Cooling inflation and growing consumer spending are propelling the consumer discretionary sector's growth. Amid this, notable companies like adidas AG (ADDYY), Skechers U.S.A., Inc. (SKX), and Abercrombie & Fitch Co. (ANF) showcase robust fundamentals and strong growth potential.

In October, prices were 2.6% higher than a year ago, according to the Consumer Price Index. While slightly above September's 2.4%, this is a significant drop compared to the steep inflation rates of 2022 and 2023. Such moderation provides much-needed relief to American consumers and businesses alike.

Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management, emphasized the importance of stable inflation data. She noted that amid concerns over tariffs, immigration policies, and fiscal challenges, steady inflation offers a welcome reprieve, reducing uncertainties for the market.

Retail sales also reflect healthy consumer activity, rising 0.4% from September to October. Plus, retailers are gearing up for a strong holiday shopping season, with analysts predicting solid performance. The seasonal boost is expected to drive significant growth in the October-December quarter.

In particular, the consumer discretionary sector could benefit from increased consumer spending. As shoppers look to indulge in non-essential goods and experiences during the holidays, companies in this sector could see a surge in demand. This trend offers promising prospects for brands offering luxury products.

So, let us dive into the fundamentals of three consumer discretionary stocks, starting with #3.

Stock #3: adidas AG (ADDYY)

Based in Herzogenaurach, Germany, ADDYY designs, develops, produces, and markets athletic and sports lifestyle products globally. It offers footwear, apparel, accessories, and gear, such as bags and balls. Moreover, the company sells its products through its physical retail stores, wholesale, and e-commerce channels.

ADDYY’s trailing-12-month gross profit margin of 49.72% is 32.1% higher than the industry average of 37.65%. Its trailing-12-month levered FCF margin of 9.01% is 91.5% higher than the sector average of 4.70%. Likewise, the stock’s asset turnover ratio of 1.18x is 17.3% higher than the industry average of 1.00x.

For the fiscal 2024 third quarter that ended September 30, ADDYY’s net sales increased 7.3% year-over-year to €6.44 billion ($6.81 billion). Its gross profit rose 11.7% from the year-ago value to €3.30 billion ($3.49 billion).

Additionally, net income attributable to shareholders grew 70.9% from the prior year’s quarter to €443 million ($468.81 million), while EPS from continuing operations increased 74.8% year-over-year to €2.44 respectively.

Analysts expect ADDYY’s revenue and EPS for the fiscal year ending December 2025 to increase 9.8% and 91.7% year-over-year to $26.82 billion and $4.41, respectively. In addition, the company topped the consensus EPS estimates in all of the four trailing quarters.

Shares of ADDYY have surged 19.2% over the past nine months to close the last trading session at $112.94.

ADDYY’s POWR Ratings reflect its sound fundamentals. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

ADDYY has a B grade for Growth. It is ranked #5 out of 34 stocks in the Athletics & Recreation industry.

In addition to the POWR Rating highlighted above, you can check ADDYY’s ratings for Stability, Value, Quality, Momentum, and Sentiment here.

Stock #2: Skechers U.S.A., Inc. (SKX)

SKX designs, develops, and markets footwear, apparel, and accessories for men, women, and kids. The company’s segments are Wholesale and Direct-to-Consumer. It offers popular footwear lines like Skechers Hands Free Slip-ins, Skechers Arch Fit, and Skechers Air-Cooled Memory Foam.

On November 12, SKX announced the planned relocation of its European Distribution Center (EDC) operations to a larger, single-structure, state-of-the-art facility in Liège. Wit this relocation SKX could expand its business throughout the European continent and boost its growth prospects.

SKX’s trailing-12-month gross profit margin of 53.12% is 41.1% higher than the industry average of 37.65%. Its trailing-12-month EBITDA margin of 12.31% is 9.1% higher than the 11.28% industry average. Additionally, the stock’s trailing-12-month net income margin of 7.20% is 67.6% higher than the sector average of 4.29%.

For the fiscal third quarter that ended on September 30, 2024, SKX’s sales increased 15.9% year-over-year to $2.35 billion. Its gross profit rose 14.1% from the year-ago value to $1.22 billion.

Furthermore, the company’s net earnings and net earnings per share attributable to SKX grew 32.9% and 35.5% from the prior year’s quarter to $193.22 million and $1.26, respectively.

Street expects SKX’s revenue and EPS for the fiscal fourth quarter (ending December 2024) to increase 13.1% and 32.9% year-over-year to $2.22 billion and $0.74, respectively. Moreover, the company surpassed the consensus EPS estimates in three of the four trailing quarters.

SKX’s shares have surged 1.6% over the past nine months and 15.4% over the past year to close the last trading session at $60.61.

SKX’s positive fundamentals are mirrored in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system.

SKX has a B grade for Growth and Sentiment. Within the Athletics & Recreation industry, it is ranked #4 out of 34 stocks.

Click here to access SKX’s ratings for Stability, Value, Momentum, and Quality.

Stock #1: Abercrombie & Fitch Co. (ANF)

ANF is a global omnichannel retailer offering apparel, personal care products, and accessories for men, women, and kids. It operates through its own stores, digital channels, and third-party arrangements. The company has three geographic segments: Americas; EMEA; and APAC.

ANF’s trailing-12-month EBITDA margin of 17.51% is 55.3% higher than the industry average of 11.28%. Its trailing-12-month levered FCF margin of 9.86% is 109.7% higher than the sector average of 4.70%. Furthermore, the stock’s trailing-12-month net income margin of 10.76% is 150.5% higher than the 4.41% industry average.

For the fiscal 2025 second quarter that ended August 3, 2024, ANF’s net sales increased 21.2% year-over-year to $1.13 billion. Its EBITDA grew 70.3% from the year-ago value to $214.98 million.

Moreover, net income and net income per share attributable to ANF rose 134.1% and 127.3% from the prior year’s quarter to $133.17 million and $2.50, respectively.

The consensus revenue and EPS estimates of $1.18 billion and $2.43 for the fiscal 2025 third quarter that ended October 2024 exhibit a year-over-year rise of 11.6% and 33%, respectively. Furthermore, the company surpassed the consensus revenue and EPS estimates in all four trailing quarters, which is impressive.

Shares of ANF have gained 17.9% over the past nine months and 93.8% over the past year, closing the last trading session at $142.58.

ANF’s bright prospects are projected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system.

ANF has an A grade for Quality and a B grade for Growth. Within the B-rated Fashion & Luxury industry, it is ranked #13 out of 61 stocks.

Click here to access ANF’s ratings for Value, Momentum, Stability, and Sentiment.

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ADDYY shares were unchanged in premarket trading Wednesday. Year-to-date, ADDYY has gained 11.32%, versus a 25.36% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

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