Although apparel retailers bore the brunt of the pandemic-related store closures last year, the speedy COVID-19 vaccine rollout and substantial increase in consumer spending have helped the industry’s sales rebound strongly this year. According to the chief U.S. economist at PNC, the outlook for consumer spending is expected to remain “positive.” Even though the worries over the COVID-19 Delta variant dampened spending activity slightly in July, clothing and accessories store sales were up 43.4% year-over-year.
The global apparel market is expected to hit $842.7 billion in 2025, registering a 9.8% CAGR. A shift in preference to branded products, aggressive branding by retail apparel operators, and strengthening e-commerce platforms are expected to propel the industry’s growth.
Thus, Wall Street analysts are bullish about the upside potential of several fundamentally sound apparel retailers. For instance, they expect Adidas AG (ADDYY), Lands’ End, Inc. (LE), and Citi Trends, Inc. (CTRN) to rally by more than 75% in price in the near term.
Adidas AG (ADDYY)
Based in Germany, ADDYY is one of the world’s most prominent sportswear designers and manufacturers. The segments through which the company operates are Europe; North America Adidas; North America Reebok; Asia-Pacific; Russia/CIS; Latin America; Emerging Markets; Adidas Golf; Runtastic; and Other. ADDYY markets its products through mono-branded franchise stores, 2,500 own retail stores, wholesale distributions, and e-commerce sites.
In June, through its new growth strategy, “Own the Game,” ADDYY launched a new share buyback program with the approval of its Supervisory Board. Under the program, the company will buy back shares worth up to €550 million ($649.85 million) through l year’s end. ADDYY is expected to strengthen its financial profile and establish a freer cash-flow-generating business with this share buyback.
ADDY’s net sales for the second quarter, ended June 30, 2021, increased 51.5% year-over-year to €5.08 billion ($6 billion). The company’s gross profit increased 53% from the year-ago value to €2.63 billion ($3.11 billion). Its net income came in at €407 million ($480.89 million), versus a €317 million ($374.55 million) net loss in the second quarter of 2020. Furthermore, its operating profit stood at €543 million ($641.58 million) for the quarter, compared to a €263 million ($310.75 million) operating loss in the prior-year period.
Analysts expect ADDY’s revenue for its fiscal year 2022 to be $24.08 billion, representing 10.6% year-over-year growth. The company’s EPS is expected to increase 323.7% in the current year. The stock has gained 16.1% in price over the past year and 10.9% over the past nine months.
All three Wall Street analysts that have provided ratings for the stock rated it Buy. Closing yesterday’s trading session at $177.5, the average analyst price target of $373.90 represents a 110.7% potential gain.
ADDYY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Also, the stock has a B grade for Momentum and Quality. We’ve also graded ADDYY for Growth, Value, Sentiment, and Stability. Click here to access all ADDYY’s ratings. ADDYY is ranked #19 of 35 stocks in the A-rated Athletics & Recreation industry.
Lands’ End, Inc. (LE)
Clothing, accessories, and home decor retailer, LE operates through Japan e-commerce; Europe e-commerce; US e-commerce; Third-Party; Retail segments; and Lands’ End Outfitters. The Dodgeville, Wis.-based company markets its products through the landsend.com website, direct mail catalogs, retail stores, and third-party websites.
In June, LE and Manhattan Active Supply Chain partnered to deliver a consistent and high-quality service to the customers in Manhattan. As a leading uni-channel retailer, LE believes this partnership will enable the company to enhance all distribution and transportation functions and serve its customers better.
In May, LE and Draper James expanded their partnership to launch new collections for women and unveil plans to launch home and sleepwear collections this fall. With this collaboration expansion, LE can offer exclusive products to its customers and provide them a better experience.
For the first quarter, ended April 30, 2021, LE’s net revenue increased 48.1% year-over-year to $321.3 million. The company’s gross profit increased 56.9% from its year-ago value to $147.74 million, while its gross margin expanded 260 basis points year-over-year to 46%. In addition, its global e-commerce revenue grew 44.4% versus the prior-year quarter to $260 million.
LE’s revenue is expected to increase 18.2% year-over-year to $1.69 billion in its fiscal year 2022. The company has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. LE’s EPS is expected to increase 321.2% in the current year and 18.7% next year. Over the past three months, the stock soared 32.2% in price.
The Wall Street analyst that provided ratings for the stock rated it Buy. The consensus price target of $60 represents a 77.3% potential upside from its last closing price of $33.85.
LE’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. In addition, LE has an A grade for Growth and Momentum, and a B grade for Sentiment.
Citi Trends, Inc. (CTRN)
Incorporated in 1946, CTRN in Savannah, Ga., is an apparel, accessories, and home trends merchandise retailer with 585 stores nationwide. The company also operates in rural markets in 33 states. CTRN sells sportswear, sleepwear, decorative accessories, health and beauty accessories, and outerwear for men and women.
In June, the company’s board of directors authorized a new $30 million share repurchase program as the next step in its capital allocation strategy. This decision demonstrates CTRN’s positive outlook for growth over the long term and its healthy balance sheet.
CTRN’s net sales have increased 9.8% year-over-year to $237.28 million. The company’s income from operations came in at $16.36 million, and its net income stood at $12.49 million for the same period. In addition, its gross margin was 40.8%.
For the fiscal year 2022, CTRN’s revenue is estimated to be $1 billion, representing a 27.9% year-over-year growth. Analysts expect CTRN’s EPS to increase 178.9% in the current year. The stock improved 8% in price over the past month and 3.4% over the past three months.
The Wall Street analyst that provided a rating for the stock rated it Buy. Currently trading at $86.14, the average analyst price target of $165 represents a 91.6% potential upside.
It’s no surprise that CTRN has an overall B rating, which equates to a Buy in our POWR Rating system. Also, the stock has an A grade for Quality, and a B grade for Value.
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ADDYY shares rose $0.82 (+0.46%) in premarket trading Wednesday. Year-to-date, ADDYY has declined -2.27%, versus a 21.96% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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