Tariffs placed on almost 90% of Chinese clothing and textile imports by the Trump administration have presented a constant challenge for apparel stocks throughout 2019. While the group wears a respectable 12.38% gain this year, the broader market dons a return of almost twice that.
However, savvy industry players continue to win over shoppers by refining their marketing strategies, forming strategic partnerships, and expanding their digital footprint. Although fitting out slight tweaks to engage with today's customers has the potential to add margin pressure, the benefits these initiatives bring should help to offset some of the initial expense outlay. Moreover, apparel companies with international exposure are finding opportunities in unsaturated markets like Asia and Europe to boost sales growth.
The three fashion apparel companies outlined below have taken proactive steps to ensure that they remain at the industry's forefront. Let's take a closer look at specific initiatives these companies have implemented and work through several trading ideas.
Ralph Lauren Corporation (RL)
Ralph Lauren Corporation (RL) designs and markets lifestyle apparel in North America, Europe, and Asia. The $7.73 billion New York-based fashion company owns well-known brands including Polo Ralph Lauren, Lauren Ralph Lauren, Chaps, and Club Monaco. To attract younger buyers, the firm has boosted its marketing investment by 18% in fiscal 2019 compared with last year and plans to increase that budget to 5% of total sales. Recently, the company has worked with social media-savvy celebrities, such as Taylor Hill, to help sell its products. Analysts expect the company to post fiscal 2020 second quarter (Q2) earnings per share (EPS) of $2.39, above the prior-year quarter figure of $2.26, when it releases results before the opening bell on Thursday, Nov. 7. Ralph Lauren stock pays an annual dividend of $2.75 per share and has returned 0.58% year to date (YTD) as of Nov. 6, 2019.
The fashion retailer's shares dropped roughly 37% between May and August, placing the stock firmly in bear market territory. However, over the past few months, the price has rallied 24% from its $82.09 Aug. 26 low. The stock continues to show increasing momentum into the company's upcoming quarterly earnings, with price closing above a significant trendline on above-average volume in Tuesday's trading session. Those who enter here should aim to book profits near crucial overhead resistance at $117.50 and protect downside with a stop-loss order positioned slightly below the dotted trendline.
PVH Corp. (PVH)
With a market capitalization of $6.81 billion, PVH Corp. (PVH) designs and sells branded apparel in more than 40 countries. The company's wardrobe of designer brands, which include Calvin Klein and Tommy Hilfiger, brings in more than 80% of the firm's revenue. Earlier this year, the apparel firm teamed up with global innovation platform Plug and Play to help drive ongoing strategic growth initiatives related to supply chain management, digital innovation, and customer engagement. Wall Street expects the company's Q3 EPS to come in at $3, representing a bottom-line year-over-year contraction of 6.5%. As of Nov. 6, 2019, PVH stock issues a 0.17% dividend yield and has gained 2.23% on the year.
An inverse head and shoulders pattern that has developed on the PVH chart over the past five months indicates the possibility of a trend reversal back to the upside. Price broke above the formation's neckline yesterday, which could trigger follow-through buying up to the $106 level, where the stock runs into a wall of resistance from a horizontal line. Implement prudent risk management by placing a stop underneath the Nov. 4 low at $90.91 and amending it to breakeven if price rises above the 200-day simple moving average (SMA).
Guess', Inc. (GES)
Guess', Inc. (GES) markets and licenses lifestyle collections of apparel and accessories for men, women, and children. The apparel giant, which houses iconic fashion brands such as Guess, Marciano, and G by Guess, sells its merchandise through wholesale channels, retail outlets, and online. European sales continue to be a bright spot for the firm, with revenue from the region increasing 9.1% in the second quarter. Growth efforts in Europe, which include optimizing distribution networks and improving efficiency in sourcing and product development, remain high on management's agenda. Research analysts anticipate the $1.16 billion company to disclose a Q3 profit of 18 cents per share – this compares to reported earnings of 13 cents for the 2018 September quarter. Performance-wise, the stock has fallen 12.52% so far this year as of Nov. 6, 2019. A 2.69% dividend yield somewhat helps offset the price depreciation.
After forming a double bottom between June and August, Guess' shares consolidated in a descending triangle above the pattern's neckline throughout September and October. In Tuesday's session, the stock edged above both the triangle's upper trendline and 200-day SMA. Breakout traders who are looking to ride momentum should target a move to $22 – an area the price finds resistance from several early-year swing highs. Limit downside by placing stops below $17.50. The trade offers a favorable risk/reward ratio of about 1:3, assuming a fill at yesterday's $18.17 closing price ($3.83 profit per share vs. $1.21 risk per share).