Footwear and Apparel Plays for your Portfolio

09/09/2019 5:00 am EST

Focus: CONSUMER

Crista Huff

Editor, Cabot Undervalued Stocks Advisor

Two retail stocks in our model portfolios have announced second quarter earnings, explains growth and income expert Crista Huff; here, the editor of Cabot Undervalued Stocks Advisor reiterates her buy recommendations for these apparel and footwear firms.

Designer Brands (DBI) — yielding 6.4% — reported second quarter adjusted EPS of $0.48 this morning, on target with analysts’ estimates. Revenue of $877.9 million was adjusted for elimination of inter-segment revenue to a net $860.2 million vs. the consensus estimate of $872.7 million. The company repurchased 2.7 million shares during the quarter.

Designer Brands is one of North America's largest designers, producers and retailers of footwear and accessories. The company operates DSW Warehouse and The Shoe Company stores with over 1,000 locations in 44 U.S. states and Canada, and Camuto Group.

DBI is an extremely attractive stock from a quality point of view — undervalued with a hefty dividend yield — hampered by poor price performance. I’m anticipating the stock will be trading between $15-$20 in the coming months. I rate the stock a "Strong Buy".

Guess? (GES) — with a yield of 2.4% —  is a global apparel manufacturer, selling their products through wholesale, retail, e-commerce and licensing agreements. GES offers the best earnings growth & value opportunity of any U.S.-based apparel retailer.

The firm reported strong second quarter results, sending the stock up more than 20% (to $18.50 or so) after announcing results. Non-GAAP earnings per share (EPS) were $0.38, far above the consensus estimate of $0.29 EPS. Revenue of $683.2 million beat the expected $671.4 million estimate.

Looking forward, management guided analysts lower on their third quarter EPS estimate, and raised guidance for full-year EPS to a range of $1.28-$1.36 vs. the consensus estimate of $1.26, reflecting approximately 35% profit growth vs. the prior year.

There’s lots of capital gain potential over the course of 3-24 months, although the recent price surge might now put a lid on immediate additional gains. For now, I rate the stock a "Buy" but expect to raise the rating to "Strong Buy" on the next pullback.

Subscribe to Cabot Undervalued Stocks Advisor here…

Related Articles on CONSUMER

Keyword Image
A New Look at Wendy's
11/18/2019 5:00 am EST

We are maintaining our "buy" rating on Wendy’s Co. (WEN); we believe that Wendy’s has re...