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Forget Gap (GPS), Buy These 3 Apparel Retail Stocks in 2022
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Gap Inc. is likely to end 2021 on a bitter note. This renowned Zacks Rank #5 (Strong Sell) apparel and accessories retailer fell out of investors’ favor, thanks to supply-chain bottlenecks, elevated costs and pandemic-led disruptions. Soft third-quarter fiscal 2021 results due to the said headwinds and a tepid fiscal 2021 view took the sheen out of the stock. Consequently, the stock lost 14.9% in the past year, wider than the Zacks Retail – Apparel and Shoes industry’s 11.4% decline. The stock has decreased 29.7% in the past three months.
Let’s delve deeper.
Gap in Troubled Waters
Industry-wide global supply-chain disruptions, including factory closures and increased port congestions causing major product delays are persistently ruining GPS’s performance. Pandemic-led factory shutdowns, primarily in Vietnam where the company sources a significant amount of product, dampened results for the fiscal third quarter. Such limitations hurt Gap’s efficacy to fulfill robust customer demand in the reported quarter. Consequently, GPS reported weaker-than-expected top and bottom-line numbers for third-quarter fiscal 2021. Net sales also decreased year over year from the 2019 pre-COVID levels on unimpressive performances of Gap Global and Banana Republic brands.
Additionally, Gap continues witnessing higher operating expenses due to increased advertising costs to accelerate new initiatives, elevated digital-innovation costs and a rise in performance-based compensation. Also, increased investments in demand generation like marketing are shooting up the costs. To efficiently meet customers’ needs, Gap chose airfreight for a major portion of assortment, which bore extreme transitory costs in the fiscal third quarter. Higher investments in airfreight to compete in the holiday period might escalate costs and hurt overall profitability.
Image Source: Zacks Investment Research
Induced by lackluster third-quarter results and anticipation of unrelenting supply-chain constraints, Gap slashed its view for fiscal 2021. It now envisions adjusted earnings of $1.25-$1.40, down from $2.10-$2.25 per share projected earlier. GAAP earnings per share are expected to be 45-60 cents, down from the earlier predicted $1.90-$2.05. GPS expects an adjusted operating margin of 5%, down from the 7% mentioned earlier. Management now expects fiscal 2021 revenue increase to be about 20% versus fiscal 2020. The same is down from 30% projected earlier. The latest view includes an expected $550-$650 million of lost sales from supply-chain challenges on available inventory and a roughly $450 million of total airfreight expenses for the fiscal year.
The Zacks Consensus Estimate for Gap’s current and next-year earnings is currently pegged at $1.35 and $2.05, respectively. The consensus estimates have been revised 14% and 6.8% downward over the past 30 days, indicating analysts’ pessimism. Also, the consensus mark for the fourth quarter has been widened to a loss of 12 cents from 2 cents in 30 days. We note that GPS is focused on Power Plan 2023 strategy, and is leveraging higher airfreight expenses and port diversification to navigate delivery challenges. However, supply-chain concerns and cost pressures indicate that the stock is not likely to revert to growth anytime soon.
A Glance at the Industry
Players in the Retail – Apparel and Shoes industry has been battling pandemic-led supply-chain woes at greater lengths. Although factory closures in Vietnam are affecting most players in the industry, some companies are giving a tough fight to these oppositions and standing firm to script success.
The global economy is recovering from the deadly pandemic, so is the fashion world. Apparel and accessories companies are enhancing stores and omni-channel capabilities, reworking on assortments to meet the emerging trends and making logistical improvements. Industry players are opting for innovations in brands and products, scaling e-commerce operations, bettering warehouse and distribution center network, and adopting a more consumer-centric approach.
In addition, initiatives like loyalty program and marketing endeavors coupled with expedite-delivery options, be it doorstep delivery, curbside pickup or buy online and pick up at store, are worth mentioning.
Based on the aforesaid catalysts, we shortlisted three winners from the Retail – Apparel and Shoes industry that are performing outstandingly and appear well poised for growth amid these uncertain times. The industry currently carries a Zacks Industry Rank of 46 and is placed among the top 18% of more than 250 Zacks industries.
Image Source: Zacks Investment Research
Prominent Stocks to Bank on
Boot Barn Holdings, Inc.’s (BOOT - Free Report) growth efforts including better price management, merchandising strategy and increasing penetration of e-commerce business have been contributing to its performance for a while. Thus, BOOT is able to cash in on robust consumer demand and grab a higher market share. Cumulatively, the aforesaid factors drove this lifestyle apparel and accessories retailer’s same-store sales for the last few quarters now. Boot Barn is rapidly adopting the omni-channel mantra to provide a seamless shopping experience. Over the past year, the stock has returned 169.8%.
