We recently compiled a list of the 10 Best Clothing Stocks To Buy Now. In this article, we are going to take a look at where Carter’s, Inc. (NYSE:CRI) stands against the other clothing stocks.
Trends in the Clothing Sector
The internet has changed the way people shop for clothes. Social media platforms and influencers have popularized the “haul culture,” where people order a big box of low-priced clothes online and sift through them. Also colloquially known as the “Shein effect,” people are turning towards fast fashion, ordering clothing that offers an element of surprise upon receiving. Although Shein’s primary suppliers are in China, its customers are majorly US-based. Its global sales reached around $30 billion last year, almost touching the $39 billion in global sales made by Inditex, the old-school fast fashion leader and owner of Zara.
Fashion and apparel rank among some of the most significant industries in the world, creating key value for global economy. According to McKinsey, it would rank as the seventh largest economy in the world if placed alongside the GDPs of individual countries. The industry, however, faced several challenges in 2023, with the United States and Europe experiencing slow regional growth throughout the year. While China started the year with a strong performance, it gradually waned, slowing down in the second half. Even the luxury segment experienced uneven performance and slower sales. The fashion industry in 2024 can thus be described with one word: uncertainty. Weaker economic growth, dwindling consumer confidence, and rising inflation are making it hard for companies to devise suitable performance drivers. A report by Reuters showed that consumers are becoming increasingly picky about the clothes they buy, and are shopping around more. This has resulted in a “patchwork of winners and losers.”
Fashion forecasts by McKinsey show that the industry is expected to grow by 2-4% in 2024, with growth variations across countries and regions. The luxury segment is anticipated to generate the largest economic profit, but that does not mean companies in this sector won’t experience tough economic environments. Global growth forecast for the industry is lower in 2024 compared to 2023, going from 5%-7% in 2023 to 3%-5% as post-pandemic shopping sprees halt. Growth in China and Europe is expected to slow, but the US market shows a completely different outlook. North America’s growth is expected to pace in 2024 after a sluggish 2023, reflecting the region’s more optimistic outlook.
In addition, the current political unrest in Bangladesh is expected to affect the global clothing industry, disrupting the functioning of global apparel retailers ranging from H&M to Zara. With these clothing giants heading into key holiday season, the disruptions might incur heavy losses to US retailers and Bangladesh itself, which is the third largest exporter of clothing in the world as of 2023. Overall, consumer spending patterns have slowed down in the US, with people making do with what’s in their closets before the season changes. The Federal Reserve is also expected to cut interest rates in September. A report by Reuters showed that investors previously bet that the Fed would slash rates by half a percentage point, and are now estimating an approximately 75% probability of a quarter-percentage-point cut in its September meeting. This is expected to drive consumer confidence and ease spending patterns. With that, let’s look at the 10 best clothing stocks to buy.
Our Methodology
For this article, we used the Finviz stock screener to identify over 20 clothing stocks then narrowed our list to 10 stocks with the most positive upside from current levels, and listed the stocks in ascending order of upside potential, as of August 19. We only chose stocks that had a market cap of over 2 billion.
At Insider Monkey we are obsessed with 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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A colorful assortment of children’s apparel with different themes, capturing the dynamism of the business.
Carter’s, Inc. (NYSE:CRI)
Upside from Current Levels: 12.52%
Carter’s, Inc. (NYSE:CRI) is all about babies and young kids. It manufactures and sells apparel and related accessories for this age group under its vast portfolio of brands, including Carter’s, OshKoshB’gosh, Precious Firsts, Just One You, Child of Mine, Simple Joys, and Skip Hop. Carter’s Inc. is expanding its international footprint since Mexico and Brazil had high demand for the company’s products, offsetting slower sales in North America.
The children’s apparel market in the US stands at approximately $28 billion, with Carter’s, Inc. (NYSE:CRI) holding around 10% of the total market share over the past 12 months, giving it a competitive edge. Baby apparel remained the most popular segment in the company’s age portfolio, contributing around 60% to its total Q1 2024 apparel sales. The company operates through three segments: U.S. Retail, U.S. Wholesale, and International.
Carter’s, Inc. (NYSE:CRI) lost 23.66% of its shares’ value over a 52-week period, primarily due to weak direct-to-consumer trends and cautious consumer spending in the quarter. The combination of accumulated inflation over the past three years and the stop to pandemic stimulus payments has slashed many consumers’ budgets, with baby and young child apparel suffering from the cutbacks as well. However, the consumer demographic is improving with the recent fall in inflation, and store rationalization efforts by the brand are expected to drive a recovery in sales in the coming periods. Analysts expect the company to recover its leadership position in the domain. With rate cuts on the way and improving consumer confidence, Carter’s can experience a strong recovery in sales. Here is what Aristotle Capital Boston, LLC, had to say in its “Small Cap Equity Strategy” second quarter 2024 investor letter:
“Carter’s, Inc. (NYSE:CRI), a leading marketer of baby and young children’s apparel in North America, declined amid a cautious consumer spending environment and weak direct-to-consumer trends for the business during the quarter. We maintain our position as we believe the company has a strong brand in a stable category and that store rationalization efforts and an improving demographic backdrop can drive a sales recovery in the business in periods to come.”
The company’s EPS was $1.04 in Q1 2024, with a 9.09% 1-year increase. Its net profit margin also experienced a 10.91% 1-year increase, going to 5.65%. Carter’s, Inc. (NYSE:CRI)’s median price target of $62.81 presents an upside of 12.52% from current levels. It is currently trading at a forward P/E ratio of 10, at a 33% discount to its sector. Carter’s, Inc. (NYSE:CRI) IS held by 28 hedge funds as of Q2 2024, with Harris Associates holding the highest stake worth $81.54 million.
Overall CRI ranks 9th on our list of the best clothing stocks to buy. While we acknowledge the potential of CRI 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 timeframe. If you are looking for an AI stock that is more promising than CRI 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.
