The retail industry continues to do well despite surging commodity prices, supply chain disruptions, and labor shortages, thanks to the expansion of e-commerce. Therefore, fundamentally strong retail stocks, such as Buckle, Inc. (BKE), J.Jill, Inc. (JILL), and Movado Group (MOV), could be promising investments. On the other hand, avoiding The Gap (GPS) could be wise due to its weak fundamentals. Keep reading.
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Despite the cost pressures and supply chain disruptions, the retail industry has remained strong this year thanks to steady consumer spending. Despite the persistently high inflation and the Fed’s interest rate increases, consumer spending was flat in September. Moreover, retail sales rose 8.2% from the year-ago period.
Despite the rising recession fears, the retail industry is expected to perform steadily, thanks to the expansion of e-commerce and higher discretionary income in a red-hot job market. The global apparel market is expected to grow at a CAGR of 6.1% to $768.26 billion by 2026.
Given this backdrop, it could be wise to invest in fundamentally strong retail stocks The Buckle, Inc. (BKE), Movado Group, Inc. (MOV), and J.Jill Inc. (JILL). However, we think The Gap, Inc. (GPS) is best avoided now due to its weak fundamentals.
Stocks to Buy:
The Buckle, Inc. (BKE)
BKE operates as a retailer of casual apparel, footwear, and accessories for young men and women. It markets a selection of brand-name casual apparel and private-label merchandise primarily comprising BKE, Buckle Black, Salvage, and Red by BKE, among others.
For the fiscal second quarter ended July 30, 2022, BKE’s sales increased 2.3% year-over-year to $301.98 million. BKE’s gross profit increased 2.3% from the prior-year quarter to $145.37 million. In addition, its total assets increased 3.6% to $809.06 million, compared to total assets of $780.88 million for the fiscal year ended January 29, 2022.
BKE’s consensus revenue estimate of $332.50 million for the quarter ending October 31, 2022, indicates a 4.1% increase year-over-year. Its EPS for fiscal 2024 is expected to increase 6.8% year-over-year to $5.44.
It has a commendable earnings surprise history, beating the consensus EPS estimates in each of the trailing four quarters. Over the past three months, the stock has gained 18.2% to close the last trading session at $34.80.
BKE’s strong fundamentals are reflected in its POWR Ratings. BKE has an overall rating of B, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #8 out of 67 stocks in the Fashion & Luxury industry. It has an A grade for Quality and a B for Sentiment.
We have also given BKE grades for Growth, Value, Momentum, and Stability. Get all BKE ratings here.
Movado Group, Inc. (MOV)
MOV designs, sources, markets, and distributes watches worldwide. The company operates in two segments, Watch and Accessory Brands and Company Stores. It offers its watches under the Movado, Concord, Ebel, Olivia Burton, and MVMT brands, as well as licensed brands, such as Coach, Tommy Hilfiger, HUGO BOSS, Lacoste, Calvin Klein, and Scuderia Ferrari.
On May 25, 2022, MOV published its 2022 Corporate Responsibility report. The report details the evolution of MOV’s Corporate Responsibility program and announces MOV’s 2025 Make Time plan. Efraim Grinberg, Chairman and CEO of MOV, said, “Our main goal outlined in the report is to empower our employees to “Make Time’ for impactful, long-term ESG improvements that ultimately strengthen the Movado Group community and brand.”
For the fiscal second quarter ended July 31, 2022, MOV’s net sales gained 5.1% year-over-year to $182.80 million. The company’s gross profit increased 8.6% year-over-year to $106.92 million. In addition, its non-GAAP net income attributable to MOV increased 22.4% year-over-year to $24.57 million. Also, its non-GAAP EPS came in at $1.07, representing an increase of 25.9% year-over-year.
MOV’s consensus revenue estimate of $225.60 million for the quarter ending October 31, 2022, indicates an increase of 3.6% year-over-year. Its EPS for fiscal 2023 is expected to increase 7.4% year-over-year to $4.23. The company has a commendable earnings surprise history, surpassing the consensus EPS in each of the trailing four quarters. Over the past month, the stock has gained 1.4% to close the last trading session at $30.82.
MOV’s strong fundamentals are reflected in its POWR Ratings. MOV has an overall rating of B, which equates to a Buy in our proprietary rating system. It has an A grade for Quality. It is ranked #3 in the Fashion & Luxury industry.
To see the other ratings of MOV for Growth, Value, Momentum, Stability, and Sentiment, click here.
J.Jill, Inc. (JILL)
JILL operates as an omnichannel retailer of women’s apparel under the J.Jill brand in the United States. The company offers knit and woven tops, bottoms, dresses, sweaters, outerwear, footwear, and accessories, including scarves, jewelry, and hosiery.
On August 4, 2022, JILL launched Welcome Everybody, a new shopping experience online and in its stores, celebrating all women’s totality and marking a transformative moment in the brand’s evolution. Claire Spofford, CEO and President of JILL believes that this venture could modernize the company’s value proposition, introduce new customers to relevant and compelling products, and communicate what it offers.
JILL’s net sales for the second quarter ended July 30, 2022, increased marginally from the year-ago period to $160.34 million. The company’s gross profit rose 2.8% year-over-year to $112.47 million. Also, its adjusted EBITDA gained 8.8% year-over-year to $35.57 million.
Analysts expect JILL’s EPS and revenue for fiscal 2023 to increase 26.8% and 4% year-over-year to $2.70 and $608.80 million, respectively. JILL has an impressive earnings surprise history, surpassing the consensus EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 30% to close the last trading session at $19.16.
JILL’s POWR Ratings reflect solid prospects. The company has an overall rating of A, which equates to a Strong Buy. It is ranked #2 in the same industry. In addition, it has an A grade for Sentiment and Quality and a B for Value.
To see the other ratings of JILL for Growth, Momentum, and Stability, click here.
Stock to Sell:
The Gap, Inc. (GPS)
GPS operates as an apparel retail company. The company offers apparel, accessories, and personal care products for men, women, and children under the Old Navy, Gap, Banana Republic, and Athleta brands. Its products include denim, tees, fleece, and khakis; eyewear, jewelry, shoes, handbags, and fragrances; and fitness and lifestyle products.
GPS’ net sales decreased 8.3% year-over-year to $3.86 billion for the second quarter ended July 30, 2022. The company’s operating loss came in at $28 million, compared to an operating income of $409 million. Its non-GAAP net income declined 89% year-over-year to $30 million. Also, its adjusted EPS decreased 88.6% year-over-year to $0.08.
Analysts expect GPS’ revenue for the quarter ending October 31, 2022, to decrease 3.2% year-over-year to $3.82 billion. Its revenue for fiscal 2023 is expected to decline 6.4% year-over-year to $15.61 billion. Over the past year, the stock has fallen 57% to close the last trading session at $9.92.
GPS’ poor fundamentals are reflected in its POWR Ratings. GPS has an overall rating of D, equating to a Sell in our proprietary rating system. Within the Fashion & Luxury industry, it is ranked #60. The company has a D grade for Stability.
Click here to see the additional POWR Ratings of GPS for Growth, Value, Momentum, Sentiment, and Quality.
GPS shares were trading at $9.72 per share on Thursday afternoon, down $0.20 (-2.02%). Year-to-date, GPS has declined -41.96%, versus a -22.17% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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