As spring and summer approach, the fashion industry is primed to leverage consumers' shift to seasonal wardrobe changes. Leading fashion companies Abercrombie & Fitch Co. (ANF) and Ross Stores, Inc. (ROST) recently announced robust quarterly results and also exceeded the EPS and revenue Wall Street expectations. So, these two stocks could be solid buys.
The companies’ solid performance can be attributed to low costs and a jump in retail sales due to the holiday season. Recent data from the U.S. Census Bureau reveals that core retail sales during the 2023 holiday season surged by 3.8% compared to 2022, reaching a record $964.4 billion. Additionally, sales for the entire year increased by 3.6% over 2022, reaching a new high of $5.13 trillion.
Moreover, retail sales were strong in January, nearly matching December's bustling holiday spending and showing significant year-over-year growth, according to the NRF Retail Monitor. NRF President and CEO Matthew Shay expressed optimism, noting solid year-over-year growth, indicating consumer confidence.
As per the Retail Monitor, total retail sales, excluding automobiles and gasoline, experienced a mere 0.16% month-over-month decline but surged by 2.34% year-over-year in January. Additionally, clothing and accessories store sales witnessed a 0.52% month-over-month increase and a significant 5.9% year-over-year rise.
Moreover, the demand for luxury goods in the United States is driven by a wealthy population with high incomes eager to invest in high-end personal luxury accessories marketed by luxury brands.
Additionally, the rising preference for premium and curated collections of apparel and jewelry has led to the expansion of curated fashion stores in the country to meet the evolving fashion needs of U.S. consumers.
The United States luxury goods market is projected to grow at a CAGR of 5.1% until 2027.
Considering these conducive trends, let's examine the fundamentals of the best Fashion & Luxury stocks, starting with the second one.
Stock #2: Abercrombie & Fitch Co. (ANF)
ANF operates as a specialty retailer in the United States, Europe, the Middle East, Asia, the Asia-Pacific, Canada, and internationally. The company operates through two segments: Hollister and Abercrombie. It offers an assortment of apparel, personal care products, and accessories for men, women, and kids under the Hollister, Gilly Hicks, Social Tourist, Abercrombie & Fitch, and Abercrombie Kids brands.
On January 31, 2024, ANF launched an official partnership with the McLaren Formula 1 team, featuring licensed graphics apparel, content creation, social media collaborations, and events.
ANF recently reported fourth-quarter revenue of $1.45 billion, surpassing analysts' expectations of $1.43 billion. Additionally, excluding certain items, the company earned $2.97 per share, exceeding estimates of $2.83 per share. Moreover, the company reported a 21% increase in the fourth quarter sales and higher profits due to increased prices and lower raw material costs.
ANF’s net sales for the fiscal year ended February 3, 2024, increased 15.8% year-over-year to $1.45 billion. Its adjusted operating income rose 358.5% over the prior-year quarter to $489.11 million. Adjusted net income attributable to ANF came in at $331.33 million, up significantly year-over-year. Also, its non-GAAP EPS came in at $6.28, representing a considerable increase year-over-year.
It now anticipates continued growth, with sales expected to rise by a low double-digit percentage for the current quarter and 4-6% for the full year.
Street expects ANF’s EPS and revenue for the quarter ended January 31, 2024, to increase 151.9% and 10.1% year-over-year to $0.98 and $920 million, respectively. It surpassed the consensus EPS and revenue estimates in each of the trailing four quarters.
Over the past nine months, the stock has gained 312.4% to close the last trading session at $134.99. It has returned 386.8% over the past year. Moreover, the stock is currently trading above its 50-day and 200-day moving averages of $106.97 and $65.33.
ANF’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Growth and Quality. Among the 61 stocks in the B-rated Fashion & Luxury industry, it is ranked #18.
To see the other ANF ratings for Value, Momentum, Stability, and Sentiment, click here.
Stock #1: Ross Stores, Inc. (ROST)
ROST and its subsidiaries operate off-price retail apparel and home fashion stores under the Ross Dress for Less and dd’s DISCOUNTS brand names in the United States. Their stores primarily offer apparel, accessories, footwear, and home fashions.
On March 5, ROST approved a new two-year $2.10 billion stock repurchase authorization for fiscal 2024 and 2025. This new program represents an 11% increase over the recently completed repurchase of $1.90 billion of common stock during 2022 and 2023 combined.
Its Board also authorized a 10% increase in the company’s quarterly cash dividend to $0.3675 per share, payable on March 29, 2024. The company pays $1.47 annually, which translates to a yield of 0.99% on the prevailing price level, higher than its four-year average dividend yield of 0.95%.
Barbara Rentler, the company's CEO, noted, "The increases to our stock repurchase and dividend programs reflect our continued commitment to enhancing stockholder value and returns given the strength of our balance sheet and our ongoing ability to generate significant amounts of cash after funding growth and other capital needs of the business."
Moreover, ROST recently reported better-than-expected earnings and revenue for the fourth quarter of 2023, which ended February 3, 2024, with an EPS of $1.82 and revenue of $6.02 billion, surpassing analysts' estimates. The company's operating margin rose to 12.4% from 10.7% in the previous year.
ROST’s sales for the fiscal year that ended February 3, 2024, increased 9% year-over-year to $20.38 billion. In addition, the company’s net earnings and EPS came in at $1.87 million and $5.56, representing an increase of 24% and 26.9% year-over-year, respectively.
Barbara Rentler attributed the strong performance to customers' positive response to improved assortments of quality branded bargains. ROST issued upbeat guidance for the fiscal first quarter, expecting EPS between $1.29 and $1.35, slightly above the consensus projection of $1.27.
Analysts expect ROST’s revenue to rise 7.2% year-over-year to $4.82 billion in the fiscal first quarter ending April 2024. Its EPS is expected to grow 23.2% year-over-year to $1.34 for the same quarter. The company has surpassed the consensus EPS and revenue estimates in all four trailing quarters.
The stock has returned 42.9% over the past nine months to close the last trading session at $148.12. The stock is currently trading above its 50-day and 200-day moving averages of $141.57 and $122.44.
ROST‘s sound fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system.
It also has an A grade for Sentiment and a B for Momentum and Quality. ROST is ranked #12 in the same industry.
Click here to see ROST’s additional ratings for Growth, Stability, and Value.
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ROST shares were trading at $146.63 per share on Thursday afternoon, down $1.49 (-1.01%). Year-to-date, ROST has gained 5.95%, versus a 8.31% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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