The fashion industry is fueled by constant innovation and creativity. Fashion brands continuously adapt to changing consumer preferences and design trends, offering new and exciting products that can capture the market's attention.
In this context, I have highlighted three fundamentally solid fashion stocks, Industria de Diseño Textil, S.A. (IDEXY), The TJX Companies, Inc. (TJX), and Chico's FAS, Inc. (CHS), that seem well-positioned to capitalize on the industry’s growth.
But before delving into the fundamentals of the featured stocks, let us look at a few factors shaping the prospects of the fashion industry.
The total consumer spending on clothing and footwear is forecasted to increase between 2023 and 2028 by a total of $681.45 billion, or 28.9%, with fashion-related spending estimated to be $3.04 trillion in 2028.
In 2022, the global luxury fashion market achieved a substantial size of $237 billion. The market is expected to expand and reach $294.70 billion by 2028, exhibiting a CAGR of 3.6%.
This growth can be attributed to several key factors, such as a growing desire for exclusivity and uniqueness, the increasing influence of social media and digital platforms, and the rapid pace of globalization.
Additionally, the fashion industry's growth prospects are set to be bolstered by the widespread adoption of Artificial Intelligence (AI). Through AI-powered solutions, brands can offer personalized recommendations to customers, gain deeper insights into consumer preferences, and deliver tailored experiences.
The global AI in the fashion market witnessed remarkable growth, expanding from $650 million in 2022 to $910 million in 2023, growing at an impressive CAGR of 40%. Looking ahead, the market is projected to continue its upward trajectory, reaching an estimated value of $3.72 billion in 2027 at a CAGR of 42%.
Considering the positive growth prospects of the fashion industry, buying the shares of IDEXY, TJX, and CHS could be beneficial. With that being said, let us now dig deeper into the fundamentals of the aforementioned stocks in detail.
Industria de Diseño Textil, S.A. (IDEXY)
Headquartered in A Coruña, Spain, IDEXY engages in the retail and online distribution of clothing, footwear, accessories, and household textile products through various retail concepts. The company sells its products under the Zara, Pull & Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, and Zara Home brands.
On April 17, Zara took a significant stride toward promoting circularity in the fashion industry by collaborating with Circ, a fashion technology company specializing in recycling textile waste into new fibers. They unveiled an innovative women's capsule collection, the first of its kind, crafted entirely from recycled textiles sourced from polycotton waste.
Additionally, this marked the first investment of its kind within IDEXY’s Sustainability Innovation Hub (SIH), which aims to boost technological innovation and product circularity. The partnership between Zara and Circ reinforces IDEXY's commitment to sustainability and advancing circular practices in fashion.
IDEXY’s net sales increased 12.9% year-over-year to €7.61 billion ($8.55 billion) for the first quarter (ended April 30, 2023), while its gross profit improved 13.5% from the year-ago value to €4.60 billion ($5.17 billion).
The company’s net income and EPS increased 53% and 53.7% from the prior-year quarter to €1.17 billion ($1.31 billion) and €0.38, respectively. Also, its operating income amounted to €1.48 billion ($1.66 billion), up 43.4% year-over-year.
The consensus revenue estimate of $38.80 billion for fiscal 2023 (ending January 31, 2024) represents a 12.7% increase year-over-year. The consensus EPS estimate of $0.92 for the same period reflects a 31.9% improvement year-over-year. Moreover, the company topped the revenue estimates in each of the trailing four quarters, which is impressive.
Also, its revenue and EBIT have grown at CAGRs of 9.2% and 20.8% over the past three years, respectively. Likewise, its net income and EBITDA improved at 22.1% and 15.4% CAGRs over the same period, respectively.
Over the past nine months, the stock has gained 80.8% to close the last trading session at $19.80.
IDEXY’s POWR Ratings reflect this robust outlook. The stock has an overall B rating, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Growth and Quality and a B for Stability. In the 66-stock B-rated Fashion & Luxury industry, it is ranked #8. Click here to see IDEXY’s ratings for Value, Momentum, and Sentiment.
