2 Top Intimate Apparel Stocks to Buy, 2 to Sell
After suffering a downturn last year, the intimate apparel sector is in a rebuilding phase. The expansion of digital platforms, increase in consumer spending and pent-up demand for customized and...
After suffering a downturn last year, the intimate apparel sector is in a rebuilding phase. The expansion of digital platforms, increase in consumer spending and pent-up demand for customized and comfortable products have been fueling the intimate apparel industry’s growth. Therefore, we think fundamentally strong stocks in this space, Gildan Activewear (GIL) and Hanesbrands (HBI), are worth betting on now. Conversely, Victoria's Secret (VSCO) and Naked Brand (NAKD) do not look well-positioned to capitalize on the industry tailwinds. We think these companies’ bleak financials make their stocks best avoided now. Let’s discuss.
The intimate apparel market, or lingerie industry, offers a wide range of necessary and fashionable products. The sector experienced a downturn last year due to pandemic-related closure of physical stores and a decline in consumer spending on fashion items. However, efforts to strengthen digital platforms, customized product innovations, a wide range of designer products based on various outfits and body types, rising consumer spending, and pent-up demand for comfortable and hygienic intimate apparel have been driving the market’s growth since. The global lingerie market is expected to register a 7.8% CAGR by 2026.
This industry is projected to witness a significant boost in both e-commerce and brick-and-mortar store sales. Therefore, we think fundamentally sound intimate apparel stocks Gildan Activewear Inc. (GIL) and Hanesbrands Inc. (HBI) could be solid bets now.
However, amid remote lifestyles, consumers’ preferences are shifting from fashionable intimate wear toward more comfortable and necessary products. Therefore, we think fundamentally weak companies in this space, Victoria's Secret & Co. (VSCO) and Naked Brand Group Limited (NAKD), might struggle to stay afloat.
Stocks to Buy:
Gildan Activewear Inc. (GIL)
Headquartered in Montreal, Canada, GIL is a vertically-integrated manufacturer of apparel, socks, hosiery, and various activewear products. The company markets its products under the Gildan, American Apparel, Comfort Colors, Gildan Hammer, Anvil by Gildan, Alstyle, Therapy Plus, Peds, and various other brands. Also, GIL sells its products to wholesale distributors, screen printers, embellishers, and retailers.
GIL’s net sales for the third quarter, ended October 3, 2021, increased 33.1% year-over-year to $801.6 million. The company’s gross profit grew 107.9% from its year-ago value to $281.7 million. Its net earnings rose 233.9% from the prior-year quarter to $188.3 million. Also, the company’s EPS increased 239.3% year-over-year to $0.95.
Analysts expect GIL’s revenue for its fiscal year 2021 to be $2.76 billion, representing 39.5% year-over-year growth. The company has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. GIL’s EPS is expected to increase 1,350% in the current year. Furthermore, the stock has gained 56.7% in price over the past year.
GIL’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
Also, the stock has an A grade for Sentiment and a B grade for Momentum and Quality. We have also graded GIL for Growth, Value, and Stability. Click here to access all GIL’s ratings. GIL is ranked #7 of 37 stocks in the B-rated Athletics & Recreation industry.
Hanesbrands Inc. (HBI)
HBI in Winston-Salem, N.C., is a consumer goods company that designs and sells basic apparel for men, women, and children. The company operates through three segments—Innerwear; Activewear; and International. HBI markets its products under the Hanes, Champion, Bali, Alternative, Gear for Sports, and various other brands. As of January 2, 2021, it operated 245 retail and direct outlet stores in the United States and the Commonwealth of Puerto Rico and 757 retail and outlet stores internationally.
Last month, HBI entered a 10-year strategic agreement with the University of Texas to be one of its primary apparel partners. HBI should deliver a consumer-driven collection of branded apparel that provides “A Selection As Big As Texas" for Longhorn students, alumni, and fans through this agreement. Also, HBI should receive exclusive rights in the mass, campus, and local channels.
For the third quarter, ended October 2, 2021, HBI’s net sales increased 5.8% year-over-year to $1.79 billion. The company’s gross profit grew 22.4% from its year-ago value to $699.66 million. Its operating profit rose 24.1% from the prior-year quarter to $234.65 million. Also, the company’s net income increased 47% year-over-year to $151.78 million.
HBI’s revenue is expected to increase 4% year-over-year to $7.08 billion in its fiscal year 2022. The company has an impressive earnings surprise history; it beat the consensus EPS estimates in each of the trailing four quarters. HBI’s EPS is estimated to increase 26.2% in the current year. The stock has surged 13.7% in price over the past year.
HBI’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. Also, the stock has a B grade for Value, Momentum, and Quality.
In addition to the POWR Rating grades I have just highlighted, one can see HBI’s ratings for Growth, Stability, and Sentiment here. HBI is ranked #39 of 63 stocks in the A-rated Fashion & Luxury industry.
Stocks to Avoid:
Victoria's Secret & Co. (VSCO)
Columbus, Ohio-based VSCO is a global intimate specialty retailer that offers a wide range of fashion-inspired products for women, beauty products, and personal care. The company also provides swimwear, activewear, and fragrances and markets all its products under the Victoria’s Secret and PINK brands. VSCO operates approximately 1,400 retail stores worldwide.
VSCO’s net sales increased 6.5% year-over-year to $1.44 billion for the third quarter, ended October 30, 2021. However, the company’s operating income decreased 15.3% from its year-ago value to $107.91 million. Its net income declined 47.5% from the prior-year quarter to $75.21 million. Also, the company’s EPS decreased 50% year-over-year to $0.81.
VSCO’s stock has declined 18.6% in price over the past three months and is currently trading below its 200-day moving average.
Naked Brand Group Limited (NAKD)
Based in Double Bay, Australia, NAKD is a digital intimate and swimwear apparel store for people that markets its products exclusively online. Naked, Bendon Man, Davenport, Hickory, Heidi Klum Man are some of the brands under which the company designs and sells its products. NAKD also offers accessories, costume products, and other apparel under the licensed Frederick's of Hollywood brand.
NAKD’s revenue for the 12 months ended January 31, 2021, decreased 11.1% year-over-year to NZ$80.04 million ($55.18 million). The company’s loss for the period increased 25.9% from the year-ago value to NZ$68.35 million ($47.12 million). Also, its total comprehensive loss grew 39.6% from the prior-year quarter to NZ$72.83 million ($50.21 million).
NAKD’s stock has declined 38.7% in price over the past nine months. NAKD’s poor prospects are reflected in its POWR Ratings. The stock has an overall D rating, which equates to a Sell in our proprietary rating system. Also, the stock has an F grade for Value and a D grade for Quality and Stability. Click here to access the additional NAKD ratings (Growth, Momentum, and Sentiment). NAKD is ranked #62 of 70 stocks in the D-rated Consumer Goods industry.
GIL shares were unchanged in premarket trading Tuesday. Year-to-date, GIL has gained 50.67%, versus a 25.48% rise in the benchmark S&P 500 index during the same period.
About the Author: Priyanka Mandal
Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research.