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Pass Up L Brands, Grab These 3 Apparel Stocks Instead

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Shares of L Brands, Inc. (LB - Free Report) have spiraled 32.8% down in the past six months, underperforming the Zacks Retail - Apparel And Shoes Industry as well as the S&P 500’s respective advances of 10.2% and 4.5%. Let’s take a look at a few factors that have been leading to the stock’s bearish run, which also has a VGM Score of D.

Victoria’s Secret has been orchestrating L Brands’ debacle. Changing consumer preferences and tough competition have been major hold-ups. Weakness in the Pink brand is a major hang-up for the lingerie brand. Comparable sales for the Pink brand declined in mid-single-digit range during the second quarter of fiscal 2018 due to weak lingerie and loungewear sales.

Victoria’s Secret has been grappling with soft comparable sales for quite some time now. After a 4% fall in the month of July, Victoria’s Secret comparable sales declined 5% in August. The second quarter saw a 1% drop.

Moreover, this Zacks Rank #4 (Sell) stock has been struggling with shrinking gross margin, which is expected to decline year over year in the fiscal third quarter owing to a drop in merchandise margin rate along with buying and occupancy expense deleverage. Also, SG&A costs are anticipated to escalate considerably as a percentage of sales in the third quarter and increase year over year in fiscal 2018. (Read: L Brands Trims View Despite Q2 Earnings Beat, Stock Down)

Needless to say, these factors compelled management to trim fiscal 2018 view for the second time this year. As a result, the Zacks Consensus Estimate has been moving down. The consensus estimate for the third and fourth quarter declined 11 cents and 13 cents to 4 cents and $1.99, respectively, over the past 30 days. For fiscal 2018, estimates slid to $2.51 from $2.76 in the same time frame.

Industry Stands Out

Although L brands is not faring well, the industry seems to be on a solid footing on improved consumer confidence, robust job market and higher disposable income. These factors have helped the industry attain a reputable position in the Zacks list of classified industries.  

The industry currently carries a Zacks Industry Rank #52, which places it in the top 20% of more than 250 Zacks industries. The industry, within the broader Zacks Retail & Wholesale Sector, has outperformed the Zacks S&P 500 Composite as well as its own sector over the past year. While stocks in this industry have collectively gained 30.4%, the Zacks S&P 500 Composite advanced 16.1% and the Zacks Retail & Wholesale Sector rose 27.3%.

3 Stocks Worth Adding

With the help of the Zacks Stock Screener, we have picked three stocks from the aforementioned industry carrying a Zacks Rank #1 (Strong Buy) or 2 (Buy) and a VGM Score of A or B. You can see the complete list of today’s Zacks #1 Rank stocks here.

Zumiez Inc. (ZUMZ - Free Report) carries a Zacks Rank #1 and a VGM Score of A. The company, which is engaged in the retail of apparel, footwear and accessories, has an average positive earnings surprise of 9.6% for the trailing four quarters. Further, the company’s shares have rallied approximately 45% in six months.

Tilly's, Inc. (TLYS - Free Report) , which offers casual apparel, footwear, and accessories, carries a Zacks Rank #2. The company posted an average positive earnings surprise of 87.6% in the trailing four quarters and has a VGM Score of A. Moreover, shares of the company have gained roughly 67% over the past six months.

Urban Outfitters, Inc. (URBN - Free Report) is a lifestyle products and services company. This Zacks Rank #2 company has a long-term earnings growth rate of 12% and a VGM Score of B. The company posted an average positive earnings surprise of 17.7% in the last four quarters. Over the past six months, the stock has gained 26.2%.

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In-Depth Zacks Research for the Tickers Above

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L Brands, Inc. (LB) - free report >>

Zumiez Inc. (ZUMZ) - free report >>

Tilly's, Inc. (TLYS) - free report >>

Urban Outfitters, Inc. (URBN) - free report >>

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