The first quarter of 2021 infused renewed momentum in markets across the globe as the effects of the pandemic began to fade. This marked the start of a new chapter for many retailers, particularly apparel. In the latter part of the first quarter of 2020, apparel retailers mainly suffered from the closure of stores as the COVID-19 infections plagued almost every region by March 2020.
With the lifting of restrictions and the vaccination drives gaining pace, consumers are now returning to retail stores, resulting in a surge in retail sales. Additionally, the online momentum continues unabated. This has led to improved traffic trends across stores and malls as well as e-commerce. Also, growth in sales in the first quarter demonstrates robust consumer spending capacities, given the recent disbursement of the government stimulus packages.
Moreover, retail companies remain optimistic about the performance through the rest of the year, as they expect little disruptions due to extended store closure mandates. Additionally, with the opening up of the economy, store traffic trends are likely to improve.
Backed by the recovery in retail trends, National Retail Federation (“NRF”) revised the retail sales prediction for 2021, which excludes sales for automobiles, gas stations and restaurants. The NRF predicts retail sales growth of 10.5-13.5% to $4.44-$4.56 trillion for 2021. Earlier, the retail trade group forecast retail sales growth of 6.5-8.2% to more than $4.44 trillion for the year.
Abercrombie & Fitch Company ANF is one such stock, which gained from the improved retail trends, reporting better-than-expected results for first-quarter fiscal 2021. Also, its earnings and sales improved year over year. Moreover, the fiscal first quarter marked the company’s return to profits after reporting a loss in the prior quarter. This marked its fourth consecutive quarter of top and bottom-line surprise. (Read More: Abercrombie Rallies as Q1 Earnings & Sales Top Estimates)
Earnings growth demonstrated the company’s robust digital sales momentum coupled with gross margin expansion and tight expense management. The top line benefited from strong digital momentum as well as the reopening of stores across all regions, except for Western Europe.
In first-quarter fiscal 2021, Abercrombie witnessed strong growth in key metrics on a two-year basis (compared with first-quarter fiscal 2019), reflecting robust growth from the pre-pandemic levels. Compared with the pre-pandemic levels of first-quarter fiscal 2019, net sales improved 6% despite the closure of 1.3 million gross square feet (nearly 20%) of its store base from the referred 2019 period. Also, the company recorded 18% sales growth compared with first-quarter fiscal 2019 in the United States, which is its largest market. Digital sales improved nearly 81% from the pre-pandemic levels.
Moreover, management remains on track to control spending by undertaking measures like occupancy cost reduction through store closures and right-sizing. The company remains encouraged with its strong online presence and expects to keep gaining from the platform. For fiscal 2021, it expects tight control over operating costs, with a focus on using a portion of the occupancy savings for funding fulfillment, marketing and digital investments.
Although Abercrombie did not provide any guidance for fiscal 2021, it expects to continue with the progress made since 2020. For second-quarter fiscal 2021, the company anticipates net sales above $841 million reported in the comparable period of 2019. It does not expect the government mandates for store closures to increase from the current levels.
Notably, the specialty retailer of premium, high-quality casual apparel for men, women and kids has gained 112.1% year to date. Further, the company has an expected long-term earnings growth rate of 18%. Also, a Momentum Score of A and Zacks Rank #1 (Strong Buy) justify that Abercrombie has more room to run in the bourses.
5 More Apparel Stocks Displaying Earnings Momentum
Apart from Abercrombie, we have identified five apparel stocks that have reported splendid earnings results in the last reported quarter. These Zacks Retail – Apparel and Shoes stocks have a favorable combination of a Momentum Score of “A” or “B” and a Zacks Rank #1 or #2 (Buy). The stocks are fundamentally strong and have been displaying momentous growth of late. Notably, each of the stocks has outperformed the industry’s growth of 29.5% on a year-to-date basis.
Image Source: Zacks Investment Research
Urban Outfitters, Inc. URBN, which is a lifestyle specialty retailer — offering fashion apparel and accessories, footwear, home décor and gifts products, is a good bet. The company has displayed a robust surprise trend, with a trailing four-quarter earnings surprise of 129.2%, on average. The top and bottom-line beat in first-quarter fiscal 2022 was backed by growth across all brands and segments. We note that sturdy consumer demand across the majority of the product categories along with solid execution boosted the retail segment’s comps for all brands. Also, strong growth in the North America stores and continued digital momentum were drivers.
The company expects to experience growth, driven by technological advancements and merchandising improvements as well as store-rationalization efforts. Its FP Movement also bodes well. Moreover, management expects to continue witnessing a steady sales improvement in the fiscal second quarter from that reported in fiscal 2020. The company’s long-term expected earnings growth rate of 11.5% shows potential. Moreover, the stock has gained 50.5% year to date. The company has a Momentum Score of B and it currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Another lucrative option is Foot Locker Inc. FL. The New York-based company is a retailer of athletic shoes and apparel. The company delivered its fourth consecutive earnings surprise in first-quarter fiscal 2021. It has a trailing four-quarter earnings surprise of 47.2%, on average. The company has gained from strength across both stores and digital channels, driven by favorable responses for its merchandise offerings.
Foot Locker is optimistic about its product categories as well as its ability to drive long-term growth. Further, management unveiled plans to strengthen its store base and position them well for the future. In this context, the company will close Footaction stores. The stock has rallied 52.4% year to date. Moreover, the company currently has a long-term expected earnings growth rate of 4% and a Zacks Rank #2. It has a Momentum Score of A.
Investors can also count on L Brands, Inc. LB, a segment leader in women’s intimate and other apparel, personal care, beauty, and home fragrance products. The company has a trailing four-quarter earnings surprise of 489.6%, on average. Its first-quarter fiscal 2021 sales and earnings improved year over year on continued strength in the Bath & Body Works and Victoria’s Secret segments. Also, relaxation of the pandemic-induced restrictions along with government stimulus payments aided the results. Management provided an upbeat earnings view for the fiscal second quarter.
The company has a Momentum Score of B and a long-term expected earnings growth rate of 13%. It currently has a Zacks Rank #2 and has rallied 76.8% year to date.
We also suggest investing in Tapestry, Inc. TPR, which is a designer and marketer of fine accessories and gifts for women and men in the United States and internationally. The company’s third-quarter fiscal 2021 results marked the fourth consecutive earnings beat. It has a trailing four-quarter earnings surprise of 74.1%, on average. The company has been gaining from e-commerce strength and sales growth in Mainland China. Additionally, deepening engagement with consumers, creating innovative and compelling products, venturing into under-penetrated markets, and the enhancement of omni-channel capabilities remain long-term growth drivers.
The company currently has a long-term expected earnings growth rate of 10% and a Zacks Rank #2. Further, the stock has gained 39.2% year to date and has a Momentum Score of A.
Last but not the least, investors may consider casual apparel, footwear and accessories retailer The Buckle Inc. BKE. The company delivered its third consecutive earnings beat in first-quarter fiscal 2021. It has a trailing four-quarter earnings surprise of 49.2%, on average. We note that the company’s women’s and men’s merchandise categories are doing well. Strength in its online business amid the pandemic is also consistently contributing to its results. The stock has advanced 41.6% year to date. Moreover, the company currently sports a Zacks Rank #1 and has a Momentum Score of B.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.