3 Lingerie Stocks to Leave in the Closet

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Sex sells … except for, apparently, in the financial markets. That’s the message behind popular lingerie stocks, which have failed to spice up investment portfolios.

3 Lingerie Stocks to Leave in the Closet - LB GPS HBI

Declining sales, a competitive landscape and poor performance overall in the apparel industry have especially challenged specialty or premium retailers. While the products themselves get plenty of media coverage and exposure in popular culture, lingerie stocks as an investment vehicle have recently fallen flat.

Generally speaking, it’s a tough road for everyone. The benchmark S&P 500 is going nowhere fast. Wage growth remains a problem. To top it all off, the markets are widely anticipating one of the worst earnings seasons in years.

According to research conducted by FactSet, earnings of companies listed on the S&P 500 are forecasted to drop 9.1%. Never mind the fact that unrelated sectors like energy and materials are bearing the brunt of the pain. Such bearishness is ultimately a reflection of the whole, and that certainly doesn’t do favors for specialty items like lingerie.

The immediate problem for lingerie companies is demographics. I think it’s safe to assume that most buyers of lingerie are women. That cuts out roughly half of the consumer base. Another safe assumption is that lingerie products are targeted towards younger Millennial women. Yet it is this very subsector of the broad populace that is seeing a lesser benefit from the present jobs recovery.

According to the Bureau of Labor Statistics, the average unemployment rate this year for women aged 20 to 24 years is 7.6%, significantly higher than the unemployment rate for all women aged 16 and over (4.9%). The unemployment rate for “prime” female Millennials aged 25 to 34 years is 5.2% — though worryingly, this rate increased from 5% in December 2015 to 5.4% last month.

Coincidentally, the rally in the Dow Jones U.S. Apparel Retailers Index began to stall at the end of March, and has effectively reversed course in April.

This isn’t to suggest that a move up in female unemployment figures is solely responsible for bearishness in lingerie stocks. However, it’s an important piece of a larger puzzle that has perplexed the broad markets.

With all companies scrambling for better sales performances, specialized retailers are at higher risk. Here are three lingerie stocks that are unlikely to spice things up.

Lingerie Stocks to Leave in the Closet: L Brands, Inc. (LB)

Lingerie Stocks to Leave in the Closet: L Brands, Inc. (LB)
Source: Source: JYE Financial, unless otherwise indicated
L Brands Inc (LB) may not be a household name, but the same cannot be said about their flagship subsidiary, Victoria’s Secret. Known worldwide for their boutique catalogs and fashion shows featuring the hottest models in town, LB stockholders have been the biggest beneficiary of the Victoria’s Secret brand.

Over the past decade, LB shares have returned 223%. In comparison, the S&P 500 has only delivered 64% returns within the same time period.

That dominance, though, is starting to fade. In February, former Victoria’s Secret head Sharen Jester Turney abruptly vacated her post, raising eyebrows about the future of LB. L Brands gets about 2/3 of its sales from the iconic lingerie retailer.

Responding to growing changes in the sector, LB announced job cuts at Victoria’s Secret, as well as a gradual departure from its seductive print catalogs. The goal is to streamline the overall business and focus on strategies like customer loyalty programs.

That might effect a little change. But how does a restructuring program help to appreciably offset the year-to-date loss in LB stock of over 17%?

Curiously, LB also announced that it will begin aggressively targeting younger Millennials with brands aimed at college co-eds. However, as previously mentioned, this is one of the worst economically performing subsectors of the female demographic. Thus, they would have to win on volume, which leaves LB vulnerable to price-cutting competitors.

The bottom line here is that LB will have to do more than just rearrange the shelves at Victoria’s Secret if they want to replicate prior successes.

Lingerie Stocks to Leave in the Closet: Gap Inc (GPS)

Lingerie Stocks to Leave in the Closet: Gap Inc (GPS)
Source: Source: JYE Financial, unless otherwise indicated

Better known for its trendy apparel, Gap Inc (GPS) is also considered one of the best retailers for affordable lingerie and other intimates via its Gap Body brand.

Unfortunately for GPS shareholders, however, the company has suddenly turned into the one of the worst investment in the markets. Just in the past week, shares have dropped 19%, with a majority of those losses coming from a horrendous 14% slide on April 8. As the charts would suggest, there isn’t much optimism that GPS will recover anytime soon.

A boatload of ugly came upon GPS when the company released its March sales results. Revenue generated from Gap-branded stores fell 3%, much steeper than the forecasted 0.8% decline.

Arguably more disappointing were results from Old Navy — the GPS “fighter brand” — where sales dropped by 6%. Although this was expected, it demonstrates that the consumer market is weaker than initially thought.

Last month’s setback will also breed problems tomorrow. GPS will have to contend with elevated inventory which, of course, means that the company will begin heavily discounting less-desirable apparel. But doing this essentially trains its consumers to wait for bad news to hit GPS in order to make their purchases. It’s a vicious cycle that won’t impress already nervous investors.

GPS was supposedly undergoing a comeback; now, they’ll need a second comeback to overcome the apparent failure of the first.

Lingerie Stocks to Leave in the Closet: Hanesbrands Inc. (HBI)

Lingerie Stocks to Leave in the Closet: Hanesbrands Inc. (HBI)
Source: Source: JYE Financial, unless otherwise indicated

Last but not least, we have Hanesbrands Inc. (HBI). The popular clothing company has a distinct, fundamental advantage over lingerie retailers in that it has offerings for all age and gender groups.

HBI also has a substantial international reach, and it is continuing to expand further. Recently, HBI announced that it plans to acquire Champion Europe, which owns the legal rights to the Champion brand name in Europe, the Middle East and Africa. Nevertheless, the markets have been unimpressed with the efforts.

HBI stock on a YTD basis is down nearly 7% — almost double the losses of premium-label competitor GPS. More problematic for HBI from a technical perspective is its wild volatility. Over the trailing year, its shares have gyrated from a high of $34.78 to a low of $23.25.

HBI is also contending with a declining trend channel that began in the summer of 2015. With each successive rally resulting in a lower price point in the markets, investors have a right to be cautious on HBI stock.

On paper, though, the bearishness seems a little odd. HBI benefits from strong profit margins, and the company is consistently growing its top-line. TheStreet gives HBI stock a “buy” rating on the back of its earnings potential.

But the reason why it hasn’t translated into success in the capital markets is likely due to poor economic sentiment. The U.S. jobs rally is questionable at best. The best international companies as defined by the Global Dow Index look terrible.

That more or less spells trouble for retailers — even ones as diversified as HBI

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.


Article printed from InvestorPlace Media, https://investorplace.com/2016/04/lingerie-stocks-lb-gps-hbi/.

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