Boot Barn has a trailing four-quarter earnings surprise of 35.3%, on average. This presently Zacks Rank #1 (Strong Buy) player has an estimated long-term earnings growth rate of 20%. The Zacks Consensus Estimate for BOOT’s next financial year sales and EPS suggests growth of 0.9% and 1.5%, respectively, from the corresponding year-ago readings. You can see the complete list of today’s Zacks #1 Rank stocks here.
Luxury accessories retailer Tapestry (TPR - Free Report) has been deepening engagement with consumers, creating innovative and compelling products, venturing into under-penetrated markets and enhancing data-analytics capabilities. Impressively, sturdy customer engagement and higher demand for its brands are steadily yielding results. Tapestry’s Coach, Kate Spade and Stuart Weitzma brands have been standing out for a while. Management believes that strength in Digital and China remain the two key drivers. Solid team effort and transformational efforts to become a more consumer-centric firm through smooth progress on Acceleration Program are likely to retain the stock’s momentum ahead. Tapestry’s shares have surged 33.7% in the past year.
Tapestry has a trailing four-quarter earnings surprise of 29%, on average. This presently Zacks Rank #1 stock has an estimated long-term earnings growth rate of 12.3%. The Zacks Consensus Estimate for TPR’s next financial year sales and EPS suggests growth of 4.8% and 12.2%, respectively, from the corresponding year-ago reported figures.
Lastly, we have Capri Holdings Limited (CPRI - Free Report) , which is consistently deploying resources to boost product offerings, deepen customer engagement and enhance omni-channel, including digital efforts. Robust execution of the strategic initiatives coupled with continued strength in its Versace, Jimmy Choo and Michael Kors brands are contributing to the stock rally on the bourses. Benefiting from these endeavors, the stock has jumped 43.2% in the past year.
Capri Holdings has a significant average earnings surprise in the trailing four quarters. This currently Zacks Rank #2 (Buy) stock has an estimated long-term earnings growth rate of 32.5%. The Zacks Consensus Estimate for CPRI’s next financial-year sales and EPS implies growth of 9.5% and 14.1%, respectively, from the corresponding year-ago actuals.
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Forget Gap (GPS), Buy These 3 Apparel Retail Stocks in 2022
Gap Inc. is likely to end 2021 on a bitter note. This renowned Zacks Rank #5 (Strong Sell) apparel and accessories retailer fell out of investors’ favor, thanks to supply-chain bottlenecks, elevated costs and pandemic-led disruptions. Soft third-quarter fiscal 2021 results due to the said headwinds and a tepid fiscal 2021 view took the sheen out of the stock. Consequently, the stock lost 14.9% in the past year, wider than the Zacks Retail – Apparel and Shoes industry’s 11.4% decline. The stock has decreased 29.7% in the past three months.
Let’s delve deeper.
Gap in Troubled Waters
Industry-wide global supply-chain disruptions, including factory closures and increased port congestions causing major product delays are persistently ruining GPS’s performance. Pandemic-led factory shutdowns, primarily in Vietnam where the company sources a significant amount of product, dampened results for the fiscal third quarter. Such limitations hurt Gap’s efficacy to fulfill robust customer demand in the reported quarter. Consequently, GPS reported weaker-than-expected top and bottom-line numbers for third-quarter fiscal 2021. Net sales also decreased year over year from the 2019 pre-COVID levels on unimpressive performances of Gap Global and Banana Republic brands.
Additionally, Gap continues witnessing higher operating expenses due to increased advertising costs to accelerate new initiatives, elevated digital-innovation costs and a rise in performance-based compensation. Also, increased investments in demand generation like marketing are shooting up the costs. To efficiently meet customers’ needs, Gap chose airfreight for a major portion of assortment, which bore extreme transitory costs in the fiscal third quarter. Higher investments in airfreight to compete in the holiday period might escalate costs and hurt overall profitability.
Induced by lackluster third-quarter results and anticipation of unrelenting supply-chain constraints, Gap slashed its view for fiscal 2021. It now envisions adjusted earnings of $1.25-$1.40, down from $2.10-$2.25 per share projected earlier. GAAP earnings per share are expected to be 45-60 cents, down from the earlier predicted $1.90-$2.05. GPS expects an adjusted operating margin of 5%, down from the 7% mentioned earlier. Management now expects fiscal 2021 revenue increase to be about 20% versus fiscal 2020. The same is down from 30% projected earlier. The latest view includes an expected $550-$650 million of lost sales from supply-chain challenges on available inventory and a roughly $450 million of total airfreight expenses for the fiscal year.
