Despite rising inflation, supply chain challenges, and heightened fears related to omicron, holiday spending rose 8.5% year-over-year, its biggest increase in 17 years. Retail sales exceeded pre-pandemic levels significantly, with total sales increasing 10.7% this holiday season. Apparel sales rose 47.3% from their year-ago level. So, apparel retailers should report solid results for the quarter.
Furthermore, a shift in preferences to branded and customized products on both e-commerce and in-store shopping platforms should drive the apparel industry’s growth. The apparel market is expected to generate 5% volume growth in 2022.
Therefore, we think apparel retail stocks American Eagle Outfitters, Inc. (AEO), Urban Outfitters, Inc. (URBN), and Abercrombie & Fitch Co. (ANF) could be ideal investment picks now. These stocks are rated 'Buy' in our proprietary POWR Ratings system.
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American Eagle Outfitters, Inc. (AEO)
AEO in Pittsburgh, Pa., is a specialty retailer that provides clothing, accessories, and personal care products under the American Eagle and Aerie brands. The company's other brands include Tailgate and Todd Snyder New York. It also offers sports-inspired apparel clothing and operates approximately 1,000 retail stores in the United States.
This month, AEO completed the acquisition of Quiet Logistics, a logistics company, for approximately $360 million in cash. With the acquisition, AEO expects to achieve operational excellence and grow its platform into a meaningful business with the help of Quiet Logistics' experienced supply chain team.
AEO's total net revenue increased 23.5% year-over-year to $1.27 billion in the third quarter, ended Oct. 30, 2021. The company's gross profit grew 36.1% from its year-ago value to $564.52 million. Its operating income rose 119.5% from the prior-year quarter to $209.69 million. Also, AEO's net income increased 161.9% year-over-year to $152.22 million.
Analysts expect AEO's revenue for its fiscal year 2022 to be $5.07 billion, representing 34.9% growth year-over-year. The company has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. And its EPS is expected to grow 5,725% in the current year. The stock has gained 18.5% in price over the past year.
AEO'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 distinct factors, each with its own weighting.
The stock has an A grade for Momentum and a B grade for Growth and Quality. We have also graded AEO for Sentiment, Value, and Stability. Click here to access all AEO's ratings. AEO is ranked #28 of 63 stocks in the A-rated Fashion & Luxury industry.
Note that AEO is one of the few stocks handpicked currently in the Reitmeister Total Return portfolio. Learn more here.
Urban Outfitters, Inc. (URBN)
Philadelphia, Pa.-based URBN is a lifestyle products and services company that operates through three segments: retail; wholesale; and subscription. Urban Outfitters, Anthropologie, Free People, Terrain, and BHLDN are a few of the company’s brands. As of Jan.31, 2021, it operated 247 Urban Outfitters, 237 Anthropologie Group, 149 Free People stores in the United States, Canada, and Europe, and 11 restaurants.
During its fiscal third quarter, ended Oct. 31, 2021, URBN's net sales increased 16.7% year-over-year to $1.13 billion. The company's gross profit grew 21% from its year-ago value to $390.74 million. Its income from operations rose 17.7% from the prior-year quarter to $115.9 million. And the company's net income increased 15.8% year-over-year to $88.86 million.
URBN's revenue is expected to increase 32.5% year-over-year to $4.57 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. Also, its EPS is expected to increase 34,400% in the current year. The stock has gained 12.4% in price over the past year.
URBN's POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. Also, the stock has an A grade for Momentum and a B grade for Value and Growth.
In addition to the POWR Rating grades I've just highlighted, one can see URBN's ratings for Quality, Stability, and Sentiment here. The stock is ranked #38 in the Fashion & Luxury industry.
Abercrombie & Fitch Co. (ANF)
ANF is an American lifestyle retailer that focuses primarily on casual wear. The New Albany, Ohio-based company also provides shoes, accessories, occasional wear for men, women, and kids. Hollister, Abercrombie & Fitch, Abercrombie kids, Moose, Seagull, and Gilly Hicks are ANF’s brands. It operates in two segments: Hollister; and Abercrombie.
ANF's net sales for the third quarter, ended Oct. 30, 2021, increased 10.4% year-over-year to $905.16 million. Its gross profit grew 9.9% from its year-ago value to $576.24 million. The company's operating income rose 24.1% from the prior-year quarter to $72.73 million. And its net income increased 11.5% year-over-year to $49.08 million.
For its fiscal 2022, ANF's revenue is expected to be $3.79 billion, representing a 21.4% year-over-year increase. The company has surpassed the consensus EPS in each of the trailing four quarters. Its EPS is expected to increase 752.1% in the current year. The stock has climbed 55.3% in price over the past year.
It is no surprise that ANF has an overall B rating, which equates to a Buy in our POWR Rating system. Also, the stock has an A grade for Quality, Value, and Momentum.
Click here to see additional POWR Ratings for ANF (Sentiment, Stability, and Growth). ANF is ranked #16 in the Fashion & Luxury industry.
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AEO shares fell $0.23 (-0.94%) in premarket trading Thursday. Year-to-date, AEO has declined -3.16%, versus a -1.39% rise in the benchmark S&P 500 index during the same period.
About the Author: Priyanka Mandal
Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research.
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