Top 100 fashion and clothing stocks to watch

What are the top fashion and clothing stocks to watch?

1. Top 5 US fashion stocks
2. Top 5 UK fashion shares
3. Top 5 European fashion stocks
4. 100 biggest fashion shares in the world

Fashion is a broad term that encompasses everything from clothing and footwear to bags and accessories. According to Statista, the global fashion industry will be worth just under $600 billion in 2019 and that is forecast to grow at an annual rate of around 11.5% to reach over $900 billion by 2023.

There are many different types of fashion stocks. There are low-end clothing firms that focus on shifting large volumes at rock-bottom prices, often known as ‘fast fashion’, and luxury companies that cater to the premium-end of the market, where the focus is on quality rather than quantity. Some still predominantly sell out of traditional bricks-and-mortar stores, others are wholesalers that supply other retailers, and then there is the new breed of companies that sell exclusively online. There are stocks that are solely dedicated to fashion and others that have diversified from completely unrelated areas, like Primark-owner AB Foods or Marks & Spencer.

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Top 5 US fashion stocks

Nike

Nike is a household name, a leader in sporting apparel, and a pioneer of the rise in so-called ‘athleisure’. The company’s core Nike brand is complemented by others including Converse, Hurley and Jordan. It describes itself as a ‘growth company’ and it is certainly meeting that description as revenue and earnings continue to increase. That growth has filtered through to dividend payments too, which continue to be supplemented by share buybacks. One of the primary drivers of growth is Nike’s attempts to sell more goods directly to consumers rather than through a middle-man.

Investors interested in Nike may also want to consider the company’s European rival, Adidas, as each company acts as a benchmark for the other.

TJX

TJX is the world’s largest ‘off-price retailer’, which means it sells high-end apparel (and homewares) at cheap prices by, for example, buying excess stock or off-season items. The company’s clothing operations are based around TJ Maxx (or TK Maxx in the UK and Europe) and Marshalls, while its homewares are covered by the likes of Homegoods and Homesense. It generally sells goods for 20% to 60% below their recommended retail price (RRP), which continues to entice shoppers looking for a bargain. TJX has seen like-for-like sales rise for 23 consecutive years, and has raised its annual dividend for 22 straight years.

Ross Stores

Ross Stores is another off-price clothing and homewares retailer, but it mostly operates in the US and only has a small presence outside the country. Its ‘Ross Dress For Less’ stores also offer fashion lines at 20% to 60% below normal RRP prices, while dd’s DISCOUNT stores offer more ‘moderately priced’ goods. It describes its stores as a ‘treasure hunt’ for shoppers and, importantly, only offers them in-store and not online. The company believes it has ample room to grow in the US. It is only operating in 39 states at present and thinks its Ross stores could increase from around 1,500 to 2,400 in the coming years, while the number of dd’s stores should rise to around 600 from just 240. It has a long history of delivering growth in sales and profit, the dividend has grown for 25 consecutive years, and it has bought back shares every year since 1993.

VF

VF Corp is one of the largest manufacturers of apparel, footwear and accessories. The company boasts globally-recognisable brands including Vans, The North Face, Timberland and Dickies, which collectively generate around 80% of sales. VF has undergone some major changes recently, led by the spin-off of its jeans business into a separately-listed company named Kontoor Brands. The new firm owns major brands like Wrangler, Lee and Rock & Republic, and allows VF to focus on apparel and footwear. The company is global: 45% of sales come from outside its home country while another 35% come from its direct-to-consumer division. The company is aiming to deliver a Compound Annual Growth Rate (CAGR) of 7%-8% in revenue to 2024, 12%-14% in earnings per share (EPS), and a total shareholder return of 14%-16%. In this time, it hopes to deliver ‘double digit dividend growth’, which is the second priority for cash after mergers and acquisitions.

Tapestry

Tapestry is a global house of three luxury brands - Coach, Kate Spade and Stuart Weitzman - and primarily focuses on footwear and handbags. Its currently has over 1,500 stores spanning all three brands. North America and Asia are its two core regions, with the former contributing over 60% of revenue and the latter over 30% (of which, 15% comes from China). Notably, 90% of all its products are sold directly to consumers with just 10% sold via wholesale agreements. The firm is currently focused on organic growth rather than M&A. The company hopes to grow sales going forward but has said EPS will stay broadly flat. Still, its dividend looks safe and is complemented with share buybacks.

Top 5 UK fashion stocks

Burberry

Burberry is a global luxury brand based in London, with a network of its own stores and a number of franchised outlets. Burberry is aiming to deliver ‘high single-digit’ revenue growth over the medium term with improvement in its margins each year. That comes after revenue dipped in its last financial year while operating profit stagnated. In terms of cash, its priority is to reinvest sums to reinvigorate organic growth, followed by dividends, mergers and acquisitions (M&A), and then share buybacks. The firm has returned over £800 million in dividends over the past five years and bought £600 million of shares in the last three alone.

