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Consumer discretionary stocks have outperformed consumer staples stocks so far this year. While there have been some pockets of deceleration with travel and leisure spending, consumers have not pulled back on apparel and footwear purchases to the degree feared just a few months ago. Notably, earnings reports covering the crucial holiday season for the apparel and footwear sector came in stronger than anticipated for the most part to allay concerns of a mall recession. One of the reports that turned heads was when Ralph Lauren (RL) pointed to strong international sales, lower freight costs, and a nice boost from Taylor Swift exposure in smashing earnings expectations. Urban Outfitters (URBN) and American Eagle Outfitters (AEO) also surprised to the upside with their holiday sales tallies. Birkenstock (BIRK) reported revenue growth across all regions, including a 19% gain in the Americas and 33% in Europe. Meanwhile, general merchandisers TJX Companies (TJX) and Walmart (WMT) both saw apparel sales come in ahead of expectations.
A majority of apparel retail stocks are showing share price gains through the first two months of the year. Stocks showing double-digit rallies in 2024 include a.k.a. Brands (AKA) +68%, Abercrombie & Fitch (ANF) +47%, RealReal (REAL) +40%, Revolve Group (RVLV) +37%, Deckers Outdoor (DECK) +36%, Crocs (CROX) +35%, On Holding AG (ONON) +30%, Digital Brands Group (DBGI) +29%, Tapestry (TPR) +28%, Ralph Lauren (RL) +28%, Ermenegildo Zegna N.V. (ZGN) +27%, Hanesbrands (HBI) +23%, Designer Brands (DBI) +22%, Caleres (CAL) +21%, (BOOT) +20%, Urban Outfitters (URBN) +19%, Canada Goose (GOOS)) +17%, American Eagle (AEO) +14%, Hibbett Sports (HIBB) +13%, Wolverine World Wide (WWW) +13%, Nordstrom (JWN) +12%, Lulu’s Fashion Lounge Holdings (LVLU) +12%, Levi Strauss (LEVI) +11%, Citi Trends (CTRN) +11%, and Foot Locker (FL) +11%.
The strong start to the year for apparel and footwear stocks is not completely across the board as athletic-related stocks have been underperformers. A higher level of promotional activity, fashion shifts, and the emergence of new smaller competitors has factored into softer sentiment on manufacturers Under Armour (UAA), Nike (NKE), Lululemon Athletica (LULU), and Adidas (OTCQX:ADDYY).
As for quantitative analysis, the four apparel-related stocks with Seeking Alpha Quant Ratings of Strong Buy are Abercrombie & Fitch (ANF), American Eagle Outfitters (AEO), Urban Outfitters (URBN), and Torrid Holdings. The quantitative analysis check also shows Buy ratings for Guess? (GES), Revolve Group (RVLV), Aritzia (OTCPK:ATZAF) and Inditx (OTCPK:IDEXY).
Volatility watch: Stocks trading in the broad apparel and footwear sector with a high level of short interest include The Children’s Place (PLCE), (DBGI), Guess? (GES), Canada Goose (GOOS), Rent the Runway (RENT), Foot Locker (FL), Birkenstock (BIRK), Express (EXPR), Shoe Carnival (SCVL), On Holding (ONON), and Torrid Holdings (CURV). Within that group of short squeeze candidates, Seeking Alpha analyst Edward Vranic has his eyes on Children’s Place (PLCE). “I consider this to be a special situation as opposed to a value play or a speculative bet on a growing industry of which I am bullish,” wrote Vranic on the PLCE breakout potential.
