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Americans have once again started spending freely as inflationary pressures are steadily easing, making them more confident about the economy. Consumers cut down on spending on expensive goods and stuck to buying necessities for most of 2023 as rising costs continued to hurt their expenses.

However, the last few months have seen people spending on expensive items and goods again. The apparel market, which took a hit during this time, also appears to be bouncing back. As retail sales got a major boost during the holiday season, so too did the sales of apparel.

Clothing and accessories sales at physical and online stores totaled $41,342 million in December, increasing 1.5% month-over-month. For the full year, clothing sales totaled $312.73 billion. Overall retail sales grew 0.6% in December, and the clothing and accessories segment was one of the major drivers as people spend lavishly during the holiday season.

Apparel sales took a major hit during the pandemic as sales dropped because millions stayed home, and holidaying almost came to a halt for more than a year. Things started looking up, but inflationary pressures started taking a toll on sales as the Federal Reserve adopted a strict monetary regime and increased its benchmark policy rates from the range of 0-0.25% to 5.25-5.50% since March 2022.

The Federal Reserve’s aggressive steps saw a sharp decline in inflation. This has now raised hopes that the Fed will soon end its monetary tightening campaign and go for rate cuts in 2024.

This has also been boosting consumer sentiment at a rapid pace. The latest University of Michigan preliminary consumer sentiment survey came up with a reading of 78.8 in January, up from the previous month’s 69.7. This is the highest reading in two-and-a-half years.

Lower interest rates bode well for the broader economy and allow people to spend more freely. This, in turn, favors the clothing and accessories industry.

Our Choices

We have narrowed our search to four apparel stocks, namely American Eagle Outfitters, Inc. (AEO - Free Report), Deckers Outdoor Corporation (DECK - Free Report), Abercrombie & Fitch (ANF - Free Report), and The Gap, Inc. (GPS - Free Report), which have strong potential for 2024. These stocks have seen positive earnings estimate revisions in the last 60 days. Each of our picks carries a Zacks Rank #1 (Strong Buy) or #2 (Buy).

American Eagle Outfitters, Inc.

This company is a specialty retailer of casual apparel, accessories, and footwear for men and women aged 15-25 years. American Eagle, along with its subsidiaries, engages in the designing and marketing of casual clothing. American Eagle Outfitters’ assortment includes jeans, cargo pants, graphic T-shirts, as well as a range of accessories, outerwear, and footwear.

American Eagle Outfitters’ expected earnings growth rate for the current year is 45.4%. The Zacks Consensus Estimate for current-year earnings has improved 6% over the last 60 days. The stock presently sports a Zacks Rank #1 (Strong Buy).

Deckers Outdoor Corporation

This company is a leading designer, producer, and brand manager of innovative, niche footwear and accessories developed for outdoor sports and other lifestyle-related activities. Deckers Outdoor Corporation sells products primarily under five proprietary brands — UGG, HOKA, Teva, Sanuk, and Other (mainly comprising Koolaburra).

Deckers Outdoor’s expected earnings growth rate for the current year is 22.2%. The Zacks Consensus Estimate for current-year earnings has improved 1.1% over the past 60 days. DECK currently has a Zacks Rank #2 (Buy).

Abercrombie & Fitch

This company operates as a specialty retailer of premium, high-quality casual apparel for men, women, and kids through a network of approximately 850 stores across North America, Europe, Asia, and the Middle East.

Abercrombie & Fitch's product portfolio includes knit and woven shirts, graphic T-shirts, fleece, jeans and woven pants, shorts, sweaters, outerwear, personal care products, and accessories for men, women and kids, under the Abercrombie & Fitch, Abercrombie kids, and Hollister brands.

Abercrombie & Fitch’s expected earnings growth rate for the current year is 2,320%. The Zacks Consensus Estimate for current-year earnings has improved 14.8% over the past 60 days. The stock currently sports a Zacks Rank #1 (Strong Buy).

The Gap, Inc.

This company is a premier international specialty retailer offering a diverse range of clothing, accessories, and personal care products. The Gap offers products for men, women, and children under the Old Navy, Gap, Banana Republic, Athleta, Intermix, and Hill City brands.

The Gap’s expected earnings growth rate for the current year is 385%. The Zacks Consensus Estimate for current-year earnings has improved 9.6% over the past 60 days. The stock currently sports a Zacks Rank #1 (Strong Buy).

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