Fashion Stocks

Some Are Dressed to Kill, Others... Still In The Closet

From Nike's identity crisis to Coach's remarkable comeback, Ralph Lauren's luxury dominance and Lululemon's increasingly uncomfortable stretch, Wall Street's fashion closet is looking rather interesting.

Fashion and Wall Street have something in common: both love a good comeback, both reward outrageous confidence, and both can turn on you faster than a fashion editor spotting polyester at a couture show.

The apparel and accessories sector is delivering some fascinating winners, a few spectacular disappointments, and enough corporate drama to fill an entire season of Succession.

NIKE (NKE): Just Do Something. Anything!

Once the undisputed king of athletic footwear, Nike is discovering that even a swoosh cannot guarantee eternal greatness.

Under CEO Elliott Hill, Nike is attempting another turnaround, rebuilding wholesale relationships, refocusing on running, and cutting costs. Unfortunately, China remains a serious headache. Sales there plunged 26% in constant currency in its latest reported quarter.

Nike doesn't have a recognition problem. It has an execution problem, inventory issues and CEO revolving door scenarios. Investors are waiting for proof that the world's most recognizable sneaker company can remember how to win.

LULULEMON (LULU): The Stretch Is Getting Painful.

For years, Lululemon convinced consumers that $128 leggings were practically a retirement investment.

Now the athleisure darling is feeling pressure. Second-quarter revenue declined 4%, and comparable sales dropped 9%, and management lowered its annual outlook... again.

Competition (LOTS OF IT) product fatigue, and weakening American demand have turned yesterday's Wall Street sweetheart into a turnaround story.

Apparently, even yoga pants have limits.

COACH / TAPESTRY (TPR): The Comeback Kid.

Remember when Coach was considered your mother's outlet-mall handbag? Well, mother has apparently hired a brilliant stylist. NOW, Coach is attracting younger consumers with fashionable designs, accessible luxury positioning, and disciplined merchandising.

Parent company Tapestry just reported an 11% revenue increase, with Coach growing 16%, and raised its fiscal-year outlook.

Kate Spade remains a challenge, but Coach is demonstrating something the luxury industry desperately needs to remember: desirability doesn't necessarily require a $7,000 price tag.

RALPH LAUREN (RL): The Gentleman Still Owns the Room.

While competitors chase trends, Ralph Lauren continues selling an entire lifestyle: polo fields, country estates, cashmere, and the reassuring suggestion that everyone owns a house in the Hamptons.

Its latest quarterly revenue increased 9%, with China growing more than 35% (seems that Asians have traded Nike’s for tweed) and management raised its annual forecast again.

Interestingly, shares slipped after the announcement, demonstrating that Wall Street occasionally considers excellent results insufficiently excellent.

Ralph Lauren isn't simply selling clothing. It's selling aspiration, and that business remains remarkably healthy. 

UNDER ARMOUR (UAA): Another Corporate Workout.

Under Armour is still trying to rediscover its competitive edge.

Founder Kevin Plank is pushing product improvements, tighter spending, and more aggressive marketing. Its November earnings showed better-than-expected operating performance, but restoring consistent sales growth remains the real challenge.

Cutting expenses is useful. Selling more clothes would be even better.

Fashion investors face two very different opportunities: profitable brands demonstrating pricing power and struggling giants promising a resurrection.

Coach and Ralph Lauren currently have the stronger operating momentum. Nike and Lululemon offer potentially intriguing recovery stories, but neither deserves a standing ovation just yet Because on Wall Street, as on the runway, looking fabulous is one thing. Delivering the goods is quite another.

And unlike last season's unfortunate trousers, a bad stock purchase cannot simply be returned.