by From the start, 2024 promised to be a tough year for fashion stocks.
Inflation has made living more expensive, interest rates are rising and geopolitics seem even more unsettled – from conflicts in Ukraine and Gaza to fringe elections in Europe and, now , in the United States.
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Enthusiasm for artificial intelligence and big tech has helped drive the stock market higher – the S&P 500 is up 16.5 percent to 5,555.74 for the year to date, with AI specialist Nvidia up more than 150 percent – but fashion stocks have been mixed to decisive in the world. .
There were style standouts for better and for worse.
Abercrombie Fitch & Co shares surged 83.1 percent to $161.53 as chief executive officer Fran Horowitz’s seven-year effort to remake the chain ended.
On the other hand, longtime Wall Street powerhouses like Nike Inc., down 31.9 percent to $73.40, showed cracks in their armor and are now fighting back with consumers and investors.
Analysts and retail experts said the mixed performance of retail stocks is likely to worsen for the rest of the year.
Consumer in Stress
“It’s a tough space,” said Ike Boruchow, an analyst at Wells Fargo. “The background of the consumer is not ideal.”
Not only are shoppers facing familiar economic pressures, but they are shifting more spending back to services from goods and settling into a post-pandemic normal.
It is normal that fashion is not in favor, anywhere it seems.
“European wholesale is going through what seems to be exactly what US wholesalers started going through a few quarters ago,” Boruchow said, referring to a tough period of write-off sales. “China, no matter how you look at it, it’s bad. It’s not playing out nearly as well as most of our global brands thought. And that is a key driver of growth for these companies. Check out our latest read on China, whether it was Levi or Nike. China is a problem.”
While there are some “extraordinary brands that are struggling or outperforming,” Boruchow described fashion retail as “kind of a slow-moving industry that’s stuck in the mud today that’s probably going to get worse before it gets better it’s better.”
The Electoral Equation
In the United States, at least, the drama of the presidential election, from the assassination attempt of former president Donald Trump to the last-minute rise of his likely rival, Vice President Kamala Harris, is drawing attention away from everything else.
“You have an election year, and that’s the biggest year you’ve ever had,” Boruchow said. “We’ve done work that shows that in a typical election cycle [the softlines space] Will see 150-200 basis points slow down in the income trend, in the second half against the first half.
“So whatever we think is going on now, this year’s election means it’s going to slow down by 1 or 2 points,” Boruchow said. “People are not focused on spending money. They are on her couch. Yeah, pick your poison: they’re watching MSNBC or they’re watching Fox and they’re completely caught up in the election and the news cycle, and they don’t spend money.”
In the United States at least, that distraction may be the uber-trend that colors everything else, from the boom in denim and premium running to the weakness among department stores.
Beyond that are the other X factors – Red Sea shipping, the price of containers, last mile logistics and the potential for changes in trade policy post-election and more.
First Half vs. The second half
While Simeon Siegel, an analyst at BMO, said the first half of the stock market was “a story of execution and winners and losers”, that story has now changed.
“We’re now back, at least for now, to a macro-driven story and thinking about themes like tariff and interest rates and elections,” Siegel said.
Investors must decide how much risk they are willing to take on a recovery like Under Armor Inc. and how much they are willing to pay for an already highly valued but stronger business such as TJX Cos. Inc., he said.
The Risk/Reward of Remedies
If you’re the type of daredevil who likes risk, there are definitely options.
Siegel said that Under Armor – which founder Kevin Plank is remaking as CEO and is trying to do more with less – has an “interesting risk reward” and that the brand is not as “dead” as it believes. enough.
But such bets take both strong faith and a strong stomach.
“Turnarounds, when they work, can be powerful stories for stocks,” Siegel said. “And turnarounds, until they work, are seen as dumpster fires. The trick and the skill is to look at a firm that has downside protection and upside potential with heavy increases that are not impossible.”
Consultant Michael Prendergast, managing director in Alvarez & Marsal’s consumer and retail group, said the companies with the best stock performances, like Abercrombie, have some commonalities.
“One is branded excellence, whether that’s preserving their brand or advancing their brand, or really focusing on aligning their brand with the modern demands of the customer,” Prendergast said. “And then the second thing is that most of these companies are operationally excellent and they are determined and committed to operational excellence.
“That sounds very basic, but I think it involves both areas, branding and operations – you have to have a long-term commitment to excellence in both,” he said.
A great example is Abercrombie Fitch & Co.
“No surprises at all,” Prendergast said. “They have been through a long-term, multi-year process of reorganizing their brand and their products. They have done a great job and now they are reaping the benefits.
“You look at someone like Ralph Lauren Corp., they’ve done the same thing,” he said. “They’ve been on a long-term quest to go after a high-margin business, less volume growth, and it’s paid off.” Lauren’s stock is up 16.8 percent to $167.01.
But that kind of focus is hard in fashion.
“It’s a market where you live and die with your last sale,” Prendergast said. “It’s a very contradictory situation. How do you then focus on a long-term strategy?”
It’s a change that Under Armor – which is on everyone’s lips – is trying to make.
“I liked Kevin Plank’s announcement when he retired after the last quarter, because that’s a multi-year strategy,” Prendergast said. “He put all his cards on the table, it was ugly, and they were obviously penalized from a stock point of view. But basically he put a long-range plan on the table and said, ‘This is where I’m unhappy with the business. This is where I want to take it. This is where we are going transparently, and we are marching there.’ I have every confidence that he will do that.”
Search for an Investment Theme
With investors betting on a turnaround, wondering about the ailing active giants, wondering about the comeback of Abercrombie, Walmart Inc.’s efforts. to compete with Amazon or the out-of-flight prices, they will look out for the next stock market. theme.
Like fashion, trends in the stock market and stockholders chasing one type of company or investment thesis drive up the price of those stocks before they move on, and there has been no shortage of stock market treasure in recent years.
“It felt as if the sectors were driving stock movement,” said consultant Matthew Katz, managing partner at SSA & Co. “Everyone talked about this bowl where luxury and discount were really moving, and a lot of trouble in the middle. Then there was some conversation about the true digital retailers, and then it was going to be large conglomerates, multi-brand businesses, and then it was a combination of branded and store-based direct-to-consumer retailers.”
But Katz said a scan of the stock market this year showed companies with each of those characteristics among both the winners and losers.
Part of that has to do with the trends that Wall Street has risen and fallen as it sought to grow, and part of it has to do with the world today.
“There’s uncertainty about the weather, there’s uncertainty about the market, there’s uncertainty about housing, there’s uncertainty about isolation versus global cooperation,” Katz said. “There is constant conflict around the world. Supply chains are tough. Travel may be affected.”
It’s a world, as Katz said: “Exercise is important. Having the flexibility with capital and cash to do the things you want when you see the opportunity, that’s always been a strategy, but it doesn’t work if you don’t have the agility to fight.”
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