Hedge Funds’ Favorite Apparel Stocks; Nike (NKE) Beaten for the Top Spot

3. Michael Kors Holdings Ltd (NYSE:KORS)

Number of Hedge Fund Shareholders of KORS (as of June 30): 35

Value of Hedge Funds’ Holdings in KORS (as of June 30): $1.70 billion

Michael Kors Holdings Ltd (NYSE:KORS) narrowly topped this list at the end of March, beating Nike by a single fund, but has since fallen to 3rd. While a net total of one fewer hedge fund owned the stock on June 30 than at the end of March, hedge funds nonetheless poured money into the stock during the second-quarter, raising the value of their holdings to $1.70 billion from just $1.06 billion. Millennium Management and Citadel Investment were again two of the major contributors, increasing their large positions by 309% and 171% respectively during the quarter. They’ve been rewarded with gains of over 10% in the third-quarter.

Luxury and apparel brand Michael Kors Holdings Ltd (NYSE:KORS) should benefit from rising wages in notable markets like the U.S, Japan, and Germany, while its operational performance has been enhanced recently by improved product innovation and inventory management. Michael Kors generates strong free cash flow which has increasingly been used to buy back shares, and has further room for margin expansion.

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2. Nike Inc. (NYSE:NKE)

Number of Hedge Fund Shareholders of NKE (as of June 30): 36

Value of Hedge Funds’ Holdings in NKE (as of June 30): $1.46 billion

Nike Inc. (NYSE:NKE) shares have quickly returned to their pre-Kaepernick levels after initially taking a beating due to the backlash and boycotts against the company. Early signs suggest that rebound is justified, as while Nike’s favorability among consumers has dived to 35% from 69% according to a Morning Consult poll, sales nonetheless jumped by 31% year-over-year over the Labor Day weekend. It’s estimated that the campaign had also generated over $43 million in buzz within its first 24 hours alone.

Several hedge funds were quite bullish on Nike Inc. (NYSE:NKE) earlier this year, including Bill Ackman of Pershing Square, who saw room for margin expansion and liked Nike’s marketing capabilities, which Nike has indeed exploited again. Ackman expected Nike to generate annual revenue growth in the high-single-digit range. In its Q4 2017 investor letter, Polen Capital also expected Nike to improve its revenue and earnings thanks to its streamlined product development cycle. 36 hedge funds in our database were long Nike on June 30, up from 35 on March 31.

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1. Lululemon Athletica Inc (NASDAQ:LULU)

Number of Hedge Fund Shareholders of LULU (as of June 30): 41

Value of Hedge Funds’ Holdings in LULU (as of June 30): $1.79 billion

Lululemon Athletica Inc (NASDAQ:LULU) surged past both Nike and Michael Kors into the top spot on this list thanks to several hedge funds opening LULU positions in Q2. Among them were James Crichton’s Hitchwood Capital Management (350,000 shares) and Steve Cohen’s Point72 Asset Management (147,827 shares). All told, 41 funds owned the stock at the end of June, up from 34 at the end of March.

Lululemon Athletica Inc (NASDAQ:LULU) is coming off an impressive Q2 and appears to be executing at an extremely high level across the breadth of its operations. Same-store sales growth and guest acquisition were strong during the second-quarter, e-commerce sales continued to grow, and Lulu enjoyed growth across nearly all channels and geographies. Not only is the company’s men’s apparel business picking up steam (20%+ growth in Q2), but its bread-and-butter women’s pants also had a big quarter thanks to innovative new products and materials. The Canadian company has huge expansion opportunities overseas, with Barclays stating that its total addressable market is “substantially larger than most investors realize.”

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