Apparel stocks and purse-tightening consumers don’t make for a good mix, especially with the word “recession” being thrown around in recent quarters. As investors look for smoother sailing in the new year, recovering apparel stocks — like LULU, SKX, and ROST — may be worth betting on as the coasts clear and consumer sentiment shifts in a way to justify those nice-to-have purchases. The Wall Street community remains quite upbeat on the following apparel plays going into 2024. Could new highs be ahead?
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Let’s use TipRanks’ Comparison Tool to stack up three very different apparel plays that share one striking similarity: they’re Strong Buys on Wall Street.
Lululemon (NASDAQ:LULU)
Lululemon is genuinely in a class of its own. The popular yoga-wear company has experienced its fair share of rough waters over the past three years. Still, things weren’t as rocky as they were for some other apparel companies out there, some of which have shed well over half of their value from peak to trough. After a strong 33% year-to-date rally, Lululemon stock could test new highs as soon as the holidays.
With a remarkable brand and a leading position in athleisure, I remain bullish on the stock, just like most analysts covering the name on Wall Street.
Recently, Truist initiated coverage on a trio of apparel plays. Lululemon was the only one to earn a Buy rating from the firm off the bat. Truist analyst Joseph Civello made an astute observation: Lululemon is still selling goods at full prices at a time when other apparel retailers are filling up their discount racks.
Indeed, Lululemon has proven more resilient than the pack in recent years. As the firm expands its product portfolio while seizing the direct-to-consumer (DTC) opportunity, Mr. Civello sees plenty of upside for LULU stock, even after its hot rally.
I think Mr. Civello will be proven absolutely right. There are more than enough drivers in place to set the stage for a breakout at some point over the next year. At writing, his price target sits at $500.00, entailing new all-time highs and nearly 17% upside from here.
What is the Price Target of LULU Stock?
Lululemon stock is a Strong Buy, according to analysts, with 19 Buys, three Holds, and one Sell rating assigned in the past three months. The average LULU stock price target of $447.04 implies 4.3% upside potential.
Skechers (NYSE:SKX)
I wasn’t too surprised to learn that shares of footwear firm Skechers are flirting with all-time highs of $56 and change in this environment. Though sneakers are a discretionary good that tends to sell better when consumers feel good about the state of the economy and where it’s headed next, one can’t help but think the low-cost Skechers are taking some share away from pricier sneaker plays. Given this, I am bullish on SKX stock.
Indeed, Skechers may not be the kicks that the “cool kids” pick up, but there’s no denying the level of effort the firm has put up to gain in the “cool” factor. The long list of celeb endorsements has only helped fuel brand appeal.
Of course, Skechers probably won’t match the legendary success of the Michael Jordan-endorsed pair of Jordans. However, Skechers is doing its best to improve its footing (pardon the pun) with a larger number of consumers who may be more influenced by their favorite celebs. And thus far, I think Skechers has been quite successful with its marketing campaigns.
The company’s latest quarter saw it crush third-quarter expectations, with record sales of $2.2 billion. How much is attributable to the rough economic environment? Probably a great deal. The only thing that presents better value than a new pair of Skechers is the stock, which trades at just 16.2 times trailing price-to-earnings (P/E), well below the footwear & accessories industry average of 29.6 times.
What is the Price Target of SKX Stock?
Skechers stock comes in as a Strong Buy, with four Buys and one Hold assigned in the past three months. The average SKX stock price target of $63.40 implies 15% upside potential.
Ross Stores (NASDAQ:ROST)
Ross Stores is another apparel retail play that’s closing in on new highs. The off-price chain store, whose slogan is “Dress for Less,” has thrived in this rocky consumer environment. High-value apparel and discount retail have been a sweet spot lately, and I don’t see things changing anytime soon. As such, I am bullish on Ross Stores going into 2024, as the appetite for bargain-hunting may stay robust for longer.
For the latest (third) quarter, Ross Stores clocked in a nice beat, with sales up a decent 7.7% year-over-year. Despite the excellent number, which also saw comparable sales rise (up 5% vs. 3.1% estimate), management remained modest, acknowledging that it’s going to be tough to stack up against such a robust quarter.
Indeed, Ross could have hiked guidance by a bit, but it chose to stand pat with its original fourth-quarter guide. I think that’s only prudent. However, at this pace, I certainly wouldn’t be shocked if Ross continues to blow away results going into the fourth and final quarter of the year. The appetite for bargain-hunting may not be as quick to disappear as inflation.
At 25.9 times trailing P/E, ROST stock trades in line with the apparel retail industry average of 25.8 times.
What is the Price Target of ROST Stock?
Ross Stores is a Strong Buy, according to analysts, with 15 Buys and three Hold ratings. The average Ross stock price target of $136.73 implies 4.4% upside potential.
Conclusion
Apparel plays are already starting to grow fashionable again through the eyes of investors. Going into 2024, the following plays could be in a spot to make even higher highs, even as consumers feel a bit better. Of the trio, analysts expect the most gains (15% upside potential) from Skechers stock.
