Retail sales for November 2022 declined month-over-month, coming in worse than estimated. However, retail sales increased 6.5%, year-over-year. Moreover, inflation is expected to fall eventually in the coming months, and a downtrend in prices is expected to bode well for apparel sales.
Forecasters expect inflation to fade to 3% by the end of 2023. In addition, demand for apparel is pretty overwhelming ahead of Christmas and New Year's. According to the National Retail Federation (NRF) and Prosper Insights & Analytics, more than 158 million consumers were expected to shop on the last Saturday before Christmas.
NRF President and CEO Matthew Shay had said, "With Super Saturday falling eight days before Christmas, retailers are prepared to help shoppers fulfill their last-minute purchases that will make this holiday season memorable."
Furthermore, the global custom apparel market is expected to grow at a CAGR of 7.2% from 2023 to 2027.
Given the backdrop, quality apparel stock J. Jill, Inc. (JILL) could be an ideal buy this December. However, The Gap, Inc. (GPS) might be best avoided.
Stock to Buy:
Jill, Inc. (JILL)
JILL operates as an omnichannel retailer of women's apparel under the J. Jill brand in the United States.
JILL's forward EV/Sales of 0.84x is 25.4% lower than the industry average of 1.12x, while its forward Price/Sales of 0.38x is 54.2% lower than the industry average of 0.83x.
Its trailing-12-month gross profit margin of 68.49% is 92.5% higher than the industry average of 35.58%, and its trailing-12-month EBITDA margin of 17.38% is 56.4% higher than the industry average of 11.11%.
For the third quarter that ended October 29, 2022, JLL's gross profit came in at $105.02 million, up marginally year-over-year. Its cash and cash equivalents came in at $90.08 million for the period ended October 29, 2022, compared to $35.96 million for the period ended January 29, 2022.
Moreover, its total assets came in at $489.40 million compared to $451.85 million for the same period.
Analysts expect JILL's revenue to increase 4.4% year-over-year to $610.70 million in 2023. Its EPS is expected to increase 37.1% year-over-year to $2.92 in 2023. It surpassed EPS estimates in all four trailing quarters. Over the past year, the stock has gained 39.9% to close the last trading session at $22.87.
JILL's strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
JILL has an A grade for Sentiment and Quality. It is ranked #3 out of 66 stocks in the Fashion & Luxury industry. Click here for the additional POWR Ratings for Growth, Value, Momentum, and Stability.
Stock to Avoid:
The Gap, Inc. (GPS)
GPS operates as an apparel retail company. The company offers apparel, accessories, and personal care products for men, women, and children.
GPS' forward EV/EBITDA of 16.85x is 89.6% higher than the industry average of 8.88x. Its trailing-12-month Price/Cash Flow of 290.58x is substantially higher than the industry average of 12.87x.
Its trailing-12-month EBITDA and net income margins of 3.34% and 0.35% are 69.9% and 93.3% lower than the industry averages of 11.11% and 5.14%, respectively.
GPS' gross profit came in at $1.51 billion for the third quarter that ended October 29, 2022, down 9.2% year-over-year. Its cash and cash equivalents came in at $679 million for the period ended October 29, 2022, compared to $801 million for the period ended October 30, 2021.
GPS' revenue is expected to decrease 5.6% year-over-year to $15.73 billion in 2023. Its EPS is expected to decrease 108.3% year-over-year to negative $0.12 in 2023. Over the past year, the stock has lost 30.5% to close the last trading session at $11.94.
GPS' POWR Ratings reflect its poor prospects. The stock has an overall D rating, equating to a Sell. It also has a D grade for Growth and Stability.
Click here to access the additional POWR Ratings for GPS (Value, Momentum, Sentiment, and Quality). GPS is ranked #59 in the same industry.
JILL shares were trading at $22.51 per share on Thursday morning, down $0.36 (-1.57%). Year-to-date, JILL has gained 17.36%, versus a -18.90% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
1 Apparel Stock to Buy This December and 1 to Avoid StockNews.com
