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 PVH Corp (NYSE:PVH) 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 customer trying on a sports jacket in-store, showcasing the company’s sportswear range.
PVH Corp (NYSE:PVH)
Upside from Current Levels: 32.26%
PVH Corp (NYSE:PVH) boasts international brands such as Tommy Hilfiger, Calvin Klien, Warner’s, Olga, and True & Co. in its portfolio. The company also licenses brands such as Michael Kors and Kenneth Cole New York. Its brands target fashion-forward audiences, with Calvin Klien focusing on minimalistic aesthetics and Tommy Hilfiger encompassing the classic American style.
The company is expanding its global presence and recently opened its global flagship store on one of the most celebrated fashion avenues in the world: Paris’ Champs-Élysées. Expanding its consumer engagement, PVH Corp (NYSE:PVH)’s brand Tommy Hilfiger recently joined hands with Mercedes-AMG Petronas Formula One™ Team to launch a limited edition line. Tommy Hilfiger also announced a multi-year partnership with the United States SailGP Team in June, becoming their Official Lifestyle Apparel Partner and ushering in a new era of Tommy Hilfiger’s blend of style and athleticism.
The company operates around 700 outlet stores under the brands Tommy Hilfiger, Calvin Klein, and Van Heusen. As one of the largest global lifestyle companies, PVH Corp (NYSE:PVH) operates in more than 40 countries under 29,000 associates, with the purpose of making Calvin Klein and TOMMY HILFIGER the most desirable lifestyle brands in the world.
FPA Queens Road Small Cap Value Fund stated the following regarding PVH Corp. (NYSE:PVH) in its first quarter 2024 investor letter:
“PVH Corp. (NYSE:PVH) is an apparel company that owns the Tommy Hilfiger and Calvin Klein brands globally. Most of PVH’s earnings come from Europe, where the Tommy and Calvin brands are considered “almost luxury” and PVH has generally recorded high single-digit organic growth with demonstrated pricing power during the preceding decade. CEO Stefan Larsson has done an excellent job revitalizing the company and improving margins at PVH’s moribund U.S. operations. Over the past year, PVH and our other apparel companies have performed well as the worst fears for consumer spending didn’t play out. PVH has become a top five holding for us and our apparel holdings (PVH, GIII, LEVI and DECK) now make up almost 10% of the portfolio. On April 2, post quarter end, PVH announced fiscal 23Q4 results where they missed on earnings guidance for the coming year. The stock is down ~20% from its high but now trades at less than ten times forward earnings. We have held our position.”
PVH Corp (NYSE:PVH)’s revenue grew at a CAGR of 4.63% over the last three years. Analysts estimate the company’s EPS to increase at a 6.22% year-over-year growth rate by 2025. The stock sports a consensus Buy rating among analysts, with potential for growth due to its positive consumer engagement and direct-to-customer (DTC) sales. Its median price target of $103.5 represents an upside of 32.26% from current levels, and it is currently trading a P/E ratio of 9.24 at a massive 40.65% discount to its sector. PVH Corp (NYSE:PVH) has 39 hedge funds as of Q2 2024, with Pzena Investment Management holding the highest stake.
Overall PVH ranks 2nd on our list of the best clothing stocks to buy. While we acknowledge the potential of PVH 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 PVH 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.
