The fashion industry faces significant economic and geopolitical challenges, such as declining consumer spending, mounting expenses, high borrowing costs, and supply chain disruptions aggravated by the Russia-Ukraine war. Against this backdrop, it could be wise to steer clear of fundamentally weak fashion stocks Hanesbrands Inc. (HBI), Allbirds, Inc. (BIRD), and Express, Inc. (EXPR). Let’s discuss why.
The past month witnessed a 0.4% decline in retail sales, indicating consumers’ emphasis on value and restrained discretionary spending. The expanding view of the consumer spending slowdown, the looming recession, and added concerns over bank collapses have contributed to a shift in consumer purchasing behavior.
Fashion companies expect high inflation to weaken consumer demand drastically in 2023, pushing shoppers to curtail fashion spending as their grocery and energy bills surge. Also, they expect inflation to spike their costs.
Results from the annual Business of Fashion and McKinsey State of Fashion Survey indicate that 97% of fashion company executives predict an increase in their COGS and SG&A expenses this year. Cotton and cashmere prices have already risen by 45% and 30% year-over-year, respectively.
Furthermore, the lingering conflict between Russia and Ukraine has become a major concern for the fashion industry by disrupting trade routes. Also, the industry is being impacted by amplified borrowing costs due to persistently high inflation, resulting in companies postponing or reducing their investments and expansion strategies.
Let us take a closer look at the fundamentals of HBI, BIRD, and EXPR to substantiate why one should avoid them.
Hanesbrands Inc. (HBI)
HBI is a consumer goods company that designs, manufactures, and distributes an assortment of basic apparel for men, women, and children. The company operates through three segments, Innerwear; Activewear; and International. In addition, the business licenses the Champion brand for footwear and sports accessories.
HBI’s trailing-12-month EBITDA margin of 11.24% is 1.7% lower than the 11.43% industry average. Its trailing-12-month CAPEX/Sales of 1.80% is 44.3% lower than the industry average of 3.23%. Likewise, the stock’s trailing-12-month asset turnover ratio of 0.92x is 9.9% lower than the 1.02x industry average.
HBI’s adjusted net sales decreased 15.9% year-over-year to $1.47 billion in the fourth quarter that ended December 31, 2022. Its adjusted gross profit was $504.87 million, down 25% year-over-year. Furthermore, the company’s adjusted operating profit declined 62.5% year-over-year to $82.56 million, while its adjusted EPS from continuing operations was $0.07, a decline of 84.1% year-over-year.
HBI’s EPS is expected to decrease 65.3% year-over-year to $0.34 for the fiscal year ending December 2023. The company’s revenue for the ongoing year is expected to decline 2.1% from the prior year to $6.11 billion. Moreover, HBI missed its consensus revenue estimates in three of the four trailing quarters, which is disappointing.
The stock has declined 32.5% over the past six months and 66.1% over the past year to close the last trading session at $5.10.
HBI’s POWR Ratings reflect its bleak outlook. The stock has an overall rating of D, translating to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock also has a D grade for Growth, Stability, Quality, and Sentiment. It ranks #66 out of 67 stocks within the Fashion & Luxury industry.
Click here to see the other ratings of HBI for Value and Momentum.
Allbirds, Inc. (BIRD)
BIRD is an international manufacturer and vendor of men's and women's footwear and apparel. The company's offerings encompass lifestyle and performance shoes alongside an array of garments such as classic tees, sweats, socks, and undergarments. BIRD vends its wares through its chain of brick-and-mortar stores and online channels.
On March 10, Rosen Law Firm, a renowned international law firm representing investor rights, initiated an investigation into possible securities claims on behalf of BIRD shareholders. The allegations relate to the issuance of potentially misleading business information to the investing public.
Investors who purchased BIRD securities might be entitled to compensation under a contingency fee arrangement, and the law firm is planning a class action to recover investor losses.
The stock’s trailing-12-month EBITDA margin of negative 27.38% compares to the 11.43% industry average. Its trailing-12-month net income margin of negative 34.04% compares to the 4.57% industry average. In addition, the stock’s trailing-12-month asset turnover ratio of 0.63x is 38.5% lower than the industry average of 1.02x.
During the fiscal 2022 fourth quarter that ended December 31, BIRD’s net revenue decreased 13.4% year-over-year to $84.18 million. Its adjusted EBITDA loss came in at $12.54 million, compared to an income of $427,000 in the prior year’s period. Also, the company’s net loss and loss per share widened 138.2% and 88.9% year-over-year to $24.87 million and $0.17, respectively.
Analysts expect BIRD to report a loss per share of $0.80 for the fiscal year ending December 2023. The company’s revenue for the current year is expected to decrease 12.4% year-over-year to $260.65 million. The stock has plummeted 54.9% over the past month, closing the last trading session at $1.26.
BIRD’s POWR Ratings reflect its weak fundamentals. The stock has an overall rating of F, translating to a Strong Sell in our proprietary rating system.
It has a D grade for Growth, Stability, Sentiment, and Quality. BIRD is ranked last in the 67-stock Fashion & Luxury industry.
Beyond the POWR Ratings stated above, we have also given BIRD grades for Value and Momentum. Get all BIRD ratings here.
Express, Inc. (EXPR)
EXPR furnishes garments and accessories suitable for diverse events and situations to women and men under the Express label in the United States and Puerto Rico. Its products are marketed through its e-commerce site, express.com, mobile application, and Express-branded franchises located throughout Latin America.
EXPR’s trailing-12-month gross profit margin of 28.47% is 18.6% lower than the 34.99% industry average. Its trailing-12-month levered FCF margin of negative 4.02% compares to the 1.91% industry average. Furthermore, the stock’s trailing-12-month CAPEX/Sales of 2.54% is 21.3% lower than the industry average of 3.23%.
For the fourth quarter that ended January 28, 2023, EXPR’s net sales decreased 13.5% year-over-year to $514.33 million, and its gross profit declined 29.3% year-over-year to $122.78 million.
In addition, the company reported an operating loss of $39.29 million, compared to an operating income of $10.31 million in the prior year, while adjusted EBITDA loss came in at $10.13 million, compared to an income of $25.83 million in the previous year’s period.
Streets expect the company to report a loss per share of $0.90 for the fiscal year ending January 2024. EXPR’s revenue for the ongoing year is expected to decline by 1% year-over-year to $1.84 billion. Also, the company failed to surpass its consensus revenue estimates in three of four trailing quarters.
Over the past year, the stock has plunged 79.8% to close the last trading session at $0.73.
EXPR’s POWR Ratings reflect its poor prospects. The stock has an overall rating of D, equating to Sell in our proprietary rating system.
EXPR has an F grade for Growth and a D for Stability. Within the same industry, it is ranked #62 out of 67 stocks.
To access EXPR’s ratings for Value, Momentum, Sentiment, and Quality, click here.
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HBI shares were trading at $5.04 per share on Wednesday morning, down $0.06 (-1.18%). Year-to-date, HBI has declined -20.75%, versus a 4.97% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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