We recently published a list of 10 Best Clothing Stocks To Invest In Now. In this article, we are going to take a look at where Burlington Stores, Inc. (NYSE:BURL) stands against the other best clothing stocks to invest in now.
Trump’s Proposed Tariffs: How Will They Affect Retailers?
While the inflation figures have come down a little, they are still sticky. More consumers, even at higher income levels, are gravitating towards discounters. The reason is simple: prices are still higher than what they used to be. On November 26, Dana Telsey of Telsey Advisory Group appeared on CNBC to discuss the potential implications of Trump’s proposed tariffs on consumer prices and margin challenges for retailers.
She said that if the tariffs do come to fruition, the apparel industry will certainly be impacted. It is estimated that up to $80 billion in consumer spending could be impacted, which would require a double-digit increase in prices for some of the apparel goods.
Trends in the Holiday Shopping Season
Retail stocks are taking center stage with holiday shopping kicking off. However, the consumer spending front presents a dichotomy. While one side shows healthy consumer spending, the other side presents stretched credit and consumer spending patterns showing an increasing inclination for discounts.
On November 28, John San Marco, Neuberger Berman portfolio manager, joined CNBC’s ‘Closing Bell Overtime’ to discuss the recent trends in the retail sector. Listing how this season is different from the past few years, he said that real wages have been positive for a while now, with significant cohorts of consumers holding balance sheets in pretty good shape, particularly homeowners. There hasn’t been a discretionary comeback yet. Without any significant market disruption, he believes the season will see the consumer behave in a healthier fashion moving forward.
A significant consideration in the current holiday shopping season is whether retail investors should be concerned about a dynamic where some retailers bring inventory into the US ahead of the tariffs. Since this holiday season is expected to be relatively shorter, the retailers might have to discount their inventory to avoid having their warehouses too full.
Marco said that tactically figuring out the inventory inflow is complicated, made much more challenging by the volatility surrounding the election and the weather conditions. Some retailers may be able to capitalize on the situation’s unpredictability and buy stuff opportunistically. However, Marco is of the opinion that a premium on high-quality retailers that offer an unbeatable consumer value proposition is paramount.
Should Investors be Feeling Bullish About the Holiday Shopping Season?
On November 28, ‘Fast Money’ traders appeared on CNBC to discuss what to expect from retailers with the holiday season kicking off. Viewing the American retail sector through the lens of stocks soaring at all-time highs, the 2024 holiday season looks pretty positive.
However, there is another side to that coin as well, as some stocks are sinking to lows. Credit card debt is approaching $1.2 trillion, and delinquency rates are at a 13-year high. The situation thus presents a bifurcated retail environment. Despite this bleak side of the coin, people are feeling great about things at the present.
With a number of major events now in the past, people believe they are getting closure. The overall environment is simmering down, which is a tailwind for confidence in the analysts’ opinion. Agreeing with these points, Karen Finerman, Co-founder and CEO of Metropolitan Capital, said that markets and people both hate uncertainty. She believes that the market has risen a lot, and several other positive factors are making people feel better. Most retailers are positioned well on an inventory standpoint and can get good margins. She is thus comfortable with the current retail setup.
Women in fashionable clothing walking together down a busy city street.
Our Methodology
For this article, we used the Finviz stock screener to identify around 15 clothing stocks and narrowed our list to 10 stocks with the most positive analyst upside from current levels. We also added the number of hedge fund holders for each stock, as of Q3 2024. The stocks are arranged in ascending order of their upside potential as of November 29, 2024.
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).
Burlington Stores, Inc. (NYSE:BURL)
Analyst Upside: 15.48%
Number of Hedge Fund Holders: 51
Burlington Stores, Inc. is an off-price retailer of branded apparel. It also sells accessories, footwear, and home merchandise for relatively lower prices. Its clothing section offers an elaborate array of fashion-focused, in-season merchandise, including women’s and men’s ready-to-wear apparel, youth apparel, baby clothing, coats, and more. The company operates more than 1007 stores, primarily under the brand name Burlington Stores.
The company is working on its new store opening program, which has been the primary driver of growth in its fiscal Q3 2024 earnings. Total sales for the company grew by 11% in fiscal Q3 2024, on top of 12% sales growth last year. It closed 15 stores, and is on the path to end 2024 with 101 net new stores.
However, the company’s comparable sales trend in fiscal Q3 2024 was significantly impacted by unseasonably warmer temperatures compared to last year. While its back-to-school season performance was positive, the sales trend dropped from mid-September onwards. If considered without the impact of the warm temperature, Burlington Stores, Inc. reported a healthy underlying comparable store sales growth.
Burlington Stores, Inc. has a conservative plan: it did not overreact to its strong back-to-school selling and managed to keep tight control over its liquidity and receipts. It thus reacted quickly to the warmer temperature headwinds, reflecting the company’s strong operational model. It expects to regain its positive sales growth with the coming of colder winter days and the holiday season in fiscal Q4 2024.
Overall, BURL ranks 8th on our list of best clothing stocks to invest in now. While we acknowledge the potential of clothing stocks, 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 BURL 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.