The end of the earnings season is always a good time to take a step back and see who shined (and who not so much). Let’s take a look at how apparel retailer stocks fared in Q2, starting with Abercrombie and Fitch (NYSE:ANF).
Apparel sales are not driven so much by personal needs but by seasons, trends, and innovation, and over the last few decades, the category has shifted meaningfully online. Retailers that once only had brick-and-mortar stores are responding with omnichannel presences. The online shopping experience continues to improve and retail foot traffic in places like shopping malls continues to stall, so the evolution of clothing sellers marches on.
The 9 apparel retailer stocks we track reported a strong Q2. As a group, revenues beat analysts’ consensus estimates by 1.1% while next quarter’s revenue guidance was in line.
Amidst this news, share prices of the companies have had a rough stretch. On average, they are down 9.1% since the latest earnings results.
Abercrombie and Fitch (NYSE:ANF)
Founded as an outdoor and sporting brand, Abercrombie & Fitch (NYSE:ANF) evolved to become a specialty retailer that sells its own brand of fashionable clothing to young adults.
Abercrombie and Fitch reported revenues of $1.13 billion, up 21.2% year on year. This print exceeded analysts’ expectations by 4.1%. Overall, it was a very strong quarter for the company with an impressive beat of analysts’ EBITDA estimates and a decent beat of analysts’ earnings estimates.
Fran Horowitz, Chief Executive Officer, said, “Our team continued to execute at a very high level in the second quarter, resulting in better than expected sales growth and profitability. The strength of our brand portfolio and improvements we’ve made in global capabilities resulted in broad-based growth across regions, brands and channels. The Americas led our performance this quarter with net sales growth of 23% on top of 19% growth last year, along with continued strong results in EMEA with growth of 16%. By brand, Abercrombie brands achieved growth of 26% on top of 26% growth last year, and Hollister continued its sequential acceleration to growth of 17% with better-than-expected summer and back-to-school selling. Consistent with the first quarter, we delivered improved profitability driven by gross profit rate expansion and operating leverage, with a second quarter operating margin of 15.5% and record second quarter operating income of $176 million.
Abercrombie and Fitch pulled off the biggest analyst estimates beat and fastest revenue growth of the whole group. Investor expectations, however, were likely higher than Wall Street’s published projections, leaving some wishing for even better results (analysts’ consensus estimates are those published by big banks and advisory firms, not the investors who make buy and sell decisions). The stock is down 18.2% since reporting and currently trades at $136.48.
Best Q2: Gap (NYSE:GAP)
Operating under The Gap, Old Navy, Banana Republic, and Athleta brands, The Gap (NYSE:GAP) is an apparel and accessories retailer that sells its own brand of casual clothing to men, women, and children.
Gap reported revenues of $3.72 billion, up 4.8% year on year, outperforming analysts’ expectations by 2.6%. The business had a stunning quarter with an impressive beat of analysts’ earnings and EBITDA estimates.
Although it had a fine quarter compared its peers, the market seems unhappy with the results as the stock is down 4.3% since reporting. It currently trades at $21.47.
Is now the time to buy Gap? Access our full analysis of the earnings results here, it’s free.
Weakest Q2: American Eagle (NYSE:AEO)
With a heavy focus on denim, American Eagle Outfitters (NYSE:AEO) is a specialty retailer offering an assortment of apparel and accessories to young adults.
American Eagle reported revenues of $1.29 billion, up 7.5% year on year, falling short of analysts’ expectations by 1.4%. It was a slower quarter as it posted a miss of analysts’ EBITDA and gross margin estimates.
As expected, the stock is down 8.4% since the results and currently trades at $19.86.
Read our full analysis of American Eagle’s results here.
Victoria's Secret (NYSE:VSCO)
Spun off from L Brands in 2020, Victoria’s Secret (NYSE:VSCO) is an intimate clothing and beauty retailer that sells its own brands of lingerie, undergarments, and personal fragrances.
Victoria's Secret reported revenues of $1.42 billion, flat year on year. This print met analysts’ expectations. Aside from that, it was a slower quarter as it produced underwhelming earnings guidance for the next quarter and a miss of analysts’ EBITDA estimates.
The stock is up 18.2% since reporting and currently trades at $29.39.
Read our full, actionable report on Victoria's Secret here, it’s free.
Zumiez (NASDAQ:ZUMZ)
With store associates called “Zumiez Stash Members”, Zumiez (NASDAQ:ZUMZ) is a specialty retailer of street and skate apparel, footwear, and accessories.
Zumiez reported revenues of $210.2 million, up 8.1% year on year. This result beat analysts’ expectations by 4.1%. It was a very strong quarter as it also put up an impressive beat of analysts’ earnings and EBITDA estimates.
The stock is down 18.4% since reporting and currently trades at $20.95.
Read our full, actionable report on Zumiez here, it’s free.
Market Update
Big picture, the Federal Reserve has a dual mandate of inflation and employment. The former had been running hot throughout 2021 and 2022 but cooled towards the central bank's 2% target as of late. This prompted the Fed to cut its policy rate by 50bps (half a percent) in September 2024. Given recent employment data that suggests the US economy could be wobbling, the markets will be assessing whether this rate and future cuts (the Fed signaled more to come in 2024 and 2025) are the right moves at the right time or whether they're too little, too late for a macro that has already cooled.
Want to invest in winners with rock-solid fundamentals? Check out our Hidden Gem Stocks and add them to your watchlist. These companies are poised for growth regardless of the political or macroeconomic climate.
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