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The apparel industry earnings increase despite a negative index

Chanderlekha Nayar

A must-know investor's guide to the Redbook Sales Index (Part 4 of 8)

(Continued from Part 3)

The apparel industry has the highest influence in the Redbook Index. This is because the maximum number of companies are covered from this industry. The industry consists of manufacturers and retailers of the fashion clothing, footwear, and accessories. So far for the year 2013 and the beginning of 2014, the Redbook Index readings remained negative despite the improved economic outlook with the onset of Fed’s reduction in asset purchases. However, some of the leading apparel companies continued to post positive same-store sales, which are a great comparable measure in the retail industry as they exclude sales from newly opened and closed stores.

Among all the apparel companies covered by the Redbook Index, the largest player as per the market capitalization is the TJX Companies, Inc. (TJX). TJX is the leading off-price retailer of apparel and home fashions in the U.S. and worldwide. The company, with a market capital of $43.9 billion, has reported consistent 20 quarters of positive same-stores sales unlike peers in the industry and opposite to the overall Redbook Index readings.

As per Chief Executive Officer Carol Meyrowitz, “TJX consolidated comparable sales increased 3% in the fiscal year 2014 over the last year’s 7% increase in the comparable sales,” which indicates consumers have been willing to spend on clothing despite the higher unemployment rate prevailing in the country. A substantial portion of increase in the comparable sales was driven by the outstanding performance in Europe. TJX Europe posted above 6% growth in the comparable same-store sales in the fiscal year 2014 and 9% growth in the fourth quarter, 2014, much higher than the comparable sales growth in the U.S.

Another major stock that did particularly well despite the low domestic growth and overall decline in the Redbook Index was Limited Brands, Inc. (LTD). Limited Brands is an apparel-based specialty retailer with additional focus on personal care and beauty categories. The company has a market capital of $16.7 billion and reported 2% increase in the fiscal year 2014 comparable sales.

Other major apparel retailers including the Abercrombie & Fitch (ANF), American Eagle Outfitters (AEO), and The Buckle (BKE) posted a decline in the recent quarter same store sales. The Abercrombie & Fitch (ANF) has reported consistent eight quarters of decline in the same-store sales. Chief Executive Officer Mike Jeffries said, “2013 was a challenging year, with sales and earnings falling well short of the objectives we set at the beginning of the year. After three years of positive growth in our combined U.S. chain stores plus direct-to-consumer comparable sales metric, that metric turned negative in 2013 against the backdrop of a challenging retail environment, particularly in the teen space.”

How the stock market reacted

Stock prices for the apparels of these giants have not always moved in tandem with the Redbook Index. For example, the recent Redbook same-store sales report released on March 11, 2014, continued to suggest a sluggish consumer spending with the index down by 0.4%. Despite that, both TJX, Inc. (TJX) and Limited Brands, Inc. (LTD) posted stock price appreciation on the same day.

Continue to Part 5

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