Updated on September 27th, 2021 by Bob Ciura
Fashion stocks are in a state of flux. Fashion trends are constantly changing and companies in this industry must adapt to consumer preferences. Otherwise, they risk falling behind.
In addition, traditional brick-and-mortar retail stores face a separate threat in the form of Amazon (AMZN) and others in the online shopping arena. The rise in e-commerce has made it difficult for mall-based retail stores to compete.
However, the top fashion stocks have been able to withstand changing consumer habits, and continue to grow earnings-per-share, even in a very difficult environment for retail.
Investors looking for exposure to the major fashion stocks should consider the following three stocks, all of which pay dividends. You can see the entire list of consumer-cyclical stocks here.
You can also download the full list of all consumer cyclical stocks (along with important financial metrics like dividend yields and price-to-earnings ratios) by clicking on the link below:
This article will discuss three of the top 4 fashion stocks, including clothing retailers and fashion product manufacturers. Analysis will focus on the business models, growth outlooks, and total expected returns of the top fashion stocks.
Table of Contents
In this article we will take a look at the top 4 fashion stocks in the Sure Analysis Research Database that have the highest expected returns over the coming five years.
Our top 4 fashion stocks are ranked below, according to their 5-year expected total annual returns, in order of lowest to highest.
You can jump to any specific section of the article by clicking on the links below:
Fashion Stock #4: V.F. Corporation (VFC) Fashion Stock #3: The Gap Inc. (GPS) Fashion Stock #2: Tapestry Inc. (TPR) Fashion Stock #1: Foot Locker Inc. (FL)Fashion Stock #4: V.F. Corporation (VFC)
5-year expected annual returns: 7.3%V.F. Corporation is one of the world’s largest apparel, footwear and accessories companies. The company’s brands
include The North Face, Vans, Timberland and Dickies. The company, which has been in existence since 1899, generated over $9 billion in sales last year.
In 2019, V.F. Corp separated its VF’s Jeanswear organization, including the Wrangler, Lee and Rock & Republic brands. The separation was completed via a 100% distribution of shares to V.F. Corp shareholders, with the new entity named Kontoor Brands trading as an independent, publicly traded company under the “KTB” ticker.
On October 16th, 2020, V.F. Corp announced a $0.49 quarterly dividend, representing a 2.1% year–over–year increase and marking the company’s 48th consecutive year of increasing its payout.
V.F. Corp’s impressive dividend history places it on the exclusive Dividend Aristocrats list.
We expect 7.3% annual returns for VFC over the next five years, as earnings-per-share growth of 7% and the 2.9% dividend yield will be partially offset by a declining P/E multiple.
Click here to download our most recent Sure Analysis report on VFC (preview of page 1 of 3 shown below):
Fashion Stock #3: The Gap Inc. (GPS)
5-year expected annual returns: 8.7%The Gap Inc. is an American clothing and accessories retailer with a presence worldwide. The Gap operates six business lines: Gap, Banana Republic, Old Navy, Intermix, Hill City, and Athleta. The company has 3,814 stores worldwide.
The company reported second–quarter and Fiscal Year (FY) 2021 earnings on August 26, 2021. GPS had a tremendous second quarter. The Gap brought in $4.2 billion in net sales, the highest second quarter sales in over a decade. Sales were up 29% versus 2020 and up 5% compared to 2019 pre–COVID levels. Comparable sales increased 12% for the second quarter versus 2019.
We expect 4% annual EPS growth for The Gap through 2026. In addition, shares currently yield 2%. We believe there is some room for P/E multiple expansion, as the stock trades for a 2021 P/E of 11.5 compared with our fair value estimate of 13.
In total, we estimate that The Gap can offer a total annual return of 8.7% over the next five years. This is a solid, albeit unspectacular, expected rate of return.
Click here to download our most recent Sure Analysis report on GPS (preview of page 1 of 3 shown below):
Fashion Stock #2: Tapestry Inc. (TPR)
5-year expected annual returns: 13.7%Tapestry Inc. (TPR) was founded in 2017 as a transformation from Coach IP Holdings LLC (founded in 1941) and is a
leading American multinational luxury fashion holding company. Tapestry is the parent company of three brands: Coach, Kate Spade, and Stuart Weitzman.
The company’s renaming came after Coach acquired Stuart Weitzman and Kate Spade and expanded from making Coach–brand handbags to producing a wider variety of products through their three primary brands. These products include various leather goods, footwear, accessories, clothes, fragrances, and jewelry.
Coach continues to make up 70% of company sales, Kate Spade represents about a quarter of sales, and Stuart Weitzman is a small but growing segment in the overall business. Tapestry sells products worldwide from its 1,500+ branded retail locations, brand websites, and through thousands of distributor retail locations.
In total, we believe Tapestry can offer annual returns of 13.7% over the next half decade, which makes it an attractive fashion stock.
Click here to download our most recent Sure Analysis report on TPR (preview of page 1 of 3 shown below):
Fashion Stock #1: Foot Locker Inc. (FL)
5-year expected annual returns: 17.7%Foot Locker was established in 1974 as part of the FW Woolworth Company and became independent in 1988. The athletic apparel retailer, known for its namesake Foot Locker brand, operates nearly 3,000 stores in 27 countries. Foot Locker should generate about $8.8 billion in revenue this year.
Foot Locker reported second quarter earnings on August 20th, 2021, and results were better than expectations on both the top and bottom lines. The company’s total sales rose 7.3% year–over–year excluding forex translation. Against the 2019 second quarter, sales were up a staggering 28.2%. Earnings–per–share nearly tripled from the same period a year ago, coming to $2.21.
We expect 3% annual EPS growth, while the stock has a 2.5% dividend yield. Shares also appear significantly undervalued, with a 2021 P/E of 6.9, below our fair value estimate of 12.
We forecast that shares of Foot Locker can provide investors with an attractive total annual return of 17.7% over the next five years.
Click here to download our most recent Sure Analysis report on FL (preview of page 1 of 3 shown below):
Final Thoughts
While retail can be a challenging space, especially with the rise of e-commerce, the top fashion stocks can continue to thrive. V.F. Corporation, The Gap, Tapestry and Foot Locker offer at least a solid expected rate of return over the next five years.
Those looking for income should note that the dividend for each company discussed in the article exceeds the average of the S&P 500. Value investors could also be enticed by the low valuations of many fashion stocks.
Though earnings growth is muted for each company, total expected returns are satisfactory when factoring in dividends and positive returns through expanding valuation multiples.