A prudent investment strategy not only means buying promising stocks, but also selling the ones that can dent your portfolio. Unfortunately, Hanesbrands Inc.HBI has been facing multiple challenges from rising competition and evolving trends in the apparel space and is a risky bet.
Notably, shares of this designer and manufacturer of apparel essentials for men, women and children have lost around 4.5% in the past year compared with the industry 's rally of 10.2%. In the past three months, this Zacks Rank #4 (Sell) stock tumbled nearly 9.7%.
What's Troubling Hanesbrands?
Hanesbrands has been struggling against weak domestic performance, due to soft store traffic and a tough retail landscape. Evidently, these headwinds hurt the company's back-to-school selling season performance, which along with the U.S. hurricanes and earthquake in Mexico have affected results in third-quarter 2017.
Apart from this, Hanesbrands is also battling soft sales in its Innerwear segment for quite some time, thanks to soft brick-and-mortar performance stemming from sluggish traffic. In the third quarter, sales in this unit declined 5.2% as the apparel category bore the brunt of a tough back-to-school retail landscape. Prior to this, sales for the segment fell 2.5% in the second quarter of 2017, 6% in the first quarter of 2017 and 8% in the fourth quarter of 2016.
Notably, the Intimate Apparel/Innerwear industry is highly competitive and extremely price sensitive. Hence, the company's ongoing strategy to focus more on premium brands and increase prices in these categories comes with the inherent risk of consumers shifting to other competitively-priced brands, offered by competitors. This may, in turn, hurt Hanesbrands' market share along with profits.
Moreover, to add to investor's disappointment in the stock, management continues to expect effects of the aforementioned adverse environment conditions and a difficult retail sales environment to linger in 2017. Increased marketing investments to drive market share growth may also hamper the company's profits.
These factors, along with impacts from the bankruptcy of Sears Canada, compelled management to trim sales and earnings outlook for 2017. The company projects net sales in the band of $6.45-$6.48 billion and adjusted earnings from continuing operations in the $1.93-$1.95 per share range.
Textile Apparel Still Has Some Bright Spots
Ranked amongst the top 23% of all Zacks industries, the textile-apparel industry space still has some bright spots for investors to put their funds in. Despite the headwinds looming over the apparel industry, there are many firms which have managed to stay afloat gaining from strategic endeavors to keep pace with the evolving retail trends and the improved economic scenario. This is evident from favorable consumer spending, healthy consumer confidence and improved labor market, which has been driving the U.S. economy.
Moving to the companies' efforts to resonate with consumers' preferences, expansion in the e-commerce realm has been a vital strategy for most apparel companies. Further, efficient brand management and strategies to strengthen and expand business operations have aided firms to counter industry challenges. All said, the textile-apparel space appears to be well placed.
Thus, we used the Zacks Stock Screener , and zeroed in on three apparel stocks that have been performing well. Driven by their strategic endeavors and impressive past performance, these stocks have outpaced the industry in a year and are positioned for the long term. Additionally, these stocks carry a favorable Zacks Rank.
3 Stocks You Cant Miss
Michael Kors Holdings Ltd.KORS has been steadily gaining from portfolio diversification and international growth efforts. Robust strategies aided the company continue with positive earnings surprise streak for the 10th consecutive quarter, when it posted second-quarter fiscal 2018 results.
Further, the company raised guidance for fiscal 2018, indicating sturdy prospects. Notably, this global luxury lifestyle company's share soared 52% in the past year, cruising ahead of the industry. Moreover, this Zacks Rank #2 (Buy) company carries a long-term growth rate of 7.5%. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
Another stock that has crushed the industry with its marvelous bull-run is PVH Corp.PVH , which has rallied 55.1% in a year. Further, driven by efficient management efforts, this Zacks Rank #2 company's earnings topped estimates for the 14th consecutive quarter when it reported third-quarter fiscal 2017 results.
Bolstered by these factors and solid expectations for fourth-quarter 2017, management raised its guidance for the fiscal. Additionally, this leading designer and marketer of branded apparel and related items has a long-term growth rate of 13%.
Another highly potential apparel stock that has been impressing investors is lululemon athletica inc.LULU . This yoga-inspired, leading athletic apparel company has seen its shares gain 16.5% in the past year, driven by sturdy innovation, remodeling and other growth-oriented strategies. Further, this Zacks Rank #2 (Buy) company carries a long-term growth rate of 12.8%.
Moreover, it's last reported third-quarter fiscal 2017 marked the company's third consecutive earnings beat. Driven by the favorable third-quarter results and initial holiday season momentum in all business channels since the start of the fourth quarter, the company provided an encouraging view for the fourth quarter and raised guidance for fiscal 2017.
These textile-apparel players are poised to maintain the spectacular performance in 2018 as well. Its time to forget stocks like Hanesbrands and cash in on better opportunities to gear up for higher returns.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.