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 Destination XL Group, Inc. (NASDAQ:DXLG) 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.
A man wearing the company’s big and tall clothing looking stylish and confident.
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).
Destination XL Group, Inc. (NASDAQ:DXLG)
Analyst Upside: 27.66%
Number of Hedge Fund Holders: 13
Destination XL Group, Inc. is a specialty apparel retailer that offers clothing options for big and tall men. It operates under several trade names in the US, including Destination XL, DXL, DXL Men’s Apparel, Casual Male XL, DXL outlets, and more. The company operates around 232 DXL retail stores, 15 DXL outlet stores, 17 Casual Male XL retail stores, 19 Casual Male XL stores, and a digital business.
These trade names offer an elaborate array of merchandise to fit a variety of men’s lifestyles, from casual to business and young to mature. The retail offerings carry moderate-priced national brands and the company’s own brands of dress wear and casual sportswear.
Destination XL Group’s business was affected in fiscal Q3 2024 due to consumer spending headwinds, resulting in lower online conversion and lower traffic to the company’s stores. The trends showed that buying clothing was not a priority for the big and tall consumer in fiscal Q3 2024, with consumers gravitating towards select promotions and lower-priced goods. The company’s fiscal Q3 2024 results thus reflect a continued shift towards value-driven and affordable options.
Despite the weak sales demand, Destination XL Group’s clearance penetration stands at 9.2%, which is in line with its long-term target of 10% and slightly lower than 9.7% of fiscal Q3 2023. Since the company has struggled to compete with some national brands, it has introduced a new price match guarantee program to ensure its prices remain competitive with the richer promotions and discounts its competitors offer.
The company is also focusing on its store expansion strategy, opening two more stores in fiscal Q3 2024 in Arizona and Texas. These openings brought the company up to seven new stores since the beginning of last year, with four more set to be opened by the end of fiscal 2024.
The primary objective of this store expansion strategy is to address the ease of access to Destination XL stores for consumers. 44% of the company’s polled consumers don’t shop there regularly because Destination XL stores do not exist near them, while 35% do not shop because of a lack of a company store conveniently close by. Destination XL Group, Inc. is thus endeavoring to remedy this problem through its strategic new store openings.
Overall, DXLG ranks 5th 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 DXLG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article is originally published at Insider Monkey.
