Fashion brands and apparel retailers represent an interesting focus for investors pining for value in cash-rich portfolios after a brutal first half of the year. In fact, it was the worst first half of a calendar year for the stock market since 1970. (1)
Now, sentiment is in the basement and blood is on the Street. But that’s often when opportunity is ripe and only available to those willing to go against the herd when the herd is running in step. (2)
Several dynamics define the picture right now. The first and foremost of them is inflation and the Fed’s battle to tame it. That holds the potential to drive us straight into a new recession this year, as noted this week by analysts at Bank of America. (3)
Second, we are still working to re-normalize after a multi-year viral pandemic. That has many consequences, but chief among them is the transition away from isolated needs toward public needs. That manifests itself in the form of a bias toward spending on services over goods. But it also biases toward spending on goods related to social activity over goods related to home life.
Apparel is a perfect example of this side of the equation. (4)
People are likely to spend more on new clothes and fashion this year than any other year since late last decade precisely because we are all suddenly thrust back into public life and physical coexistence after 2-3 years of sequestration and Zoom meetings. (5)
The office is back. Restaurants are back. Live events are back. Nightclubs are back. Museums are back. Concerts are back. Public life is back.
Public life demands apparel.
With that in mind, we take a closer look below at a few of the most interesting opportunities in the fashion and apparel space.
lululemon athletica inc. (Nasdaq:LULU) engages in the designing, distributing and retail of athletic apparel and accessories. It operates through its Company-Operated Stores and Direct to Consumer segments.
The Company-Operated Stores segment comprises lululemon and ivivva brands; and specialize in athletic wear for female youth. The Direct to Consumer segment is involved in the e-commerce business, building brand awareness, particularly in new markets.
lululemon athletica inc. (Nasdaq:LULU) recently announced plans to introduce the brand to more communities around the world by opening two new stores and a local e-commerce site in Spain. With significant runway ahead and the Company’s “Power of Three ×2” growth plan, which includes a quadrupling of its international revenue from 2021 levels by year-end 2026, lululemon enters Spain as the first new market in Europe since 2019.
“As a brand which supports wellbeing, lululemon has a strong synergy with the active, balanced lifestyle enjoyed in Spain,” said André Maestrini, Executive Vice President, International. “We’re looking forward to connecting with Spanish guests, through our website and at our first retail stores opening in Madrid and Barcelona. The strength of our model across product innovation, guest experience, community and culture provides a unique advantage as we introduce lululemon to our newest market.” (6)
The stock has suffered a bit of late, with shares of LULU taking a hit in recent action, down about -4% over the past week.
lululemon athletica inc. (Nasdaq:LULU) managed to rope in revenues totaling $1.6B in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top line growth of 31.6%, 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 ($649M against $1.2B, respectively). (7)
FBC Holding Inc. (OTC US:FBCD) is an interesting small-cap name in the space that just announced it expects to continue explosive growth and increase its 2020 revenue by 650% as it transitions into becoming a leadership name in the space this year.
According to the company’s release, from sportswear to business attire, discount to luxury, many different categories and segments make up the apparel market. Several of these categories are worth billions of dollars. In 2021, the revenue of the global apparel market reached 1.5 trillion U.S. dollars, and the industry continues to show positive growth. Revenue was estimated to rise to almost two trillion dollars by 2026. Within this vast global market, the United States had the largest apparel market of any country in 2021.
FBC Holding Inc. (OTC US:FBCD) has built its reputation by delivering on both clothing quality and price to become one of the most respected and trusted names in the Retail Clothing Space. Management feels its customers admire the brand’s variety of high-end clothing, top notch customer service, competitive pricing, and easy payment alternatives.
President & CEO Lisa Nelson states, “We are dominating the competition at our retail store Hyperviolent in Fashion Square Mall in Scottsdale, Arizona, and we are thrilled to see what the rest of the year brings us!”
