Despite macro headwinds, the fashion and apparel industry continues to witness stable demand. According to Adobe, online shoppers spent a record $5.29 billion on Thanksgiving 2022, an increase of 2.9% year over year. They spent most on toys, apparel, grills, and outdoor equipment. “What we are seeing is the discounts being strong enough to entice consumers to continue to spend,” Vivek Pandya, lead analyst at Adobe, said.

This momentum is expected to extend into the winter holidays. The National Retail Federation projects holiday sales will increase by up to 8% this year.

Moreover, in today’s age of social media marketing, fast fashion is gaining significant popularity. The global fast fashion market is expected to grow at a CAGR of 8.6% from 2022 to 2026.

Given the backdrop, investors could buy quality fashion stock J. Jill, Inc. (JILL) this holiday season. However, fundamentally weak The Gap, Inc. (GPS) might be best avoided.

Stock to Buy:

J. Jill, Inc. (JILL)

JILL operates as an omnichannel retailer of women’s apparel under the J. Jill brand in the United States. It offers two sub-brands extensions of its brand aesthetic: Pure Jill and Wearever.

On December 6, 2022, Claire Spofford, President and CEO of JILL, said, “As we look to the remainder of the year, we plan to continue to execute against our initiatives, including investing in our plans for long-term profitable growth while remaining prudent with our expectations related to the consumer.”

JILL’s forward EV/Sales of 0.86x is 21.27% lower than the industry average of 1.09x. Its forward Price/Sales multiple of 0.41 is 35.9% lower than the industry average of 0.86.

JILL’s trailing-12-month gross profit margin of 68.49% is 93.4% higher than the 35.41% industry average. Its trailing-12-month levered FCF margin of 12.98% is 927.4% higher than the 1.26% industry average.

JILL’s gross margin came in at $105.02 million for the third quarter that ended October 29, 2022, up marginally year-over-year. The company’s current assets came in at $184.68 million for the period ended October 29, 2022, compared to $123.25 million for the period ended January 29, 2022.

Analysts expect JILL’s revenue to increase 4.4% year-over-year to $610.70 million in 2023. Its EPS is estimated to increase 37.1% year-over-year to $2.92 in 2023. It has surpassed EPS estimates in all four trailing quarters. Over the past year, the stock has gained 67.9% to close the last trading session at $24.41.

JILL’s strong fundamentals are reflected in its POWR Ratings. The stock’s overall B rating indicates a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

JILL has an A grade for Sentiment and Quality. It is ranked #2 out of 66 stocks in the Fashion & Luxury industry. Click here to see the additional POWR Ratings for JILL (Stability, Growth, Value, and Momentum).

Stock to Avoid:

The Gap, Inc. (GPS)

GPS is a specialty apparel company offering clothing, accessories, and personal care products for women, men, and children. The global and omnichannel retailer markets its offerings under the Old Navy, Gap, Banana Republic, and Athleta brands.

GPS’ forward EV/EBIT of 141.29x is 1006.3% higher than the industry average of 12.77x. Its forward EV/EBITDA multiple of 18.06 is 97.36% higher than the industry average of 9.15.

GPS’ trailing-12-month EBITDA margin of 3.34% is 69.8% lower than the 11.05% industry average. Its trailing-12-month levered FCF margin of negative 5.29% is significantly lower than the 1.26% industry average.

GPS’ gross profit came in at $1.51 billion for the third quarter ended September 29, 2022, down 9.2% year-over-year. The company’s total assets came in at $12 billion for the period ended October 29, 2022, compared to $12.78 billion for the period ended October 30, 2021.

Street expects GPS’ revenue to decrease 5.6% year-over-year to $15.74 billion in 2023. Over the past year, the stock has lost 14.7% to close the last trading session at $13.91.

GPS’ POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating, equating to a Sell in our proprietary rating system. In addition, the stock has a D for Growth and Stability.

It is ranked #59 in the same industry. We also have graded GPS for Growth, Value, Momentum, Sentiment, and Quality. Click here to access all of GPS’ ratings.

JILL shares were trading at $23.93 per share on Wednesday afternoon, down $0.48 (-1.97%). Year-to-date, JILL has gained 24.77%, versus a -14.82% rise in the benchmark S&P 500 index during the same period.

Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.

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