The traditional retail industry was one of the worst affected industries in 2020 because the initial COVID-19 lockdown and social distancing rules led to a significant decline in in-store sales. The pandemic’s widespread disruption exposed supply-chain inefficiencies, leaving many retailers ill-equipped to cater to the changing consumer demand. Retail sales plunged 20% from February to April 2020. Clothing and accessory stores reported an 89% decline in sales, while department store sales slumped 45%.
Despite these operational setbacks, some relief was provided to small-cap companies in the guise of the U.S. government's $2 trillion CARES Act bailout package. Several small-cap companies used these resources to accelerate their digital transformation to stay afloat.
With the global economy returning to normal through mass vaccination drives, and as consumer spending is expected to increase in the coming months, small-cap retail companies Abercrombie & Fitch Co. (ANF), Zumiez Inc. (ZUMZ), and Lands' End, Inc. (LE) should keep seeing improving sales. Indeed, we expect these stocks to grow significantly in tandem with the economy.
Abercrombie & Fitch Co. (ANF)
ANF is a leading, global specialty retailer that offers an assortment of apparel, personal care products, intimates, and accessories for men, women, and kids. The company operates through two segments: Abercrombie and Hollister. It sells its products primarily through stores and direct-to-consumer operations, as well as through various wholesale, franchise and licensing arrangements and e-commerce platforms.
This month , Hollister Co., an ANF company, partnered with teens and brand associates to launch a limited-edition collection in honor of Black History Month. The collection is expected to boost the company’s sales significantly.
Last month, , ANF received a perfect score on the Human Rights Campaign’s 2021 Corporate Equality Index (CEI) for the 15th year in a row. The score demonstrates ANF’s non-discrimination policies, employee benefits, demonstrated organizational competency and accountability around LGBTQ diversity and inclusion.
Despite COVID-related store restrictions and elevated shipping, handling and freight costs, ANF’s digital net sales have increased 43% year-over-year to $382 million in the fiscal third quarter ended October 31, 2020. Its gross profit has increased slightly from its year-ago value to $524.43 million, yielding a gross profit margin of 64%, up 390 basis points over the thirteen-week period. Its operating income has increased 304.8% year-over-year to $58.62 million, while its EPS has improved 580% to $0.68 over the same period.
Analysts expect ANF’s EPS to rise at a CAGR of 18% over the next five years. A consensus revenue estimate of $650.03 million in the current quarter ending April 30, 2021 represents a 30.7% rise from the year-ago value. The stock has gained 45.1% over the past year.
ANF’s strong fundamentals are reflected in its POWR Ratings. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
The stock has an overall rating of B, which equates to Buy in our proprietary rating system. ANF has a Quality Grade of A and a Value Grade of B. In the B-rated, 67-stock Fashion & Luxury Industry, it is ranked #8.
In total, we rate ANF on eight different levels. Beyond what we stated above, we have also given ANF grades for Momentum, Growth, Stability and Sentiment. Get all ANF’s ratings here.
Zumiez Inc. (ZUMZ)
Based in Washington, ZUMZ retails apparel, footwear, accessories, and hardgoods for young men and women across a wide range of lifestyles and recreational pursuits, including fashion, music, art, and sports. Its hardgoods include skateboards, snowboards, bindings, components, and other equipment. The Company operates under the names Zumiez, Blue Tomato, and Fast Times.
ZUMZ navigated volatile market conditions and drove strong revenue and earnings growth in the fiscal third quarter ended October 31, 2020. ZUMZ’s net sales have increased 2.6% year-over-year to $270.95 million in the fiscal third quarter. Its operating profit has increased 55.8% from the year-ago value to $37.87 million, while its EPS has improved 53.9% to $1.17 over the same period. The company recently reported that its comparable sales have increased 1.7% year-over-year for the 10-week period ended January 9, 2021. During the period, its Hardgoods category accounted for the largest comparable sales increase.
Analysts expect ZUMZ’s EPS to rise at a CAGR of 15% over the next five years. A consensus EPS estimate of $1.62 in the about-to-be reported quarter (ended January 31, 2021) represents a 9.5% rise from the year-ago value. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in three of trailing four quarters. The stock has gained 36.9% over the past year.
It’s no surprise that ZUMZ has an overall rating of B, which translates to a Buy in our POWR Ratings system. ZUMZ has a grade of B for Sentiment and Value, and A for Quality. Among Fashion & Luxury stocks, it’s ranked #2.
Click here to see the additional POWR Ratings for ZUMZ (Momentum, Stability and Growth).
Lands' End, Inc. (LE)
LE is a leading uni-channel retailer of casual clothing, accessories, footwear and home products. The company offers products online at www.landsend.com, on third-party online marketplaces and through retail locations.
On September 30, 2020, LE launched its products on Kohls.com and in 150 Kohl’s stores. Based on strong early results, LE plans to expand the Lands’ End assortment and increase the number of points of distribution to 300 Kohl’s stores in 2021.
Also last September, LE completed refinancing its term loan by closing a new $275 million facility. It also increased its asset-based senior secured credit facility to a maximum of $275 million in borrowings.
LE’s net sales have increased 5.9% year-over-year to $359.98 million in the fiscal third quarter ended October 30, 2020. Its adjusted EBITDA has increased 52.3% from the year-ago value to $28.57 million, while its net income has improved 99% to $7.18 million over the same period.
Analysts expect LE’s revenues to rise 10.4% year-over-year to $240.55 million in the current quarter ending April 30, 2021. A consensus EPS estimate for the current quarter represents a 26.6% improvement from the year-ago value. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in three out of trailing four quarters. The stock has gained 163.1% over the past year.
LE’s POWR Ratings reflect this promising outlook. LE has a grade of B for Sentiment and a C for Growth and Quality. It is currently ranked #21 of 67 stocks in the B-rated Fashion & Luxury industry.
Click here to see the additional POWR Ratings for LE (Value, Momentum, and Stability).
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
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ANF shares were trading at $25.49 per share on Tuesday afternoon, up $0.39 (+1.55%). Year-to-date, ANF has gained 25.20%, versus a 5.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Rishab Dugar
Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands.
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