Steer Clear Of These 4 Apparel Stocks For Now

The textile apparel sector has had a rough ride so far this year. In the first quarter of fiscal 2016, the sector reported dismal results with a variety of apparel companies reporting below-par results, in spite of conservative estimates.

The textile industry also posted a decline in comps in the quarter, grappling with issues like competition and declining footfall. Here, change is the only constant and the players are under perennial pressure to hit the right chord with the fashion conscious.

Meanwhile, an increasing number of customers are resorting to online buying and this has dealt a major blow to apparel retailers who are dependant on mall traffic. Moreover, consumer preferences have shifted from clothes toward technology and home improvement. Further, unusually warm weather conditions and the strengthening of the U.S. dollar have added to their woes.

Thus, before entering another earnings season, it’s time to fine tune your portfolio by disposing stocks that may hurt your returns.

Here we have zeroed in on four textile apparel stocks that are witnessing downward estimate revisions and carry a Zacks Rank #4 (Sell) or 5 (Strong Sell). Declining estimates clearly indicate that analysts are skeptical about the performance of these stocks going ahead.

4 Apparel Stocks to Avoid

Guess’ Inc. (NYSE:GES) , a manufacturer of casual apparel, accessories and related consumer products, reported a loss wider than the Zacks Consensus Estimate and revenues below the mark in first-quarter fiscal 2017. For fiscal 2017, Guess lowered its earnings outlook and now expects adjusted earnings in the range of 55 cents to 75 cents compared with 65 cents to 85 cents expected previously. The lowered guidance reflects a challenging environment for the company and its soft start to fiscal 2017.

This Zacks Rank #4 company has underperformed the Zacks Consensus Estimate in two of the trailing four quarters. Following the dismal performance, the Zacks Consensus Estimate of 77 cents dropped to 59 cents for fiscal 2016 over the past 30 days.

We also urge investors to stay away from Ralph Lauren Corp. (NYSE:RL) as it has been witnessing a decline in profits and sales for several quarters mainly due to a lack of focus on core brands, marketing drawbacks and poor inventory management. This has led the popular American fashion house to lose more than 13.71% of its market value, year to date. Further, the stock has lost nearly 40% in the past two years. Ralph Lauren, carrying a Zacks Rank #5, has seen downward estimate revisions over the last 30 days, whereby the Zacks Consensus Estimate fell to $5.54 from $6.34.

G-III Apparel Group, Ltd. (NASDAQ:GIII) is also a stock to avoid at present. The Zacks Rank #4 manufacturer of leather & non-leather apparel reported a year-over-year decline in first-quarter fiscal 2017 earnings due to higher costs. G-III apparel also underperformed the Zacks Consensus Estimate by an average of 44.85% over the trailing four quarters. Also, the stock price declined by 19.52% over the past three months. The stock has also witnessed negative estimate revisions in the last 30 days.

Cherokee Inc. (NASDAQ:CHKE) is a Zacks Rank #4 apparel maker and has reported dismal first-quarter fiscal 2017 earnings wherein it missed the Zacks Consensus Estimate by 12.82%. Its share price declined 12.96% year to date and has seen significant downward revisions as 3 out of 3 analysts slashed their estimates over the last 30 days. The company’s earnings are expected to decline 18.18% in the next quarter and 31.8% in fiscal 2016.

Bottom Line

Stocks that yield low returns and depreciate in value can be detrimental to your portfolio, especially in a volatile market. Hence we advise investors to switch to consumer discretionary stocks with better fundamentals and prospects.

Investors can confidently end their search at stocks with a Zacks Rank #1 (Strong Buy) or 2 (Buy), which encompasses strong fundamentals, promises price movement and highlights analysts’ constructive view on the same.