A few months from now we’ll be hearing about how retailers fared during the holiday shopping season. Soon thereafter, we’ll learn more details about companies’ financial results during the all-important quarter.
Some investors prefer to receive confirmation of a strong holiday performance before investing in a stock. Others like to try to get ahead of the game by looking for clues as to which consumer brands will see high sales volume.
In the fourth quarter of last year, apparel manufacturers, luxury goods makers, and retail stalwarts were among the top performers in the S&P 500. As the fine print disclaimer goes, past performance is not a guarantee of future returns but it’s a good place to start. And when it comes to finding perennial late-year retail winners, history often repeats itself.
Here are three stocks to consider when trying to beat the holiday buying rush.
Will Tapestry Have a Strong Holiday Quarter?
Tapestry (NYSE: TPR) was one of the biggest Q4 winners in the S&P last year. Shares of the luxury goods company nearly doubled as consumers snatched up handbags, jewelry, and shoes like they were going out of style. Much of the demand was directed online and growth in China was sparkling.
This time around the owner of Coach, Kate Spade, and other luxury brands should have the wind at its back. Aggressive cost cutting campaigns and global expansion have Tapestry well positioned to benefit from what’s expected to be a strong consumer spending environment.
In 2020, retailers began rolling out so-called Black Friday sales well before the calendar had even turned to November. These deals became ongoing weekly events and Cyber Monday was spread across several days as well. Given how successful these tactics were, they are likely to return in 2021 as businesses jockey for consumers’ holiday money.
A good portion of that spending will likely go to Tapestry again. Analysts are expecting an even stronger holiday quarter than last year with the consensus EPS estimate at $1.22. More of the shopping will be done at reopened stores which combined with an emerging e-commerce business, could drive better than expected results Tapestry.
Is it Too Late to Stock Up on PVH Stock?
On Wednesday, Phillips-Van Heusen (NYSE: PVH) shares gapped up 15% in 4-times the average trading volume after the clothing company exceeded Q2 expectations and raised its full-year outlook. The leap may have kickstarted what could be a strong momentum play heading into the new year.
In Q4 of last year, PVH stock climbed 57%. Early deals for shoppers and analyst channel checks showed that PVH’s owned and licensed brands were flying off the shelves. This year it has picked up where it left off. Second-quarter sales jumped 46% to $2.3 billion, one-fourth of which came from digital sales channels.
Management’s dramatic 33% earnings forecast increase for 2021 suggests that big things are coming in the second half of the year. While plenty of pandemic uncertainty remains, a surging international business that is ahead of 2019 levels is expected to drive a stellar annual performance for PVH.
Key apparel brands like Calvin Klein and Tommy Hilfiger are driving the recent outperformance and are expected be popular items for holiday shoppers. With people worldwide spending less time in the office, formal gear like shirts and ties are lending way to casual sweats and tees as the items filling the shopping bag. This makes PVH a comfortable stock selection for a hybrid work trend that is probably here to stay.
Is Ralph Lauren Stock a Buy?
Another apparel stock to put in the holiday shopping cart is Ralph Lauren (NYSE: RL) which finished 2020 in style on the backs of a 53% Q4 run. Over the last few weeks, several sell-side firms have raised their target prices including UBS which has a Street-high $179 projection for the stock. Like last year, much of the potential upside could come during the final months of the year.
Ralph Lauren delivered a major holiday surprise for investors last year. The market was braced for a sizeable fourth-quarter loss but instead got an impressive profit. Management has since delivered two big earnings beats this year and may have more up its sleeve.
While many retailers are seeing digital sales slow as stores reopen, Ralph Lauren’s online business is booming. In the most recent quarter global digital sales growth accelerated to 80% which confirms that investments in an omni-channel strategy are paying off. And with brick-and-mortar stores opening their doors to holiday shoppers this year, Ralph Lauren’s traditional and online storefronts should be both be buzzing.
Much of Ralph Lauren’s resurgence is tied to its “Next Great Chapter” turnaround plan that got derailed when the coronavirus came along. Yet it has stuck with the strategy of simplifying its operations and enhancing technological capabilities the latter of which is helping it connect with digitally focused, younger consumers.
Now with nearly $3 billion of cash to work with and significantly less debt than a year ago, Ralph Lauren has financial flexibility unlike it has had in a long time. The dividend has been reinstated and further shareholder value is likely to be derived from ongoing investments in e-commerce and global expansion. At less than 17x current year earnings Ralph Lauren is a pre-holiday bargain for early bird value investors.
Ralph Lauren is a part of the Entrepreneur Index, which tracks some of the largest publicly traded companies founded and run by entrepreneurs.
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