Fashion can be fun but make no mistake, it can be profitable too. The global apparel market is coming off a historic decline caused by lockdowns, social distancing, and economic slowdowns due to the COVID-19 outbreak and the measures to contain it. COVID still lingers but the apparel market looks ripe for rebound and ready to hit new highs. During the lockdown, consumers strayed away from purchasing new apparel. However, apparel companies still have the potential to deliver good earnings and significant capital gains. Not only is the industry huge, but it also ripe for rebound with much higher seasonal demand during the holidays. Time to shed the sweatpants, get dressed for success and get serious about some apparel.
Some the largest, most popular apparel labels are owned and operated by unfamiliar names like PVH Corp. (NYSE: PVH) which has multiple brands under its umbrella including Van Heusen, Tommy Hilfiger, and Calvin Klein among others. Formerly known as the Phillips-Van Heusen Corporation, PVH also licenses brands such as Kenneth Cole New York and Michael Kors. PVH is one of the largest global apparel companies in the world reporting $7.1 billion in 2020 revenues. PVH reported third-quarter fiscal 2021 results, where the bottom line surpassed the Zacks Consensus Estimate, while the top line missed the same. However, both metrics improved year over year. The Calvin Klein segment improved 22% year over year and the Tommy Hilfiger segment rose 12%. A top hedge fund, Pzena Investment Management, had $439 million invested in the stock at the end of September and in a strong indicator, an insider purchased 1,981 shares at $81 in September 2020. The company also noted in the Q3 report that holiday season sales are off to a solid start and management raised the fiscal 2021 view.
Another name not quickly recognized as an apparel behemoth is VF Corporation (NYSE: VFC). Their brands include Dickies, JanSport, Kipling, The North Face, Timberland, Vans, and Supreme. The company controls 55% of the US backpack market across all of its brands, making it a major player in the clothing industry. Across all their segments, the VF Corporation generated close to $10.5 billion U.S. dollars in global revenue in 2020 and the company ranked first based on revenue of leading apparel companies worldwide in 2019. The company reported improved results for Q2 fiscal 2022 last October. Overall revenue from continuing operations increased 23 percent. Outdoor segment revenue increased 31 percent, Work segment revenue increased 18 percent, International revenue increased 18 percent, and Direct-to-Consumer revenue increased 32 percent. Full year fiscal 2022 revenue is now expected to be approximately $12.0 billion, reflecting growth of around 30 percent.
An intriguing apparel name, Digital Brands Group, Inc. (NASDAQ: DBGI) (www.digitalbrandsgroup.co) is redefining retail and the customer experience with its digital first, curated group of lifestyle brands. The company currently offers contemporary womenswear through Bailey 44 (www.bailey44.com), premium denim and luxury essentials through DSTLD (www.dstld.com), and luxury menswear through ACE Studios (www.acesuits.com).
Digital Brands Group’s unique business model is capitalizing on increased global digitization and the long-time fragmentation of the apparel and fashion markets. The company operates its brands on a decentralized basis with separate executive teams running each brand while consolidating marketing and technology contracts and cross marketing to each brand’s customers.
Since going public last May, the company has rapidly gained traction and increased leverage by rolling up brands and creating scale. Digital Brands reported impressive Q3 2021 results last November -third quarter 2021 net revenue increased 75% year over year and the gross profit margin increased 96% year over year to 55.9%.
DBGI also provided eye-popping net revenue guidance for fiscal year 2022 – an increase of 350% from 2021 with 2022 revenue expectations of $37.5M to $42.5M. The company forecasts positive EBITDA for 2022 as it leverages its shared services platform. Commenting on the surging growth, Hil Davis, CEO of Digital Brands Group, stated “This forecasted increase of 350% in our year over revenue growth does not reflect any potential additional acquisitions, nor does it reflect any meaningful benefit from our expected increase in marketing spend.” Digital Brands expects continued growth through acquisitions and to continue to acquire companies this year and next.
Though much smaller than other apparel brands, DBGI just might have the most upside potential. The stock is trading at the low end of it’s range and with so much growth potential if the company hits or exceeds guidance the high end of it’s range could be in the rear-view mirror. The holidays and the seasonal surge in apparel are fast approaching. This seems like the perfect time to celebrate, have fun, and position portfolios with apparel stocks.
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