Next

Business at Next, which sells clothing and homewares, has picked up in recent years. Sales remained flat for three straight years to the end of January 2018, but jumped 2.5% in the following year, and that has accelerated since. One driver of the recent improved results has been its ability to adapt to the transition to online shopping from its traditional bricks-and-mortar stores: its online sales now account for half of all sales - well ahead of the 29% from retail stores. This is important because it has bolstered sales internationally and has allowed the firm to expand into over 70 countries. Dividends and share buybacks have both gained momentum after three years of minor growth, which should continue going forward.

ASOS

Shopping for clothing is increasingly becoming an online activity, and ASOS was one of the first online-only companies to enter the market and disrupt the traditional retail model. The company primarily caters to people in their 20s. The lean online model means it has been able to expand quickly since being launched nearly 20 years ago, with 60% of revenue coming from outside the UK. Revenue is continuing to grow at double-digit rates and margins remain just under 50% - which is higher than the industry average. However, profitability has been hit because of investment in distribution and its online platform, although it is hoping to start reaping the reward of this investment going forward. Unlike most of the other players on this list, ASOS does not currently pay a dividend, meaning investors must rely on share price appreciation in order to get a return.

Those interested in ASOS may want to have a look at Boohoo. The two companies are often pipped against one another and investors like to compare their performance.

M&S

Marks & Spencer's is a British retailer that has two distinct arms: food and clothing (but it also offers homewares as well as banking and energy services). It has over 1,400 stores in 57 countries and serves 50 of them with an online store. Its overall performance has been poor in recent years, with profits falling off a cliff-edge in its latest financial year. It is ‘deep into the first phase’ of a transformation programme, which includes a revamp of its range of jeans. The firm says it is a market leader in jeans in the UK, where the latest sales figures show growth of over 20%. Still, sales (including like-for-likes) are still declining in the clothing division and while its gross margin remains high at over 57%, it is contracting. Its online strategy has not been as successful as others and it is a long way from being optimised. Still, this will be key if it is to turn things around. M&S does pay a dividend, but this was cut a staggering 40% in the six months to September 28, 2019, which was accompanied by a rights issue and a bond sale – making it more of a recovery stock if anything.

JD Sports

JD Sports has arguably been the most successful UK-based fashion retailer in recent years. Its core JD brand is built on strong relationships with major brands like Nike and Adidas. The company owns a string of other brands, including footwear specialists like Footpatrol and Finish Line. It also has a portfolio of outdoor clothing brands including Blacks, millets and Go Outdoors. Sales are geographically diverse: with 45% from the UK, 29% from Europe and 21% from the US. Retail stores are going strong, generating nearly 80% of revenue and reporting strong like-for-like sales. Revenue, profit and dividends have experienced stunning growth over the last five years. Its latest results covering the six months to August 3, 2019, showed a 47% leap in revenue, a 6.6% rise in pretax profit and a 3.7% lift to the interim payout.

Top 5 European fashion stocks

LVMH

LVMH is widely regarded as the leader in luxury. It is home to some of the most widely-recognised brands and spans not only clothing but also leather goods, perfumes, cosmetics, watches and jewellery. It owns 75 brands, including fashion houses Louis Vuitton, Givenchy, and Marc Jacobs, and watch brands like Tag Heuer. It is currently in the process of adding another powerhouse to its portfolio after launching a bid for TIF-US. Fashion and leather goods account for about 40% of sales, selective retailing - 28%, perfumes and cosmetics - 13%, watches and jewellery - 9% and wines and spirits (like cognac and champagne) - 11%. The US and Asia (excluding Japan) account for over half of total sales, but its revenue is otherwise broadly split. Revenue, margins and profit have all increased over recent years and the dividend has increased by €1 a year between 2016-2018, with a payout ratio of around 47%. However, those interested in investing in LVMH need to be aware that Christian Dior (see below) has a controlling stake in the business, which in turn is owned by Bernard Arnault, who is both chairman and CEO of LVMH.

Inditex

Inditex is a Spanish clothing retail group that is working on global scale. It has over 7,000 stores in 96 countries and its biggest brands, in terms of store numbers, are Zara, Bershka, Stradivarius and Pull&Bear, but it serves over 200 countries online. Zara (and its homewares division) account for most sales. Inditex has come on leap and bounds over the last five years. Net sales grew at a CAGR of 9% between 2013-2018, net income by 8% and cashflow by 6%. The dividend has more than doubled in that time too and is supplemented by special payouts. It recently introduced a new dividend policy that raised the payout ratio to 60% from 50%, and said it will pay a special annual payment of €1 per share this year and next. Its physical stores have long been applauded for their agility and ability to keep up with trends (it releases around 65,000 new designs each year), and it is making waves with its online store, which is generating at an annual sales run-rate of over €6 billion this year. It is vertically integrated, meaning it controls the supply chain from design to manufacturing to distribution to sales.

