The retail space has had a rough go the past couple of years, as online shopping continues to take hold over brick-and-mortar retail. Consumer changes have forced retailers to either embrace e-commerce or face extinction. The sector has seen some pullback, even though retail sales throughout 2018 have been fairly strong. Among the key historical events that occurred within the retail sector in 2018 would be the bankruptcy of 132-year-old, Sears Holdings Corporation (OTC Pink: SHLDQ). With that said, Fortune Magazine still sees a strong year for retail in 2019 ahead with 4% sales growth estimates (excluding gas and autos).
However, the retail environment changes have also provided companies with the opportunity to restructure their businesses, focus on cutting debt, improving sales, and creating a leaner model. Here are four smallcap apparel retail stocks to keep an eye on in 2019:
J.Jill, Inc. (NYSE: JILL)
Overview: J.Jill, Inc. is a women’s apparel retailer, which operates approximately 270 stores across the United States, as of March 2018. On November 28, 2018, the company reported third quarter 2018 earnings that beat analyst estimates. J.Jill, Inc. reported earnings per share (EPS) of $0.15 on revenue of $174.11 million during the third quarter. This compares to Wall Street estimates of EPS $0.09 on revenue of $165.54 million.
“We had positive sales momentum, our inventory levels are lower than last year and in line with our expectations, and our e-commerce business benefited from the enhancements we delivered during the year,” Linda Heasley, CEO of J.Jill, said in a statement. “We are also making early progress on our longer-term strategic plan for the business.”
Valuation:
- P/E ratio: 7.68
- Forward P/E: 8.07
- P/S: 0.36
- P/FCF: 6.67
- Current Ratio: 1.60
- Total Debt/Equity: 1.19
- Dividend: N/A
- ROA: 9.80%
- ROE: 32.40%
- ROI: 12%
- Gross Margins: 64.90%
- Operating Margins: 9.80%
- Profit Margins: 8.10%
Tailored Brands, Inc. (NYSE: TLRD)
Overview: Tailored Brands operates as a specialty retailer across the United States, Puerto Rico, and Canada. As of February 2018, the company owns and operates 1,477 stores across Men’s Wearhouse, Men’s Wearhouse and Tux, Jos. A. Bank, Moores, Joseph Abboud, and K&G. Tailored Brands also owns and operates 38 retail dry cleaning, laundry, and heirlooming locations as well.
Tailored Brands reports next earnings after the market close on December 12, 2018. This will provide great insight into the suit and formal dressing market. After a nice rally topped Tailored Brands out around $36 in May 2018, the stock has since seen a pullback to around $23, as of this writing. However, if earnings are decent-to-strong on December 12th, we could see some buyers come back to the table. While the company is seeing strong sales and free cash flow, Tailored Brands does have quite a bit of debt that has been accrued throughout 2018. Shareholders will look for answers there and how it could drive/hinder grow in the coming year(s).
Valuation:
- P/E ratio: 11.67
- Forward P/E: 7.92
- P/S: 0.35
- P/FCF: 4.01
- Current Ratio: 2.10
- Total Debt/Equity: –
- Dividend: 3.13%
- ROA: 5%
- ROE: -796%
- ROI: 14%
- Gross Margins: 42.10%
- Operating Margins: 6.40%
- Profit Margins: 3.00%
Chico’s FAS, Inc. (NYSE: CHS)
Overview: Chico’s FAS, Inc. operates as a women’s specialty retailer, which offers apparel selections including: private, casual, dressy, intimates, accessories, and more. The company owns and operates the Chico’s, White House Black market, and Soma brands. As of February 2018, the company operated 1,460 retail stores across the U.S., Puerto Rico, U.S. Virgin Islands, and Canada.
Shares of CHS recently gapped-lower after announcing departure of CEO Shelley Broader and missing earning results on November 28, 2018. Chico’s FAS reported a 6% drop in net sales during the recent quarter, as comparable sales fell 6.8% thanks to weakness from the White House Black Market segment. The recent news has investors very concerned about the potential holiday season and potential for problems to continue expanding.
However, Chico’s could be a key turn-around target now that new management will be needed to replace the outgoing CEO. The company needs to really get back to focusing on its brand and how it is targeting its key customer demographic. With that said, the company does have a reasonably stable balance sheet and a healthy dividend that could help long-term investors stay interested as the restructuring takes place.
Valuation:
- P/E ratio: 10.53
- Forward P/E: 19.46
- P/S: 0.32
- P/FCF: 7.89
- Current Ratio: 2.00
- Total Debt/Equity: 0.09
- Dividend: 5.88%
- ROA: 7.30%
- ROE:12.10%
- ROI: 12.80%
- Gross Margins: 37.70%
- Operating Margins: 4.80%
- Profit Margins: 3.60%
Tilly’s, Inc. (NYSE: TLYS)
Overview: Tilly’s, Inc. operates as a casual apparel, footwear, and accessories retailer geared towards young men & women, and boys & girls. The Irvine, CA-based company operates 219 stores across 32 states, as of February 2018.
The teen retailer has seen some brutal price action recently, as the stock fell over 20% after the company reported mixed third quarter 2018 earnings. Net income more than doubled compared to the same period in 2017, EPS results were better than most were anticipating, sales growth of 4%, 3.1% rise in comparable store sales (including 2.2% increase in physical stores comparable). However, investors were left largely scratching their head as forecasts of fourth quarter comps increased from 3% to 5% were not met with really any major explanation. Also with more than 600,000 Tilly’s customers receiving a one-time 50% discount coupon “to resolve a legal dispute,” investors worry the impact to the company’s bottom line.
Overall, there are some current headwinds that Tilly’s is facing right now. However, the overall numbers and figures of the earnings report were certainly positive at first glance. We could see the one-time 50% coupon issue mostly taken care of this month, as shoppers prepare for the holidays. However, once the dust is settled, it could provide Tilly’s a platform to rebound in 2019.
Valuation:
- P/E ratio: 13.10
- Forward P/E: 11.72
- P/S: 0.56
- P/FCF: –
- Current Ratio: 2.40
- Total Debt/Equity: 0.00
- Dividend: N/A
- ROA: 5.60%
- ROE: 9.50%
- ROI: 8.70%
- Gross Margins: 30.80%
- Operating Margins: 4.30%
- Profit Margins: 2.70%
Disclaimer: The author and Spotlight Growth has no positions in any of the stocks mentioned in this article. Nor does either party currently have any relationship, or any other conflicts of interest, with any of the companies mentioned in this article. This content is meant for informational and entertainment purposes only and should not be meant as a recommendation to buy or sell any securities. Please visit a licensed financial representative to determine what investments are right for you.
