In the world of fashion, the hottest apparel trends can grow cold in the blink of an eye, and winning over shoppers depends on myriad factors including timing, price, weather, competitor offerings and more.
Simply put: It’s not an easy business.
And while you can find clothes at plenty of stores — including do-it-all big-box retailers like Walmart (WMT) or Macy’s (M) — other shopping spots bank solely on the apparel (and accessories) business.
The result: If your styles don’t hit the market running, you have nowhere else — no grocery business or home goods offerings — to turn to. Just ask struggling stores like Chico’s (CHS) and American Eagle (AEO).
Of course, if you miss the mark enough for a while, just the slightest improvements will get investors excited again. That’s the story for several of this year’s hottest apparel-only stocks.
Take a look:
YTD Return: +45%
While The Gap Inc. (GPS) — the company behind its namesake Gap, plus Old Navy and Banana Republic — was super-hot at the turn of the century, and currently is much further along in getting back to its prime than other “comebacks” on this list.
GPS has climbed 45% since 2013 kicked off and boasts a five-year annualized return of 40%.
As The Wall Street Journal explains: “Gap ran into trouble a couple of years ago, with too many U.S. stores and clothes that lost their trendsetting edge. It also faced rising competition from fast-fashion players such as Forever 21.”
Lately, though, Gap closed locations and revamped its product line. The result: Year-over-year gains in sales and earnings for the past five quarters. And the retailer beat analyst expectations by posting a 43% improvement in profits for the most recent quarter. That growth is expected to stay in the double-digits over the next half-decade, including a 17% jump for the current year.
Of course, such success means GPS has a higher bar to meet, so Gap will have to work hard to stay in style. Just today, Piper Jaffray downgraded GPS shares to “neutral,” saying earnings increases have been baked in.
The Jones Group
YTD Return: +46%
Next up, we have The Jones Group (JNY) — the name behind brands like Nine West, Easy Spirit, Jones New York, Evan-Picone, Norton McNaughton and more.
JNY shares currently sit around $16 — 50% more than what it was worth at the start of the year, but still only a third of what the stock was worth at the turn of the century.
As with teen retailers Pacific Sunwear (PSUN) and The Wet Seal (WTSL), this is the story of a huge leap backward … and a few more recent, small steps forward.
Jones is cutting back its operations, with plans to close 170 stores by mid-2014 — around 30% of its overall count. That, coupled with the slashing of 8% of Jones’ work force, is expected to generate $40 million in savings for the company, which lost money last year. Some also suspect that selling off brands could be the next step for Jones’ comeback. While it has 35 brands, around 12 make up 80% of sales.
Jones is exploring another solution, too: The stock jumped last week on news that it hired Citigroup to explore a potential sale of the company.
Then again, the retailer looked into a similar move back in 2006, but to no avail.
YTD Return: +51%
Last year, investors were so over Express (EXPR). The company — which hit the market in 2010 after being spun off from Limited Brands (LTD) — fell an ugly 60% from March to November last year.
Since then, though, investors have slowly come crawling back in typical lonely ex-lover fashion — apparently having second thoughts about the breakup. EXPR has doubled since the aforementioned November 2012 low, while more than 50% of its recent gains have come this year.
One reason: It just keeps on growing. EXPR opened around 30 new stores last year, but has also improved its full-year sales and profits consistently since 2010.
That’s the good news, though. The bad: Express — after lowering its outlook back in March — is slated to break that growth trend in 2013, with analysts expecting a 1% decline. Then again, it’s still early in the year and EXPR’s full-year forecast has been marching upward during the past few months.
Plus, the next five years are expected to hold 19% annualized EPS growth, all while EXPR remains 12% off all-time highs and is trading for just 13 times forward earnings.
YTD Return: +80%
The Wet Seal (WTSL) has lost more than half its value over the past decade. The volatile retailer traded as high as $45 back in the 90s, and has been moving sideways in the $5 range for most of the 21st century.
Zooming in on the past few years, though, the stock has gradually been regaining its footing. WTSL has gained more than 80% year-to-date, putting it just 8% off its five-year high. And while the company lost money in fiscal 2012 (22 cents per share, to be exact), it’s already making its way back into the black this year.
Wet Seal swung to a profit in Q1 2013 thanks to solid sales and improving margins. As a result, the company raised its full-year outlook out of the red, causing analysts to follow suit. The current consensus is for full-year EPS of 9 cents; just two months ago, analysts were preparing for a full-year loss a nickel in the red.
That’s just the beginning. The following year’s EPS is slated to more than double, and during the next five years, Wet Seal is expected to grow by nearly 50% per year. Sure, WTSL stock still isn’t as great as it was in its ’90s glory days, but there’s hope again.
YTD Return: +140%
Well, apparently you don’t have to actually turn a profit to make investors want to try you on. Teen retailer Pacific Sunwear (PSUN) has booked eye-popping gains of 140% since 2013 kicked off … despite the fact that it has been losing money for almost seven years.
So what gives? Is surf- and skate-inspired apparel suddenly the next big thing?
Not necessarily … and many shoppers may actually be getting their dose of action-sport fashion from rivals like Zumiez (ZUMZ). Still, investors seem to think things can’t get any worse at Pac Sun — especially considering relatively promising signs like an smaller-than-expected loss and higher-than-expected sales in the most recent quarter.
Then again, you also have to take these outsized gains in such a volatile stock with a grain of salt. PacSun’s 2011 announcement of a plan to shutter 200 underperfoming stores sent the stock up 47% in one day of after-hours trading — from $1.35 to $1.99.
And even after its recent huge run, Pacific Sunwear stock still trades at a huge discount to its $28 high back in 2005. Today’s current pricetag? Under $4.
As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.