- H&M (HNNMY): Has a robust balance sheet with effective operational control
- Chico’s FAS (CHS): Encouraging outlook ahead after its digital transformation
- Jerash Holdings (JRSH): A stable business which also offers a healthy dividend
The apparel industry was among the hardest-hit sectors in the past couple of years. However, with the Coronavirus in the rear-view mirror, consumer spending on clothing and footwear is increasing at a robust pace again.
Retailers are experiencing strong momentum from last year and are likely to see a mix of headwinds and tailwinds as we advance. Therefore, wagering on apparel stocks could be an excellent post-pandemic play.
Consumer spending was on a roll during the fourth quarter. U.S. retail sales were up an incredible 46% on a year-over-year (YOY) basis in December. Spending increased by a healthy margin each month during the quarter.
Moreover, reports suggest consumers are somewhat undeterred by the inflationary pressures. Hence, it’s ideal to scoop up some undervalued apparel stocks to buy with massive upside ahead.
H&M (OTCMKTS:HNNMY) is a Swedish fashion brand and clothing retailer. While its peers crumbled during the pandemic, it came out relatively unscathed.
Moreover, it recently reported encouraging results, which saw an impressive increase in revenues and cash flows. Also, due to its prudent capital management, it ended last year with an incredible balance sheet.
The pandemic impacted H&M’s results, but its operating performance in 2021 was a step in the right direction. Revenues improved more than 6%, while its cost of sales figure remained virtually unchanged from the prior-year period.
Its gross profits soared to 105 billion Swedish krona (SEK), a 12% bump from last year. Moreover, its selling and administrative costs remained largely unchanged through effective expense management.
Furthermore, its financial positioning was significantly better last year compared with 2020. A lot had to do with a staggering increase in cash position. Additionally, it reduced its gross debt burden, streamlining its financial structure.
Chico’s FAS, Inc. (CHS)
Chico’s FAS (NYSE:CHS) is a women’s clothing retailer with nearly 1,300 stores in the United States. Its business has been undergoing a top-to-bottom restructuring which positions it as a “digital-first, customer-led” retailer.
The goal is to significantly expand its digital footprint, improve merchandising quality and look for stronger customer engagement. This strategy is likely to pay off spectacularly well in the long run with robust sales growth and margin expansion.
As part of the real estate optimization program in the next couple of years, Chico’s management plans to close out underperforming stores. Moreover, it expects a rapid increase in earnings and free cash flow growth. The strategy seems to be bearing fruit already, as the specialty retailer generated more than 36% growth in sales YOY.
Furthermore, for fiscal 2022, the company expects net sales to come in at $2.085 billion to $2.115 billion, compared with the consensus of $1.89 billion. Additionally, it has laid out three-year financial targets, which show a substantial increase across all core metrics. Therefore, there’s plenty to be excited about with the company’s turnaround efforts.
Jerash Holdings Inc (JRSH)
Jerash Holdings Inc (NASDAQ:JRSH) is a leading Jordanian clothing manufacturer which produces millions of items every year for some of the top brands globally. Some of them include New Balance, American Eagle (NYSE:AEO), The North Face and many others that sell products from its five factories.
Investors often overlook Jerash, which is puzzling if we look at its rock-solid fundamentals. The business has been growing consistently; its profitability metrics have been extraordinary, especially when it’s increased its EBITDA by triple digits.
Stable growth rates have helped fortify its balance sheet, marked by superb cash flow growth. Moreover, despite its relatively small size, it also pays a dividend, yielding an impressive 3.2%. Hence, Jerash is a high-quality company with momentous growth potential in the coming years. It boasts a strong balance sheet, and with a bit of windfall for investors, JRSH stock can climb to new highs.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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