Apparel stocks have been on a rocky ride this year – no different from most other discretionary industries. Despite early signs of recession closing in and the pressure that could come to consumer wallets, the damage to apparel stocks has not been felt evenly across the board. Some firms — think Lululemon (NASDAQ: LULU), which is off just 13% from its high — have been incredibly resilient. Aritzia (OTC: ATZAF) (TSE: ATZ) has also been resilient. Others, like Levi Strauss & Co. (NYSE: LEVI), have taken big hits to the chin, with steep losses (more than 50% decline from peak to trough) reminiscent of an economic recession.
Undoubtedly, recessions are the tide that lowers all sailing ships on market waters. That said, some high-growth apparel companies have shown they’re more than able to continue fighting to retain and grow their market share. Indeed, it takes more than just a strong brand to thrive amid mounting economic pressures. It takes superb management to control costs and keep growing amid rough macro headwinds.
In this piece, we’ll look at three apparel stocks behind some legendary brands. At writing, Wall Street analysts are incredibly bullish on each name, with a “Strong Buy” consensus rating and compelling upside expectations for 2023.
Lululemon has been one of apparel’s most compelling growth stories over the last five years. The Vancouver-based maker of yoga pants is up more than 440% over the timespan. Undoubtedly, there have been bumps in the road. Still, there’s been no stopping the company’s ascent as its brand affinity has climbed.
Indeed, Lululemon is a wonderful company with respectable margins (21.4% operating margins as of the latest quarter). The company commands high prices, not because its own formulation of spandex is expensive to make, but because it has the brand and patented “fabric technology” to keep prices high. Demand has stayed incredibly robust this year and could continue going into a recession year.
Moving forward, Lululemon’s five-year plan (focus on innovation, e-commerce, and global expansion) could help the firm continue enriching shareholders over the next five years. With many growth levers to pull (think men’s wear), Lululemon stock remains a standout apparel play that’s proven it’s worth a premier price tag.
The stock trades at a lofty 42.1x trailing earnings and 6.4x sales. It seems like a bad idea to buy a pricy discretionary in the face of a recession. That said, it’s hard to overlook the growth story that’s unlikely to be derailed by a mild downturn.
What is the Price Target for LULU Stock?
Wall Street can’t get enough of Lululemon. LULU stock has had 18 Buys, two Holds, and one Sell rating assigned to it in the past three months. The average LULU stock price target of $397.82 implies 12.8% upside potential.
Aritzia (OTC: ATZAF) (TSE: ATZ)
Aritzia is another Canadian apparel company that’s starting to become a household name in the U.S. The women’s apparel maker has enjoyed success in its recent expansion into the U.S. market. If Aritzia can continue to enjoy success in its push down south, there’s a good chance the stock could enjoy further multiple expansion.
Arguably, Aritzia is a more exciting Canadian apparel stock than Lululemon. The $4.35 billion company may very well be scratching the surface of its potential. Though the brand still has a long way to go to catch up to the likes of Lululemon or Levi, I do view Aritzia as a worthy name stashing on your radar. Also, if you’re looking to take advantage of a strong U.S. dollar, ATZAF may be worth venturing into the TSX Index, though U.S. investors can own shares through the OTC exchange.
In the latest quarter, Aritzia saw its EPS surge 69% year-over-year. Down just 11.5% from its all-time high, ATZ stock is not cheap at 33.5x trailing earnings. Aritzia is a unique growth story that could follow in the footsteps of Lululemon. Unlike Lululemon, Aritzia’s total addressable market is much larger, encompassing high fashion in addition to athleisure.
What is the Price Target for ATZAF Stock?
Wall Street is incredibly bullish on Aritzia based on five Buys and one Hold rating. The average ATZAF stock price target of $46.42 implies 16.35% upside potential.
Levi Strauss & Co (LEVI)
Levi Strauss is a legendary jeans and denim company that’s under some serious pressure. Hit hard by supply-chain issues, a strong U.S. dollar, and high input costs, Levi’s stock has felt the full force of today’s transitory-inflation-fueled headwinds.
The company slashed its full-year top and bottom-line outlook following an in-line quarter ($0.40 EPS vs. $0.38 consensus on $1.5 billion revenue). With a lower bar and juicy 3.1% dividend yield, LEVI stands out as one more intriguing low-cost apparel play to consider checking out on the dip.
The stock is cheaper than Lululemon or Aritzia at just 11.6x trailing earnings, 1.0x sales, and 8.4x cash flow. As Levi Strauss navigates past ongoing headwinds, I do think the firm is more than capable of turning a corner. The brand is too strong. With Kohl’s (NYSE: KSS) CEO joining the team, the long-time jeans maker looks ready to move on from a forgettable year.
What is the Price Target for LEVI Stock?
Wall Street analysts love Levi’s here, with a $20.33 average LEVI stock price target that implies 27.3% upside potential based on seven Buys and two Hold ratings.
Conclusion: Analysts Expect the Most from LEVI Stock
The three Strong-Buy-rated apparel stocks are ripe for picking. At writing, analysts expect the most from LEVI stock. It just looks too cheap at these levels.