The fashion world lives and dies on trends, but lately the apparel sector has been suffering from a lack of compelling new looks. Shoppers don’t open their wallets when they think they have similar items in their closets – and the winter’s bad weather kept them home. As the season warms up, perhaps fringed styles will kickstart retail sales.
For more on the fringe trend watch our corresponding Alpha Here and Now video here.
The bohemian loose tassel look has been very popular this spring season and appeared all over California’s Coachella music festival in April. It was admired on vests, dresses, tops and accessories. What’s more, retailers who are riding the trend are starting to see results on the bottom line.
Exhibit 1: Apparel Same Store Sales Index 2013 – 2014
Source: I/B/E/S
Free People waves the fringe
One retailer that really benefitted from the trend this earnings season was Free People, the retailer owned by Urban Outfitters. However, the parent company has been struggling to increase earnings and same store sales (SSS), and it doesn’t seem like there’s much buzz about the brand. Its Urban Outfitter concept has been a miss on fashion and could learn a lesson or two from Free People.
The latter smashed expectations this past quarter with an impressive 25% SSS gain, above its 13.8% final estimate. Furthermore, the retailer has been posting double-digit comps on top of difficult comparisons from a year ago. Free People has managed to post seven consecutive quarters of the strongest comps in the Thomson Reuters SSS Index, and is projected to continue to do so.
Exhibit 2: Urban Outfitters, Free People Same Store Sales Index 2013 – 2014
Source: I/B/E/S
Green with envy
Designers are taking note, and the fringe fashion trend is expected to continue to sell well into the fall season. The look is helping Urban Outfitters stem their earnings decline and other brands are noticing and jumping on the bandwagon.
Some of the most popular shoes out there incorporate fringe and are inspired by luxury designers such as Valentino, Laurence Dacade and Aquazzura. Even pop singer Katy Perry just opened up her recent world tour in a Roberto Cavalli fringe dress.
Coach recently went through a major facelift and has been struggling to post earnings growth for some time. However, they have picked-up on the fringe trend, hoping to get back in the handbag competition. During this past New York fashion week, Harper’s Bazaar magazine featured Coach as a label to watch this fall season for its fringe-inspired purses (Source: Why We’ll All Be Wearing Coach Come Fall, Harper’s Bazaar, Feb. 2014). Accordingly, notice how the year-over-year growth in earnings is expected to improve in the fall season, 3Q 2014 (Exhibit 3).
Exhibit 3: Coach Earnings Per Share, Year-over-Year Growth 2013 – 2014
Source: I/B/E/S
Similarly, Michael Kors also sent tons of fringe purses, jackets, dresses and accessories down the New York fashion week cat-walk for fall. The high-end designer has posted impressive growth numbers and boasted the biggest IPO in U.S. fashion. Moreover, StarMine Relative and Intrinsic Valuation models suggest the stock is richly valued, but analysts are confident that the designer has the goods to back it up. With a solid balance, and no long-term debt, analysts’ mean forecast is that KORS will generate a 37.3% return on equity this year. That’s considerably stronger than the industry average of 20.6% (Exhibit 4).
Exhibit 4: Return on Equity %: KORS, COH, Industry Average – Current Year
Source: I/B/E/S
Must-Have Shoes
Watch out for fringe on shoes, as well. DSW carries popular brands, and analysts do see long-term potential in the retailer. For fall, analysts are projecting a 10.9%, and 16.1% year-over-year growth in Q3 and Q4 earnings, respectively (Exhibit 5), especially since it carries on-trend merchandise that resonates well with shoppers.
Analysts seem to be bullish on the retailer’s plans to expand and improve its e-commerce presence. Currently, analysts’ mean forecast is that DSW will generate a $1.84 EPS estimate for the fiscal year ending February 2015. However, a highly-rated StarMine analyst published a Bold Estimate, suggesting a figure closer to $2.10.
Exhibit 5: DSW Earnings Per Share 2013 – 2014
Source: I/B/E/S
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