The Zacks Consensus Estimate for Gap’s current and next-year earnings is currently pegged at $1.35 and $2.05, respectively. The consensus estimates have been revised 14% and 6.8% downward over the past 30 days, indicating analysts’ pessimism. Also, the consensus mark for the fourth quarter has been widened to a loss of 12 cents from 2 cents in 30 days. We note that GPS is focused on Power Plan 2023 strategy, and is leveraging higher airfreight expenses and port diversification to navigate delivery challenges. However, supply-chain concerns and cost pressures indicate that the stock is not likely to revert to growth anytime soon.
A Glance at the Industry
Players in the Retail – Apparel and Shoes industry has been battling pandemic-led supply-chain woes at greater lengths. Although factory closures in Vietnam are affecting most players in the industry, some companies are giving a tough fight to these oppositions and standing firm to script success.
The global economy is recovering from the deadly pandemic, so is the fashion world. Apparel and accessories companies are enhancing stores and omni-channel capabilities, reworking on assortments to meet the emerging trends and making logistical improvements. Industry players are opting for innovations in brands and products, scaling e-commerce operations, bettering warehouse and distribution center network, and adopting a more consumer-centric approach.
In addition, initiatives like loyalty program and marketing endeavors coupled with expedite-delivery options, be it doorstep delivery, curbside pickup or buy online and pick up at store, are worth mentioning.
Based on the aforesaid catalysts, we shortlisted three winners from the Retail – Apparel and Shoes industry that are performing outstandingly and appear well poised for growth amid these uncertain times. The industry currently carries a Zacks Industry Rank of 46 and is placed among the top 18% of more than 250 Zacks industries.
Prominent Stocks to Bank on
Boot Barn Holdings, Inc.’s (BOOT - Free Report) growth efforts including better price management, merchandising strategy and increasing penetration of e-commerce business have been contributing to its performance for a while. Thus, BOOT is able to cash in on robust consumer demand and grab a higher market share. Cumulatively, the aforesaid factors drove this lifestyle apparel and accessories retailer’s same-store sales for the last few quarters now. Boot Barn is rapidly adopting the omni-channel mantra to provide a seamless shopping experience. Over the past year, the stock has returned 169.8%.
Boot Barn has a trailing four-quarter earnings surprise of 35.3%, on average. This presently Zacks Rank #1 (Strong Buy) player has an estimated long-term earnings growth rate of 20%. The Zacks Consensus Estimate for BOOT’s next financial year sales and EPS suggests growth of 0.9% and 1.5%, respectively, from the corresponding year-ago readings. You can see the complete list of today’s Zacks #1 Rank stocks here.
Luxury accessories retailer Tapestry (TPR - Free Report) has been deepening engagement with consumers, creating innovative and compelling products, venturing into under-penetrated markets and enhancing data-analytics capabilities. Impressively, sturdy customer engagement and higher demand for its brands are steadily yielding results. Tapestry’s Coach, Kate Spade and Stuart Weitzma brands have been standing out for a while. Management believes that strength in Digital and China remain the two key drivers. Solid team effort and transformational efforts to become a more consumer-centric firm through smooth progress on Acceleration Program are likely to retain the stock’s momentum ahead. Tapestry’s shares have surged 33.7% in the past year.
Tapestry has a trailing four-quarter earnings surprise of 29%, on average. This presently Zacks Rank #1 stock has an estimated long-term earnings growth rate of 12.3%. The Zacks Consensus Estimate for TPR’s next financial year sales and EPS suggests growth of 4.8% and 12.2%, respectively, from the corresponding year-ago reported figures.
Lastly, we have Capri Holdings Limited (CPRI - Free Report) , which is consistently deploying resources to boost product offerings, deepen customer engagement and enhance omni-channel, including digital efforts. Robust execution of the strategic initiatives coupled with continued strength in its Versace, Jimmy Choo and Michael Kors brands are contributing to the stock rally on the bourses. Benefiting from these endeavors, the stock has jumped 43.2% in the past year.
Capri Holdings has a significant average earnings surprise in the trailing four quarters. This currently Zacks Rank #2 (Buy) stock has an estimated long-term earnings growth rate of 32.5%. The Zacks Consensus Estimate for CPRI’s next financial-year sales and EPS implies growth of 9.5% and 14.1%, respectively, from the corresponding year-ago actuals.