2024 Apparel Industry Analysis: What Advisors Need to Know

The past few years have been challenging for apparel companies. While stimulus spending and economic recovery brought strong results in 2021, a series of challenges have since led to inconsistent results and compressed valuations. But there’s optimism for a turnaround in 2025 as inventory levels improve, discounting lessens, and new products stimulate demand.

When financial advisors have a better understanding of the industry, it can be easier to identify the right apparel stocks for clients’ investing strategies. Our latest research takes a closer look at the latest Q2 2024 insights on market trends, industry drivers, supply and demand, and more.

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Many apparel retailers posted exceptional 2021 same-store sales growth numbers, but began to feel the effects of inflation, supply problems, and inconsistent demand by mid-2022. While shipping and inventory problems have lessened, many struggled to draw shoppers.

For most retailers, same-store sales growth is likely to be in the low single digits in the long run. However, recent outliers are those catering to wealthier consumers, such as Lululemon and Free People.

The covid-19 outbreak in early 2020 caused a sudden and total collapse in international travel. The recovery has been slow as intermittent restrictions, economic conditions, and other factors have hit normal business and leisure travel patterns. This has affected several domestic apparel firms including Macy's, Nordstrom, and Ralph Lauren.

Overall, the pace of recovery in international travel depends on economic conditions in the US and abroad, currency movement, and consumers’ appetite for travel. It’s also possible that travel to the US from China may continue to be soft due to hostilities between the two countries and the rise of shopping opportunities within China.

Still, our latest travel industry trends show that value persists in the industry as consumer demand for trips stays strong.

Although the share prices of most apparel companies under our coverage have rallied over the past year, about half of them are presently trading at 4 or 5 stars. This high percentage reflects investors’ concerns about the industry returning to typical patterns of excessive merchandise and discounting.

However, the percentage of very undervalued stocks has consistently been above 45%. In our view, investors have punished these stocks too severely due to weakening results since 2021. Strong performers over the past year (with share prices at least 30% higher) include Ralph Lauren and TJX. Some of these were trading at large discounts to our fair value estimates a year ago and have since rallied due to improving results or enthusiasm about a new strategy.

Investment strategies look different for every client. By knowing trends in major industries like apparel, you can initiate more meaningful conversations and guide your clients to make decisions that align with their goals.

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