The TJX Companies, Inc. (TJX)
TJX operates as an off-price apparel and home fashion retailer. It operates through four segments: Marmaxx; HomeGoods; TJX Canada; and TJX International. Its product portfolio includes footwear and accessories. It also offers home fashions, such as home basics, furniture, rugs, lighting products, and more.
On June 6, TJX declared a quarterly dividend of $0.3325 per share, payable to its shareholders on August 31, 2023. The company’s four-year average dividend yield is 1.30%, while its annual dividend of $1.33 translates to a 1.57% yield on prevailing prices.
Its dividend payouts have grown at CAGRs of 20.8% and 12.9% over the past three and five years, respectively.
For the first quarter of the fiscal year 2024, which ended April 29, 2023, TJX’s net sales increased 3.3% year-over-year to $11.78 billion, while its income before income taxes rose 41.8% from the year-ago value to $1.21 billion.
The company’s net income and EPS amounted to $891 million and $0.76, representing increases of 51.8% and 55.1% from the prior-year quarter, respectively. During the same period, its cash and cash equivalents amounted to $5.03 billion, up 17% year-over-year.
Street expects TJX’s revenue and EPS for the second quarter of the fiscal year 2024 (ended June 30, 2023) to increase 4.7% and 10% year-over-year to $12.40 billion and $0.76, respectively. Moreover, it surpassed the EPS estimates in three of the trailing four quarters, which is promising.
In addition, its revenue and EBIT have grown at 10.9% and 31.2% CAGRs over the past three years, respectively. Over the same period, its net income and EPS increased at 31.2% and 32.8% CAGRs, respectively.
The stock has gained 40.5% over the past year to close the last trading session at $85.10.
TJX’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has an A grade for Sentiment and a B for Quality. Within the same B-rated industry, it is ranked #4. Click here to see the other ratings of TJX for Growth, Value, Momentum, and Stability.
Chico's FAS, Inc. (CHS)
CHS operates as an omnichannel specialty retailer of women's private branded casual-to-dressy clothing, intimates, and complementary accessories. The company operates under the Chico’s, White House Black Market (WHBM), and Soma brands.
On June 23, CHS unveiled a new share repurchase program authorized by its Board of Directors as part of its ongoing commitment to return value to its shareholders. This program allows the company to repurchase up to $100 million of its common stock.
In the fiscal first quarter, which ended April 29, 2023, CHS’ total net sales amounted to $534.74 million, while gross profit rose 3.9% from the year-ago value to $225.01 million.
The company’s net income came in at $39.91 million and $0.32 per share, up 14.2% and 14.3% from the prior-year quarter, respectively. In addition, its income from operations grew 17.5% from the year-ago value to $53.34 million.
Analysts expect CHS’ revenue and EPS for the second quarter (ending July 31, 2023) to be $554.90 million and $0.27, respectively. Moreover, its EPS is expected to improve by 10% per annum over the next five years. The company has an excellent earnings surprise history, surpassing the consensus EPS estimates in each of its trailing four quarters.
Over the past three years, its revenue and tang book value have grown at CAGRs of 5.9% and 1.4%, respectively.
The stock has gained 24.9% over the past six months and 14.2% year-to-date to close the last trading session at $5.62.
It’s no surprise that CHS has an overall rating of B, which equates to Buy in our proprietary rating system. It has an A grade for Value and Quality. Out of 66 stocks in the same industry, it is ranked #5.
In addition to the POWR Ratings we’ve stated above, we also have CHS’ ratings for Growth, Momentum, Stability, and Sentiments. Get all CHS ratings here.
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IDEXY shares were trading at $19.60 per share on Tuesday afternoon, down $0.20 (-1.01%). Year-to-date, IDEXY has gained 49.01%, versus a 19.30% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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