Lisa Nelson also stated, “What differentiates us from the competition, is that we appeal to everyone with all unique styles of clothing ranging from $40 all the way up to $800+ for a single piece of clothing, so we have multiple options available.” (8)
Since Hyperviolent – one of its key brands – first opened, Formrunner Apparel Inc. has managed to establish valuable long-term relationships with customers and distributors, and management has expressed its excitement about how this strategy will progress during coming quarters.
FBC Holding Inc. (OTC US:FBCD) has been forging potential double-bottom support at recent lows. The stock has basically been trading in a sideways consolidation since May despite broad market declines that rival some of the worst periods in modern history. That dovetails with the company’s recent growth curve and could signal an important shift in trend now being baked into the cake on the chart. (9)
Gap Inc. (NYSE:GPS) operates as a global apparel retail company, which offers clothing, apparel, accessories, and personal care products for men, women, and children. The firm operates through its Gap Global, Old Navy Global, Banana Republic Global, Athleta, and Other segments.
The Gap Global segment includes apparel and accessories for men and women under the Gap brand, along with the GapKids, BabyGap, GapMaternity, GapBody, and GapFit collections. The Old Navy Global segment offers clothing and accessories for adults and children. The Banana Republic Global segment provides clothing, eyewear, jewelry, shoes, handbags, and fragrances. The Athleta segment offers fitness apparel for women.
Gap Inc. (NYSE:GPS) recently announced that president and chief executive officer Sonia Syngal will step down from her position and from the company’s Board, departing the company following a brief transition.
“Leading this great company and our 100,000-strong employees since 2020, through unprecedented challenges for our industry, and society, has been an immense honor. Through it all, Gap Inc. and its dedicated teams have seized change as an opportunity, restructured for future growth, crystallized unique brand identities rooted in cultural relevance and fiercely chased transformation,” said Syngal. “With an exceptional and industry-leading CEO for Old Navy now appointed, I am thankful to have the board’s support in stepping down, ushering in a new opportunity for fresh perspective and rejuvenated leadership to carry Gap Inc. forward.” (10)
The stock has suffered a bit of late, with shares of GPS taking a hit in recent action, down about -7% over the past week.
Gap Inc. (NYSE:GPS) has a significant war chest ($845M) of cash on the books, which must be weighed relative to about $3.5B in total current liabilities. GPS is pulling in trailing 12-month revenues of $16.2B. However, the company is seeing declines on the top-line on a quarterly y/y basis, with revenues falling at -12.9%. (11)
Other key names in the Apparel Space include TJX Cos. (NYSE:TJX), Stitch Fix Inc. (Nasdaq:SFIX), American Eagle Outfitters Inc. (NYSE:AEO), Urban Outfitters Inc. (Nasdaq:URBN), and Farfetch Ltd. (NYSE:FTCH).
References:
- https://www.cnbc.com/2022/06/30/the-markets-worst-first-half-in-50-years-has-all-come-down-to-one-thing.html
- https://finbold.com/bofa-bull-bear-indicator-hints-at-further-extreme-bearishness/
- https://www.bloomberg.com/news/articles/2022-07-13/bank-of-america-economists-forecast-mild-us-recession-this-year
- https://www.fool.com/investing/stock-market/market-sectors/consumer-discretionary/apparel-stocks/
- https://www.ipsos.com/en-us/news-polls/axios-ipsos-coronavirus-index
- https://finance.yahoo.com/news/lululemon-expands-international-footprint-launching-103000073.html
- https://www.marketwatch.com/investing/stock/LULU?mod=search_symbol
- https://www.otcmarkets.com/stock/FBCD/news/FBC-Holding-Inc-FBCD-Projects-Continued-Growth-up-to-650-and-Profitability-for-its-Online-and-Wholesale-Clothing-Divisio?id=364556
- https://www.tradingview.com/chart/?symbol=OTC%3AFBCD
- https://finance.yahoo.com/news/gap-inc-announces-ceo-sonia-203200475.html
- https://www.marketwatch.com/investing/stock/GPS?mod=search_symbol
