3 Apparel Stocks to Dress Your Holiday Season

With time, consumers’ preference and tastes change. To stay abreast with what people want, fashion is always in a state of flux. In fact, the phrase “in fashion” has become synonymous with people’s choice in clothing. Thus, apparel retailers have to come up with something new and trendy every season for one’s wardrobe only to remain in the race.

The retail landscape has completely morphed with the transition of the economy, advent of new technologies and increasing consumer expectations. Consumers’ shopping patterns and techniques have also changed and retailers are fast adapting to various platforms to tap in opportunities.

Retailers are efficiently allocating a large chunk of their capital toward multichannel growth strategy focused on improving merchandise offerings, developing IT infrastructure to enhance the web and mobile experience of customers, renovating stores with a modern look, developing fulfillment centers to enable speedy delivery, implementing an enterprise-wide inventory management system as well as enhancing relationship with existing and new customers.

The U.S. apparel industry, which is one of the largest in the global market, felt the pinch when consumers curtailed their discretionary spending due to recent downturn. However, with the economy gradually making its way out of the woods — consumer confidence moving north and job market conditions steadily improving — and advent of holiday season, apparel retailers are hoping that consumers will now have more money to burn.

The data unveiled by The NPD Group, Inc. highlights that total U.S. retail sales for men’s apparel came in at $60.8 billion in 2013, reflecting an increase of 5% from 2012, while women’s apparel market jumped 4% reaching sales of $116.4 billion.

While we believe that the outlook for the U.S. apparel industry seems somewhat skewed toward the positive side, earnings growth might have been tempered by harsh weather conditions in the initial part of the year, stiff competition at the cost of margins, rise in raw material prices and cautious consumer behavior. Some disappointment is surely in store, but there are still a few stocks that still hold promise and are backed by a favorable Zacks Rank.

Thus, we draw your attention to three apparel retailers that may suit your wardrobe this holiday season.

Prominent Picks

We suggest investing in Hanesbrands Inc. (HBI), a designer and manufacturer of basic apparel in the United States. This Zacks Rank #2 (Buy) stock has amassed a year-to-date return of about 54% and has a long-term earnings growth rate of 14.7%. Shares of this Winston-Salem, NC-based company trades at a forward P/E (price-to-earnings) of 19.07x, a discount to the industry average and are also attractive from an earnings growth perspective. The company delivered an average positive earnings surprise of 15.5% over the trailing four quarters. The company is expected to witness earnings growth of 42.1% in 2014 and 12.5% in 2015.

V.F. Corporation (VFC), designer, manufacturer and marketer of branded apparel and related products in the United States, is another stock to bet on. The stock holds a Zacks Rank #2 and has amassed a year-to-date return of roughly 9%. The stock is trading at a forward P/E multiple of 21.59x, a discount to the industry average and should impress investors with its long-term expected earnings growth of 12.6%. This Greensboro, NC-based company delivered an average positive earnings surprise of 2.4% over the trailing four quarters. The company is expected to witness earnings growth of 13.4% in 2014 and 13.7% in 2015.

Another stock that investors may look forward to is Abercrombie & Fitch Co. (ANF), a specialty retailer of casual apparel for men, women and kids. Also a Zacks Rank #2 stock, this trades at a forward P/E of 16.23x, a premium to the industry average, and has amassed a year-to-date return of 22%.

This New Albany, OH-based company posted an average positive earnings surprise of 35.7% over the trailing four quarters and has a long-term earnings growth rate of 16.7% that makes it look attractive. The company is expected to witness earnings growth of 23.9% in fiscal 2014 and 20.6% in fiscal 2015.
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