The apparel industry is a pretty rough place to be an investor these days, with many of the hot fashion brands taking sizeable hits straight to the chin. Undoubtedly, consumer sentiment has been subject to some pretty nasty moves over the past few years.
From the surge in inflation to the wave of layoffs targeting select industries (like tech and finance), demand for upscale fashion just hasn’t been all too stable. And though recent quarters may have been hit with a bit of turbulence, I’d argue that long-term investors may have a lot to gain by picking up shares of top fashion retailers while they’re out of fashion.
My guess it that once the consumer has a little more cash to spend on apparel, they’ll look to load up the shopping cart. The only concern is timing. Nobody knows when the apparel plays will make up for lost time. It could take a quarter or two, a year, or even several years before demand gets back in a place that powers shares to their former highs.
If you’re a fan of the apparel makers, I’d argue they’re worth considering right here while they’re down and out. Just be ready for further volatility.
Aritzia
First, we have Vancouver-based women’s clothing company Aritzia (TSX: ATZ), which has been a disappointing performer since shares peaked in January 2022. Undoubtedly, there have been wild moves in the stock. At this point, I think the weak hands are mostly out of the name. With shares rocketing more than 31% year to date, thanks to a remarkable quarter, it certainly seems like the upscale fashion firm is ready to turn things around.
Of course, we’ll have to wait and see how the next round of quarterly numbers fare. With earnings up ahead, ATZ stock could easily skyrocket past $38 or plunge below $30. The apparel scene is just so unforgiving right now. In any case, I’d be a nibbler of shares before and after earnings for the long-term growth story, which is still on the table. Could Aritzia’s fortunes finally turn? Perhaps I’ll do a follow-up piece after its quarterly reveal in a week or so.
Lululemon
Lululemon (NASDAQ: LULU) is another Vancouver-based apparel firm that’s been hurting of late. It’s hard to believe, but the upscale yoga pant maker is now down more than 28% year to date. Some ugly numbers and a few analyst downgrades were major contributors to the ugly dip.
Now that it is off around 30% from its peak, questions linger as to whether LULU stock is worth pursuing or if the athleisure trend, as we know it, has peaked before our eyes. Indeed, a number of Lululemon locations I’ve passed by seem mostly empty. Just over a year ago, they were almost always packed, sometimes with lines going out the door!
Fashion fads are shifting and not in the favour of the athleisure companies. As inflation continues to bite, my guess is LULU stock could be in for a bit more pain before things get better.
At 29.5 times trailing price to earnings, though, you’re getting a pretty cheap multiple on a growth stock that may still have growth left in the tank for long-term investors.
