The apparel industry is all set for a challenging yet interesting 2013. In terms of cashing in on the opportunities, the industry needs to improve its flexibility in the supply chain, improvise designs, and innovate, along with retaining thin margins. Increasing production costs and slow volume growth further intensify the challenges.
Aeropostale, Inc. (NYSE:ARO)
Aeropostale, Inc. (NYSE:ARO) reported fourth quarter 2012 results with EPS of $0.24, which was in line with consensus expectations. Due to a weak holiday season, the company has seen a decline in net sales by 1%. Along with that, it also saw a decline in comparable-store sales and e-commerce channels by 8% in comparison to 7% last year.
Aeropostale, Inc. (NYSE:ARO) tried to offset some of its declines with an increase in e-commerce sales by acquiring GoJane, a rapidly-growing online retailer, in November 2012. The GoJane acquisition will provide a long-term growth opportunity to the company with its well-established e-commerce platform. With this acquisition, e-commerce sales are expected to reach $500 million in the future, versus $217 million at the end of 2012.
The company has faced a poor response from customers regarding fashion. Revenue declined in both the women’s and men’s businesses by 10% and 4%, respectively. The women’s business is one of its core businesses, constituting 66% of its overall revenue.
Aeropostale, Inc. (NYSE:ARO) is focusing on developing its direct-to-consumer channel in order to push sales to maintain a balance between profits and the cost-of-production. By hiring new talent as the heads of design and women’s merchandise, it’s trying to revamp its women’s segment by adding fashion-focused apparel products.
Overall, the company is set to transform from a traditional store into a true lifestyle brand by delivering great fashion infusions in each segment with competitive pricing that targets young customers. I believe that the impact of these strategies will be visible in the upcoming summer collection.
Ross Stores, Inc. (NASDAQ:ROST)
Ross Stores, Inc. (NASDAQ:ROST) reported EPS of $1.07 in its fourth quarter, and its total sales increased to approximately $2.8 billion with support from 6%-7% square-footage growth. This helped its comparable-store sales grow by 5% for the quarter. Along with comp-store sales, Ross Stores, Inc. (NASDAQ:ROST)’s juniors business performed very well. Under economic pressures, the juniors’ business segment gained double-digit profits in 2012, indicating a shift toward the new-generation market.
Its women’s and home segments also saw some momentum, which was mostly driven by the young generation. Targeting the young population, the company is transforming into an off-price retailer from a traditional department store. Among its peers, Ross reported the highest percentage of young customers at around 42%.
Home-segment sales contribute 25% to the overall sales of Ross Stores, Inc. (NASDAQ:ROST). The company will be able to increase its market share because of the young customers’ support, along with the rebound in the home category.
On the other side, the company also plans on capital expenditures of $670 million in 2013. This capital will be spent for two new distribution centers likely to be opened in the next two years. Ross Stores, Inc. (NASDAQ:ROST) plans to open new stores in different markets, enhancing square footage growth by 5% to 6%. By 2013 the company expects to open 80 new stores, including 10 re-locations or closings. About one third of the new-store openings will be in newer markets.
Kohl’s
Kohl’s announced EPS of $1.66 for its fourth quarter, which was $0.03 above the consensus estimates. Sales were $6.3 billion, up by 5.4%, along with a 1.9% increase in comps sales. Also, its e-commerce sales increased by 43% in the fourth quarter, and 42% in the full year to around $1.4 billion.
With an increase in demand for toys, the children’s segment was the strongest performer. Talking about the men’s and women’s segments, Kohl’s saw modest sales majorly driven by rising demand for sportswear among men and active apparel in women.
In the last year, Kohl’s (NYSE:KSS) faced some pricing issues and failed to generate seasonal sales. This year, along with new features in its stores such as Wi-Fi and updated checkout stations, the company has also focused on improving its pricing.
Kohl’s continues to invest in the e-commerce channel by installing technological upgrades. It targets continued e-commerce growth in 2013 by implementing an Oracle Corporation (NASDAQ:ORCL) platform, a new database management system, increased digital marketing and updated checkout stations into its stores. Tested in the fourth quarter, the company expects to deploy these changes to its 100 stores by the end of the fourth quarter of 2013, which is expected to drive e-commerce growth. Along with it, the company continues to invest in new stores. It has announced it will open nine new stores and revamp 30 locations in 2013.
Conclusion
Aeropostale, Inc. (NYSE:ARO) and Kohl’s firmly believe that including e-commerce upgrades in their operations will save time and costs at both the retailers and the consumers. These companies expect that the e-commerce platform will be a main driving force for their future profits. On the other hand, Ross Stores, Inc. (NASDAQ:ROST), with its capital expenditures and store growth and expansions, is targeting new markets as a long-term growth opportunity.
The stock performance of all three companies has remained quite volatile in the past few months. I believe these growth-oriented strategies will provide the much needed support to their stocks. I recommend a buy for all three apparel stocks.
The article 3 Apparel Stocks You Must Consider originally appeared on Fool.com and is written by Madhu Dubey.
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