The Dow Jones U.S. Apparel Retailers Index (INDEXDJX:DJUSRA) suffered a major setback in November when it slid from above 850 to 750 levels in a matter of a few days. Although it has recovered since then, it still trades down over 6% year-to-date, while in comparison Dow Jones Industrial Average (INDEXDJX:.DJI) is trading flat for the year currently. Since apparel retailers haven’t performed well this year and the Fed started the cycle of raising rates yesterday, we thought of putting together a list of top apparel retailers’ stocks based on their popularity among the 730 hedge funds covered by us.
But first, let’s understand why do we track hedge fund activity? From one point of view we can argue that hedge funds are consistently underperforming when it comes to net returns over the last three years, when compared to the S&P 500. But that doesn’t mean that we should completely neglect their activity. There are various reasons behind the low hedge fund returns. Our research indicated that hedge funds’ long positions actually beat the market. In our back-tests covering the 1999-2012 period hedge funds’ top small-cap stocks edged the S&P 500 index by double digits annually. The 15 most popular small-cap stock picks among hedge funds also bested passive index funds by around 53 percentage points over the 37 month period beginning from September 2012 (read the details here).
#5 Lululemon Athletica inc. (NASDAQ:LULU)
-Hedge Funds with Long Positions (as of September 30): 32
-Aggregate Value of Hedge Funds’ Holdings (as of September 30): $837.35 million
After remaining sideways throughout the year, shares of Lululemon Athletica inc. (NASDAQ:LULU) fell heavily on September 10 after the company reported its second quarter earnings. The same story was repeated recently on December 9, when Lululemon Athletica inc. (NASDAQ:LULU) reported its third-quarter results. While analysts were expecting the company to report EPS of $0.37 on revenue of $481.78 million, it reported EPS of $0.38 on revenue of $479.90 million for the quarter. On December 13, analysts at MKM Partners reiterated their ‘Buy’ rating on the stock, but lowered their price target to $60 from $69, which represents a potential upside of over 20% from the stock’s current trading price. Revered trader Steve Cohen‘s Point72 Asset Management made a significant increase to its stake in Lululemon Athletica to over 2.8 million shares during the July-September period.
#4 Ralph Lauren Corp (NYSE:RL)
-Hedge Funds with Long Positions (as of September 30): 33
-Aggregate Value of Hedge Funds’ Holdings (as of September 30): $700 million
Luxury lifestyle retailer Ralph Lauren Corp (NYSE:RL) has lost nearly 40% of its value since the start of the year. However, in spite of this decline, the stock has become more popular among hedge funds, as five more funds disclosed a stake in the company at the end of the third quarter, versus the end of June. Earlier this month, athletic wear giant Nike Inc (NYSE:NKE) filed a lawsuit against Ralph Lauren Corp (NYSE:RL) and its vice president of men’s design for ‘Club Monaco’ brand, Matthew Millward, alleging breach of contract and tortious interference. On December 16, analysts at Bank of America reiterated their ‘Neutral’ rating on the stock, but lowered their price target to $125 from $135. Ken Griffin‘s Citadel Investment Group more than doubled its stake in Ralph Lauren Corp to 1.27 million shares during the third quarter and became its largest shareholder among funds we track at the end of September.
#3 VF Corp (NYSE:VFC)
-Hedge Funds with Long Positions (as of September 30): 34
-Aggregate Value of Hedge Funds’ Holdings (as of September 30): $1.2 Billion
Shares of VF Corp (NYSE:VFC) have seen a gradual decline since August and now trade down by more than 16% year-to-date. Interestingly, during the third quarter, while two fewer funds reported stakes in the company, the aggregate value of their holdings rose by $70 million. Recently on December 14 VF Corp (NYSE:VFC) announced that it is extending its Third Way manufacturing program to strategic suppliers in sub-Saharan Africa. Billionaire David E. Shaw‘s firm D.E. Shaw increased its stake in the company by 50% to over 1 million shares during the third quarter.
#2 PVH Corp (NYSE:PVH)
-Hedge Funds with Long Positions (as of September 30): 37
-Aggregate Value of Hedge Funds’ Holdings (as of September 30): $1.24 billion
Owing to the decline its shares have had since the start of September, PVH Corp (NYSE:PVH) has lost more than 40% of its market capitalization this year. Moreover, shares of the company have slumped more than 20% this month after it reported weak third quarter numbers and issued disappointing earnings guidance. PVH Corp (NYSE:PVH) reported EPS of $2.47 on revenue of $2.16 billion for the quarter, whereas analysts had expected the company to report EPS of $2.66 on revenue of $2.16 billion. Currently the company is trading at a forward price-to-earnings multiple of 11 and price-to-book multiple of 1.37, which is an attractive valuation compared to its industry peers. Ken Heebner‘s Capital Growth Management initiated a stake in PVH Corp during the third quarter by purchasing 755,000 shares.
#1 Carter’s, Inc. (NYSE:CRI)
-Hedge Funds with Long Positions (as of September 30): 46
-Aggregate Value of Hedge Funds’ Holdings (as of September 30): $1.06 billion
Finally, even after declining by more than 20% from its peak of almost $110 in July, Carter’s, Inc. (NYSE:CRI) is still trading in the green year-to-date. Although the number of funds that held a stake in the company remained constant during the third quarter, the aggregate value of their holdings declined by $288 million. Nevertheless, the holdings of these funds in aggregate accounted for 22.20% of Carter’s, Inc. (NYSE:CRI)’s stock at the end of September. David Gallo‘s Vallinor Management LLC doubled its stake in Carter’s to 1.57 million shares during the third quarter and became the largest shareholder of the company among the funds tracked by us at the end of September after Jonathan Auerbach‘s Hound Partners which held over 3.4 million shares.