4. https://www.marketwatch.com/investing/stock/skx?mod=quote_search
5. https://formrunnerapparel.com/
7. https://finance.yahoo.com/news/stitch-fix-keegan-michael-key-134000245.html
8. https://www.marketwatch.com/investing/stock/sfix?mod=quote_search9. https://www.fool.com/investing/stock-market/market-sectors/consumer-discretionary/apparel-stocks/
