Threads of Prosperity: Fashion Stocks

After attending a Fashion and Finance event in Women's Month, Carly Esterhuizen, our VP of Brand, used the new AI Baskets feature to explore stocks in the fashion industry.

Last month the women of Purple Group were treated to a Fashion and Finance day at our WeWork offices in Rosebank to celebrate Women’s Month. We partnered with Altvest; an investment platform that offers people access to alternative investments, like art or private equity, and renowned SA fashion designer David Tlale; for an afternoon of connecting with our fellow female colleagues, runway fashion, tips on personal styling and self-care.  

Tatum Keshwar, an ex Miss South Africa and the head of marketing for Altvest, was our hostess with the mostest who shared her story of growth and reminded us what it means to invest in yourself – and in garments you love.

It made me think about how fashion and finance share some parallels. For instance, I have a very diversified wardrobe with some timeless classics I know I can always depend on, and some wild cards that represent new trends or allow me to take a bit of risk and express my own unique creativity. It’s not all that different to how I have structured my overall portfolio. My core portfolio consists of ETFs in my TFSA; and Bundles and Unit Trusts in my RA. Those are my timeless classics that I believe provide me with growth and stability. Then I have some investments in my USD, Crypto and Property accounts. Here I am able to invest in things that align with my personality, interests and style or diversify my portfolio with something different – because different occasions call for different outfits, am I right?

In a webinar I attended this week on Actively Managed ETF’s by ETFSA I heard this methodology being referred to as a “Core and Explore” strategy – love that term.

I decided to take this a step further and see if it would be worth investing in actual companies in the fashion industry. Using our new AI Baskets feature I found a couple of interesting one’s to consider.

The fashion industry

What I realized after reading the investment case for my AI Basket stock picks was that there’s more to investing in fashion than just the big brands themselves. There are multiple industries that support and grow alongside the fashion industry. For example, the fashion industry is poised to benefit from the ongoing digital transformation and the increasing consumer preference for online shopping. So by investing in companies like Amazon or Alibaba, you’re capitalizing on the success of the fashion industry too.

I then wanted to look at 2 different categories: Well established fashion brands that had a history of good performance; as well as up and coming brands that were in a good position for momentum and growth.

Timeless Titans of Fashion

In this category I wanted to look at brands that present a compelling opportunity due to their established brand loyalty, robust supply chains, and ability to adapt to changing consumer preferences. These companies often benefit from economies of scale, strong market positioning, and the ability to leverage their brand equity to expand into new markets and product lines, thereby creating multiple revenue streams and enhancing resilience against economic downturns.

Two companies came up with these attributes: Nike and Under Armour.

Nike recently reported its fiscal Q4 2024 earnings, which highlighted both challenges and areas of progress for the company. Revenue for the quarter was $12.6 billion, slightly below analysts' expectations, and down 2% year-over-year. The company's gross margin, however, increased to 44.7%, reflecting strategic pricing and cost management efforts.

Under Armour, on the other hand, recently reported its fiscal Q1 2025 earnings, which have generated significant investor interest. The company posted an unexpected profit of $0.01 per share, beating the anticipated loss of $0.08 per share. This was a major positive surprise, as it also surpassed the previous year's loss for the same quarter. Additionally, Under Armour's revenue came in at $1.18 billion, which, although down 10% year-over-year, exceeded the forecasted $1.14 billion.

Another company to watch is athleisure retailer Lululemon. The company is scheduled to report its Q2 2024 earnings on August 29, 2024. Analysts are expecting strong results, with an estimated earnings per share (EPS) of $2.94, up from $2.69 in the same quarter last year.

You may want to check out this article written by the Finance Ghost earlier this year that gives an interesting perspective on these, and some other fashion brands.

Fashion's Future: Emerging Brands to Watch

The fashion industry is undergoing a significant transformation driven by advancements in tech, sustainability trends, and shifting consumer preferences towards unique, personalised experiences. Up and coming companies that leverage digital platforms, embrace eco-friendly practices, and cater to niche markets are well-positioned to capture market share and achieve long-term growth, as they align with the evolving demands of a more conscious and connected consumer base.

Stitch fix is one company that’s ahead of the curve. They are an online personal styling service that uses data science and human expertise to deliver curated clothing and accessories to customers based on their preferences, size, and style. I’d definitely be a customer of a company like this if it existed in South Africa.

Stitch Fix recently reported its Q3 2024 earnings, showing mixed results that investors may find encouraging. The company posted a loss of $0.18 per share, which was better than the expected loss of $0.23 per share. Revenue was also higher than anticipated, at $322.7 million compared to the forecasted $306.1 million.