Despite unfavorable market conditions for the past year, consumer spending has not slowed. Consumer spending has exploded over the pandemic, growing from $484.5 million in 2021 to $535.7 million in 2023, representing a 10.5% increase over two years.
Despite positive growth trends, Nike (NYSE:NKE) faced difficulties recently. Nike’s stock price slipped 24% in the past month. Management provided poor sales guidance on its second-quarter earnings call, telling investors to expect sales to decline 10% in the coming year. This news made waves, as analysts only expected a 3% decline, and was a major contributor to the stock’s drop in value.
This information should bolster confidence in the clothing industry. Conversely, it shows that Nike is weakening its hold over the apparel market. Investors can interpret this as the available apparel market share increasing in a strong industry.
With it being a financially secure industry, now is the time for investors to invest in apparel stocks that can fully capitalize on this situation. Here are three apparel stocks I have in mind.
Abercrombie and Fitch (ANF)
Abercrombie and Fitch (NYSE:ANF) is a lifestyle retailer, specializing in contemporary clothing. Yahoo Finance reports 16 analysts predicting a one-year price range on ANF between $172 and $215, with an average price target of $195.60.
ANF financials for the second quarter were phenomenal. What stood out to analysts was the company’s net income, growing over 580% from a year ago. Revenue growth is also strong, growing 22.1%. ANF management has done an excellent job managing its balance sheet, with assets growing 16.1% in the last year and liabilities growing 1.72%. This signals that while these growth metrics are astounding, they are sustainable in the long term for ANF.
ANF’s recent developments are strategically impressive, as its partnerships and expansions allude to the company’s potential. The company recently partnered with McLaren Formula 1 team for licensed apparel and social media coverage of McLaren Racing. The social media side of the partnership includes sweepstakes for Abercrombie and McLaren merchandise, autographed memorabilia, as well as Formula 1 event tickets. Additionally, the company is expanding its offerings with its new experiential wedding shop event.
These demonstrate that ANF is taking a strong stance on improving customer engagement. Leveraging social media and new experiences to improve customer engagement makes ANF one of the top apparel stocks to buy.
Urban International (URBN)
Urban International (NASDAQ:URBN) is known as a premier fast-fashion apparel distributor. Yahoo Finance reports 16 analysts predicting a one-year price range on URBN between $35 and $52, with an average price target of $44.96.
URBN shows modest growth for the second quarter, with an emphasis on profitability. While operating expenses outpaced revenue growth, net income grew an impressive 16.94% from a year ago. The 23.2% annual growth in earnings per share further supports improving profitability even after dividend payouts to shareholders. Management has definitely contributed to the company’s improved cash flows, specifically with a 61.4% year-over-year increase in cash from operations.
Urban Internationally recently started international expansion, opening its first store in Paris. Stefan Laban, global head of Urban International, stated that the company plans to expand in Europe, the Middle East and Asia within the next three years. URBN has no intentions to stop at “just one store” in Paris, but intends to expand to multiple locations within Paris and France as a whole.
This likely means that the company has plans similar to those for its other global expansions. This move could catapult Urban Outfitters to become a global fast-fashion company. This potential is enough for investors to look into this apparel stock.
Lululemon (LULU)
Lululemon (NASDAQ:LULU) is a market leader in activewear and loungewear apparel. Yahoo Finance reports 35 analysts predicting a one-year price range on URBN between $225 and $525, with an average price target of $392.54.
LULU demonstrates robust revenue-generating ability and profitability within the apparel sector. With 15.65% revenue growth from a year ago, it is over 7 times better than the sector median. The company’s free cash flow growth of 236% over the last year showcases its excellent profitability.
LULU stock shows signs of being significantly undervalued, as seen through a weighted average cost of of capital of 6.4% and an impressive 28.5% return on invested capital. This indicates that the company can generate significant shareholder returns after meeting its financial obligations.
Lululemon is making significant changes to management. The company is creating a new team from the merchandising and brand team leaders, overlooking global and regional growth and market strategies for Lululemon. This change in management seems like a necessary one.
Lululemon faces stiff competition from competitors such as Athleta and Vuori. Focusing on how it can solidify its position as an industry leader in global and regional markets is a strategic choice for the company. In addition to the massive discount from being down 40% so far this year, LULU is an appealing apparel stock buy for me.
On the date of publication, Matthew Rodrigues did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.