2 A-Rated Apparel Retail Stocks to Buy Now

With more than half of the U.S.’ population having been vaccinated for COVID-19, and with consumer spending ticking up, the apparel retail industry is expected to see decent growth this year. Given the bullish market sentiment as physical retail shopping gradually regains its appeal, we think leading apparel retail stocks The Gap (GPS) and Carter’s (CRI) could be solid bets now. Read on.

While the COVID-19 pandemic was a significant constraint for apparel retailers last year, the industry has been gradually recovering thanks to a substantial uptick in consumer spending on apparel and a growing trend in customized clothing and athleisure. The U.S. economy’s rapid recovery, and the relaxation of social distancing restrictions, have  increased foot traffic in retail stores markedly of late.

As apparel retailers continue to digitize their businesses, redesign their stores and renew their product offerings, they are well-positioned to capitalize on consumers’  increased spending funded by discretionary budget savings last year.  Consequently, the global apparel market is expected to hit $842.7 billion in 2025, growing at a 9.8% CAGR.

Thus, with their established retail chains and a digital presence, we believe apparel retail stocks The Gap Inc. (GPS) and Carter’s Inc. (CRI) would be wise bets now because they might witness a solid increase in sales going forward.

Click here to checkout our Retail Industry Report for 2021

The Gap Inc. (GPS)

GPS, which is headquartered in San Francisco, is a popular apparel retailer that  sells its products through operated stores, franchise stores, third-party arrangements, catalogs, and e-commerce websites. The company had 3,100 company-operated locations and 615 franchise outlets as of March 4, 2021.

In May, GPS and Walmart forged a strategic agreement to launch Gap Home, a new line of home necessities available only at Walmart. For the first time, two of the world's most renowned brands have teamed up to bring their brand legacies to life via distinctive style in a new product category. The partnership should  enable GPS to offer classic home essentials to its customers and drive its sales.

During the first quarter, ended May 1, 2021, GPS' net sales increased 89.4% year-over-year to $3.99 billion. Its operating income came in at $240 million for the period, compared to a $1.24 billion  operating loss in the first quarter of 2020. The company’s net income came in at $166 million, versus  a $932 million net loss in the prior-year period. Its EPS amounted to $0.43, compared to a $2.51 loss per share in the first quarter of 2020.

A $1.75  consensus EPS estimate for its fiscal year 2022 represents a 182.9% improvement year-over-year. The $17.12 billion consensus revenue estimate for the current year represents a 24% increase from the same period last year. The stock has gained 136.4% over the past year and 47.2% year-to-date.

GPS's POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its weighting.

GPS is also rated an A grade for Momentum, and a B for Value and Growth. Within the A-rated Fashion & Luxury industry, it is ranked #13 of 66 stocks.

To see additional POWR Ratings for Quality, Sentiment, and Stability for GPS, click here.

Carter’s Inc. (CRI)

CRI specializes in clothing for infants and young children. The Atlanta, Ga.-based company offers its products through department shops, national chains, and specialized retailers both domestically and abroad in more than 1,000 company-owned and operated stores across the United States, Canada, and Mexico, as well as through its online outlets.

CRI's net sales increased 20.3% year-over-year to $787 million in the first quarter ended April 30, 2021. Its operating income came in at $127 million for this period, compared to a  $78 million operating loss  in the first quarter of 2020. The company reported $86 million in net income , compared to a $79 million net loss in the prior-year period. Its EPS stood at $1.96, versus a $1.82 loss per share in the first quarter of 2020.

The company's EPS is expected to grow 52.4% year-over-year to $6.34 in the current year. Analysts expect CRI's revenue to increase 12.4% year-over-year to $3.4 billion in its fiscal year 2021. CRI's stock has gained 14.3% over the past year and 19.1% over the past nine months.

It is no surprise that CRI has an overall A rating, which equates to Strong Buy in our POWR Ratings system. The stock also has an A grade for Growth, and a B for Momentum and Value. In the Fashion & Luxury, it is ranked #7 of 66 stocks.

In addition to the POWR Ratings grades we have just highlighted, one  can see the CRI rating for Quality, Stability, and Sentiment here.

Click here to checkout our Retail Industry Report for 2021

GPS shares were trading at $29.41 per share on Friday morning, down $0.31 (-1.04%). Year-to-date, GPS has gained 47.37%, versus a 16.89% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate.


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