An industry snapshot shows the apparel and luxury goods industry up 22.34% year to date (YTD) as companies like Lululemon Athletica Inc. (LULU) and NIKE, Inc. (NKE) capitalize on robust U.S. consumer confidence and spending as well as benefit from a lift in sales of athleisure gear. However, this return is somewhat misleading as investors have abandoned players in the space that have significant international exposure and may encounter slowing sales due to cooling global economic growth and geopolitical headwinds such as Brexit.
From a technical standpoint, three underperforming apparel and accessories stocks looked fashionable again Wednesday as investors returned, bidding them up from crucial support levels. Yesterday's price action possibly says that the market has factored in the challenges facing these names and considers them more attractive than some of their "overpriced" competitors.
Let's take a closer look at each issue and discuss possible trading tactics.
Foot Locker, Inc. (FL)
Foot Locker, Inc. (FL) retails athletically inspired shoes and apparel in the United States and internationally through retail stores and multiple websites, such as Footlocker.com, Eastbay and Final-Score. Analysts expect the shoe store to post first quarter (Q1) earnings per share (EPS) of $1.63 when it reports on Friday, May 24, which would represent year-over-year (YoY) growth of 12.41%. The company trades at a discount to its competitors, with a price-to-earnings ratio (P/E ratio) of 13.26 verses 26.79 for the textiles, apparel and luxury goods industry average. Foot Locker stock has a market capitalization of $6.94 billion, pays a 2.51% dividend yield and has run up YTD gains of 17.53% as of April 25, 2019.
Foot Locker's share price gapped to a 52-week high on March 1 after the retailer issued a strong 2019 earnings outlook, but it has traded within an eight-point trading range since. The stock rallied 2.59% Wednesday from an uptrend line that extends back to late December. Adding a trendline above recent highs forms an ascending triangle, which suggests a continuation of the current uptrend. Traders who take a long position should book profits on a test of a triple top at the $72.50 level. Manage risk by setting a stop-loss order beneath the April 23 low at $59.13 and moving it to the breakeven point if price moves above the earnings gap high at $67.59.
Tapestry, Inc. (TPR)
Formerly Coach, Inc., Tapestry, Inc. (TPR) provides luxury accessories and lifestyle products including handbags, apparel and footwear across 1,432 stores as well as through international-owned retail, foreign department stores and international wholesale specialty shops. It holds the Coach, Kate Spade and Stuart Weitzman brands in its portfolio. The luxury fashion company takes an active position to remain socially responsible. It recently announced plans to reduce greenhouse gas emissions by 20% and recycle 75% of packaging, among other initiatives. Tapestry has come under investor scrutiny over the past year due to the company's Kate Spade acquisition and senior management changes. Trading at 12.6 times earnings with a market cap of $9.14 billion and offering an attractive 4.16% dividend yield, the stock is down 5.58% on the year, underperforming the industry average by over 16% as of April 25, 2019.
The Tapestry share price sits below a well established downtrend line dating back to early October. Throughout 2019, the stock has oscillated within a falling wedge pattern that establishes clear support and resistance levels. The price staged a 2.24% rally from the pattern's lower trendline in Wednesday's trading session that may trigger further buying. Also, the relative strength index (RSI) sits below 50.0, indicating that the price has ample room to make an upward push. Traders who enter here should set a take-profit order near $40 – an area where price may hit headwinds from the 200-day simple moving average (SMA) and October swing low. Protect trading capital by placing a stop under this month's low at $30.05 and moving it to breakeven if the stock rises above the falling wedge pattern's upper trendline.
Fossil Group, Inc. (FOSL)
With a market value of $669.21 million, Fossil Group, Inc. (FOSL) is best known for its watches, but the Richardson, Texas-based company also designs and sells other fashion accessories, including jewelry, handbags and small leather goods. The fashionable watch maker primarily sells its products domestically and internationally through third-party retailers but also has franchised FOSSIL stores in the United States. Despite Brexit-related uncertainty in European and U.K. markets pressuring the share price, analysts believe that Fossil's valuation remains compelling, with its focus on trending vintage accessories and strength in wearables. "FOSL's valuation is compelling, in our view, given the growth opportunity in wearables and opportunity for further earnings improvement," KeyBanc Capital Markets analyst Edward Yruma wrote in a client note, per Yahoo! Finance. Fossil stock has declined 14.24% YTD as of April 25, 2019.
Fossil shares have trended steadily lower since June 2018, providing traders with plenty of short sale opportunities over that time. Buyers finally stepped up to the plate Wednesday, pushing the stock up nearly 4% from the lower trendline of a falling wedge pattern that has formed over the past four months. Those who plan to take a contrarian trade in the stock should look for a move up to the $17 level, where the price may test resistance from the long-term downtrend line. Close open positions if the price falls beneath the recent low at $12.60.