Christian Dior

Christian Dior is an odd business. It has a complex relationship with LVMH thanks to Arnault’s involvement in both companies. LVMH owns the majority of Christian Dior brands, including its fashion lines and range of perfumes. Christian Dior’s arsenal now comprises of its couture business and a 41% stake in LVMH (and over 50% of voting rights, giving it a controlling interest). However, Christian Dior, while listed, is highly illiquid because it is practically outright-owned by the Arnault family, meaning it isn’t suitable for investors.

Kering

A decade ago, Kering was best-known for owning everyday brands like Puma, but it has since transformed itself into a luxury fashion group. Today, nearly two-thirds of its revenue and even more of its profit comes from Gucci. Other major lines include Saint Laurent and Bottega Veneta. Leather goods are the best-selling product, followed by shoes, and revenue is broadly split between North America, Europe and Asia. Revenue in the first nine months of 2019 grew over 17% year-on-year. Its dividend has grown steadily since 2013 and saw a 75% leap in its most recent financial year, with the payout ratio remaining at around 47%. French firm Artémis, which is owned by François-Henri Pinault, the owner of Christie’s auction house, owns 40% of the business.

Richemont

Richemont is a diverse global group that makes most of its money selling jewellery and watches rather than clothing. Jewellery, led by brands such as Cartier, accounts for over half of sales, followed by watches made by the likes of Jaeger LeCoultre (21%). It owns online luxury fashion retailer YOOX NET-A-PORTER and watch store Watchfinder, and a string of fashion brands including Dunhill and Chloe. Richemont’s annual revenue in the year to the end of March 2019 was over one-third higher than five years earlier, while pretax profit was 85% higher and the dividend 90%. The company repurchases shares too and is currently buying stock under a programme launched in 2017 that will expire in the middle of May 2020.

Top 100 fashion and clothing stocks from around the world

Below is a list of the 100 largest clothing and fashion stocks from around the world, according to the FashionUnited Top 100 Index – an international benchmark index outlining the biggest apparel and fashion stocks. It also includes major players in the jewellery market. Collectively, their aggregated market cap exceeds $1 trillion:

How to identify the best dividend yielding fashion stocks

We have established that most of the larger fashion and clothing stocks from around the world pay dividends, with many having consistently raised payouts for years if not decades, and bonus dividends or share buybacks are not uncommon. This means the sector should be considered by income investors.

The best measure to use when comparing stocks in this sector is the dividend yield. This involves comparing a stock’s dividend with its share price, and is presented as a percentage. For example, if a stock has paid an annual dividend of £1 and has a share price of £100, then its dividend yield is 1%. Dividend yields vary wildly depending on the industry, so only compare yields with other fashion or clothing stocks. According to a study released in early 2019 by the NYU Stern’s School of Business, the average dividend yield of 50 global apparel stocks is around 2.12% - so this can be used as a starting point.

When evaluating dividends paid by fashion and clothing stocks, consider the following:

• What is the dividend yield?
• What is the payout ratio, dividend cover and dividend policy?
• How cash generative is the stock?
• How consistent has the stock been with payouts, has it got a good track record?
• Do they pay special dividends or buyback shares, and how does this effect the yield?

How to trade fashion stocks

1. Start trading CFDs on these stocks – without taking ownership of the underlying asset – by opening a live account with IG
2. Practise trading CFDs in a risk-free environment by opening a demo account

If you trade them then you are speculating on the future movement in share price, but do not actually own the shares outright or benefit from any dividends that are paid.

Fashion and clothing stocks: can they stay on-trend?

The industry has something for every investor. There are luxury brands and discount chains, retailers and designers, and companies making clothing and others producing jewellery or perfumes. There are stocks still in growth mode, like online player ASOS, and others that have grown into huge businesses through consolidation and are now regarded as reliable dividend payers. Luxury brands are particularly good for those wanting a bit of security as they tend to be more resilient during economic downturns, mostly because its customers can weather any storms better than the lower-end of the market.

Fashion is all about staying on trend, but the industry is starting to face new challenges that will have a greater influence in the future, such as increased awareness about the sustainability of fashion and clothing. New models are being introduced, like renting luxury clothes or placing more emphasis on recycling garments. The industry will have to adapt, but the fundamentals look strong.