We recently published a list of the 12 Best Apparel Stocks to Invest In. In this article, we are going to take a look at where Capri Holdings Limited (NYSE:CPRI) stands against the other best apparel stocks to invest in.
Consumer Spending and Weather: What’s the Connection?
On February 25, Matt Boss, JPMorgan retail analyst, appeared on CNBC’s ‘Closing Bell’ to discuss the retail trade. He said the market has seen the worst start to spring in around 30 years. From a weather perspective, there have been significant store closures as every part of the country, excluding the southwest, has been clobbered by unseasonable weather.
On top of it, the country has seen 30% more snow, which has pressured seasonal sales. The unseasonable climate has thus created an unfavorable environment. States in the southwest, including California, which have had normal weather, have undergone a 0% change in consumer spending. In fact, consumer spending in states like California, Nevada, and Arizona was up 5%, exactly the same as the rate in November and December.
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The Condition of the American Market and Consumer
Further talking about the conditions of the market and consumers, Boss was of the opinion that a selective recession is materializing. The real force driving consumer spending is the 50% of the economy driven by higher-income consumers. He said that $60 trillion in wealth creation since 2019 is the number to be noticed here. At the low end, the consumer continues to be pressured. However, in retail, this trend means that those offering value continue to win, which is usually the case for retailers catering to value and convenience simultaneously. He said that retailers offering products that are better than a year ago and not compromising on value at the same time make up the equation on the basis of which the market is seeing real winners and losers. He also believed that consumer resilience presents a buying opportunity in the retail sector weakness.
On March 3, Chris Horvers, JPMorgan head of broadlines/hardlines retail, joined CNBC’s ‘The Exchange’ to discuss the retail trade and the weakening consumer. He said that over the past three years, the market has consumers seeking the cheapest prices, particularly in the food market, which is proving to be a tailwind for discount retailers. Thus, he thinks it would be difficult to pass along tariffs, especially in the discretionary categories. The retailers would have to eat a little bit, and so would the manufacturers. However, there is also likely to be an elasticity impact.
We discussed the potential impact of Trump’s tariffs on retail stocks in a recently published article on 12 Cheap Retail Stocks to Buy According to Hedge Funds. Here is an excerpt from the article:
“The Trump administration proposed 25% tariffs on goods imported from Canada and Mexico and 10% tariffs on Chinese-imported goods. Analysts believe these tariffs will affect retail stocks and the goods manufactured in the tariffed countries, at least theoretically. While tariffs on Mexico and Canada have been delayed, they have kicked in for China, according to Yahoo! Finance. This has led to several retailers moving sourcing out of China to contain costs.
Simeon Siegel, retail analyst at BMO Capital Markets, appeared in an episode of Yahoo! Finance’s Opening Bid podcast. Talking about the potential effect of Trump’s tariffs on retail stocks, he was of the opinion that we are focusing on tariffs more than is required. Taking a purely business perspective, he reasoned that a tariff is nothing more than a cost input going up, quite like how the cost of cotton, shipping, or labor can rise.
When such cases materialize, companies take steps to deal with the rising costs, but they don’t become all-encompassed by them. Siegel posited that the uncertainty surrounding this scenario is dramatically more concerning than the actual severity. Approaching the situation as an analyst, he said that he is focusing on companies with the pricing power and capability to deal with rising costs, regardless of why the costs are increasing. Healthy brands with healthy businesses are thus the way to approach this conversation.”
Our Methodology
We sifted through stock screeners, online rankings, and ETFs to compile a list of 20 apparel stocks. We then selected the top 12 most popular stocks among elite hedge funds as of Q4 2024. We sourced the hedge fund sentiment data from Insider Monkey’s database. The list is sorted in ascending order of hedge fund sentiment.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A glamorous woman with a leather handbag enjoying a shopping experience in an upscale boutique.
Capri Holdings Limited (NYSE:CPRI)
Number of Hedge Fund Holders: 47
Capri Holdings Limited (NYSE:CPRI) manages and operates globally popular luxury brands such as Jimmy Choo, Versace, Michael Kors, and others. The Versace segment includes luxury apparel, accessories, and footwear. Jimmy Choo’s segment covers luxury footwear, small leather goods, accessories, and handbags. The Michael Kors segment operates through four retail formats: lifestyle stores, e-commerce sites, collection stores, and outlet stores.
On November 14, the company announced the mutual termination of its merger agreement with Tapestry, Inc. After the termination, Capri Holdings Limited (NYSE:CPRI) is focusing on its future and is solidifying its long-term growth potential through its three luxury houses. Its portfolio of brands boasts strong customer loyalty and heritage, which positions it for long-term success.
Capri Holdings Limited (NYSE:CPRI) also has a solid distribution network to build upon. It has more than 1,200 directly operated luxury retail locations, along with an extensive wholesale network to reach consumers in areas where it doesn’t have its own stores. Management expects operational trends to improve throughout fiscal year 2026, positioning the company to return to growth in fiscal 2027 and beyond. It ranks seventh on our list of the best apparel stocks to buy now.
Greenlight Capital stated the following regarding Capri Holdings Limited (NYSE:CPRI) in its Q4 2024 investor letter:
“We increased our position in Capri Holdings Limited (NYSE:CPRI). When the court blocked CPRI’s sale, we suffered a moderate loss. Fortunately, the position was not large. While we expected the merger would go through and we were surprised by and disagreed with the court’s ruling, we recognized the downside risk if the deal broke. When we get an adverse result on an event like this, our instinct is to declare that our thesis has broken and take our loss. After evaluating this situation, however, we came to the opposite conclusion and added to our holdings. During the period when the merger was pending, CPRI’s results were simply awful. Before the proposed deal was announced, CPRI shares traded at about $35, and when the deal broke, the market took the lousy results into account and the shares fell to about $20. Our current thesis is that the interim results were so awful that they likely reflected management distraction, if not neglect. We also believe there is strategic potential for the company’s Versace and Jimmy Choo brands. It should not be difficult for management to re-engage and achieve at least somewhat less awful results. If that happens, the shares should stage a recovery.”
Overall, CPRI ranks 7th on our list of the best apparel stocks to invest in. While we acknowledge the potential of CPRI as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CPRI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.