2022 was a year of ups and downs for retail stocks.
Inventory excesses, soaring inflation and rapidly shifting trends made for a rough environment for retailers across the board. Some brands withstood the challenges while others took a hit to their business, widening the gap between the winners and losers in retail.
As we enter 2023, here are the retail stocks that stand out above the rest and will likely continue to perform well in the coming year, according to analysts and market watchers:
TPR — Tapestry
In a Dec. 11 note from Goldman Sachs Equity Research, the firm highlighted Tapestry as a strong buy option for 2023. In November, the New York-based parent company of Coach, Kate Spade and Stuart Weitzman reported better-than-expected results, led by international growth, for its fiscal first quarter.
In September, the company outlined a new three-year growth strategy at its 2022 Investor Day and now expects to achieve revenue of $8 billion by fiscal year 2025.
Watch on FN
“Strong brand momentum and an emotionally driven category means the business is likely to be better ballasted from a choppy U.S. consumer backdrop,” Goldman Sachs analysts wrote in the note.
BURL/ROST/TJX — Burlington, Ross Stores and TJX Companies
Off price has been a standout category this year, as consumers turned to cheaper options for apparel and footwear amid record inflation.
In its most recent quarter, TJX Companies topped profit estimates, despite sales coming in lower than the same period last year. According to Neil Saunders, managing director of GlobalData, TJX “has shown resilience through this year and, on the apparel side, is benefitting from consumers trading down.”
Equal Ventures co-founder and general partner Rick Zullo and senior associate Chelsea Zhang also highlighted TJX, given its position to benefit from inventory excesses across the industry.
“We believe pressure on consumer spending will catalyze new buyers to visit TJX stores and that customers will be impressed by the quality of product they see when they arrive there, particularly in the mid-tier to lower luxury segment,” Zullo and Zhang noted in an email to FN.
Goldman Sachs highlighted Burlington and Ross stores, also off-price leaders, as good buys for 2023. Ross opened its its 2,000th store this year, in line with another goal to open 100 new stores in 2022.
“Off price is well-positioned in an uncertain and choppy backdrop,” the Goldman Sachs report noted.
RL — Ralph Lauren
Cowen Equity Research analyst John Kernan named Ralph Lauren as his “Top Idea for 2023.”
The fashion brand this year outlined a plan to continue its streamlined retail strategy and double down on its direct channels. The retailer plans to open more than 250 stores over the next three years, focusing on 30 top cities around the globe.
President and CEO Patrice Louvet noted at the company’s investor day in September that Ralph Lauren is reestablishing its standing as a strong luxury fashion player.
In a note to investors, Kernan wrote, “We believe Ralph Lauren has multiple initiatives in place that could elevate the brand and reaccelerate growth longer term, including improving quality of sales and distribution, evolving product, marketing investments and enhanced customer experience to reach new customers, including Gen Z and millennials. Focus remains on digital, international and underpenetrated category growth along with supply chain efficiencies.”
NKE — Nike
Despite a rough year marked by inventory excesses and widespread promotions, analysts feel strongly that Nike can get back on track in 2023. And the Swoosh is already showing improvement, as of its most recent better-than-expected earnings report.
In a Dec. 14 note, Guggenheim analyst Robert Drbul named Nike his “Best Idea” going into 2023, expecting its underperformance this year “to reverse in ’23,” given its brand equity, demand creation, healthy DTC and digital business and strong management.
“We believe the brand remains healthy and strong and expect significant operating margin recovery in 2023,” Drbul wrote.
UBS analyst Jay Sole also named Nike a “Top Pick for 2023” in a note following the company’s second-quarter results, citing product innovation, supply chain speed and digital strength.
“We believe Nike has the brand strength, strategy, skills and resources to outperform peers through a recession,” Sole wrote.
LULU — Lululemon
Lululemon expanded into new categories in 2022. The company entered footwear in March to widespread acclaim and was recently named Launch of the Year at the 36th annual FN Achievement Awards. Lululemon in April rolled out a five-year plan that aims to double business from 2021’s net revenue of $6.25 billion to $12.5 billion by 2026 via new products and other initiatives.
For 2023, Jane Hali & Associates analyst Jessica Ramirez sees a lot of runway for Lululemon to continue to grow in footwear, men’s and its international business.
“Our favorite part when looking at LULU, and the way that they’ve evolved as a brand, is their ability to tap into every part of the consumer’s lifestyle,” Ramirez said, citing the stock as one to watch in 2023.
In his Dec. 14 note, Guggenheim’s Drbul also called out Lululemon as a “a favorite growth story heading into 2023” for similar reasons.
“We see ample runway for growth in men’s, digital and international, while LULU continues to deliver strong growth in its ‘core’ (women’s, stores and North America),” Drbul wrote.
GPS — Gap
Gap Inc. president and CEO Sonia Syngal announced in July she would step down from her role in the company and on its board. Analysts are hopeful that new leadership can help put the company back on track in 2023.
“We were encouraged to see strengthening results at many of the Gap Inc. portfolio of brands, including Gap brand, Athleta and Banana Republic,” read a Dec. 11 Goldman Sachs Equity Research note, adding that new leadership could further catalyze growth.
Guggenheim’s Drbul also said a new CEO could help spur growth at Gap, highlighting recent momentum in Old Navy and Athleta.
“We continue to believe that the GPS brand portfolio remains undervalued and holds solid potential,” Drbul wrote.
