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2013: A Banner Year For Industry Stocks

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The stock market had a phenomenal year in 2013, its best since the 1990s go-go days, with most major market indicators up between 25% and 30%, more than three times 2012’s average gains. The Dow Jones industrial average rose by over 27%, its biggest year-on-year increase since 1995. The S&P 500’s surge was closer to 30%, a 16-year record.

Apparel retail stocks lagged the Dow, rising by “only” 25%. The apparel retail index was hurt by two poorly performing stocks, JCPenney and Gordman’s, both of which lost almost half their value in the year. Were it not for those two companies, the increase in the retail index would have been level with that of the Dow.

Though its stock price is low, ValueVision Media enjoyed the biggest gain of any retailer, up almost 270% on the year. The omni-channel lifestyle retailer and media company has seen sales and traffic increase steadily, as have other players in this space such as HSN and QVC.

Off-price department store operator Steinmart, in the middle of a multi-year turnaround of sorts, has been retooling merchandise, brands, pricing and other operational areas to achieve consistent sales growth and enhanced profitability, and saw its stock almost double as a result.

Destination XL, formerly called Casual Male Retail Group, benefitted from the men’s market opportunity in special sizes, and its ability to engage its customers 24/7 with a blended bricks-and-mortar and online strategy. Men’s Wearhouse stock gained almost 69% amid fever-pitch-level talk about a merger with or acquisition of (or by) Joseph A. Banks which, if it happens, and we believe it ultimately will, will create a men’s tailored clothing superstore selling both designer and exclusive/private label brands at great prices.

Another notable retailer performance in 2013 was that of TJX Companies, operators of the Marshall’s, TJ Maxx and HomeGoods stores, whose stock soared by 52%, continuing its steady climb, as the off-pricer keeps firing on all cylinders. Toward the end of the year it launched an e-commerce site, TJMaxx.com, to test whether its customers will enjoy the thrill of the bargain hunt online as much as it clearly does in-store.

We would be remiss if we didn’t mention Amazon, the biggest disruptor in retail. Despite its sky-high stock price, each share grew by over 60% in value, to almost $400. The e-commerce giant will probably barely show a profit on its sales of $75 billion, instead opting to invest back into growth and technology initiatives.

The biggest loser in retail last year was JCPenney, whose storied recent history of a botched transformation by ex-CEO Ron Johnson is now a legendary case study in poor execution. With the stock down 53% for the year, former CEO Mike Ullman is back in the driver’s seat, and hopes to steer the company back toward growth and profitability. Unfortunately, he has to get millions of former customers to come back as well, which might be difficult.

Gordman’s, the Omaha, NE-based off-price department store, saw its share price pummeled by 48%. Investors are apparently frustrated with sluggish traffic, sales and margins, proof that the middle market is a tough place to be unless you’ve got the best brands and offer phenomenal value.

Like their teen customers walking as a group through the mall, Aeropostale, American Eagle, and Abercrombie & Fitch all saw their stocks drop by around 27%, as the denim-driven teen specialty stores lost share to fast-fashion giants Forever 21, H&M, J. Crew, and smaller, more niche-oriented brands.

In a rare year of poor performance, Lululemon’s share price fell by over 20%, hurt by the great see-through yoga pant fiasco. The company has redoubled its supply chain efforts, and will now hopefully turn its attention to grooming a new CEO who will get the brand back on good terms with its passionate customers.

Wholesalers and manufacturers turned in an impressive collective performance in 2013. Its index skyrocketed by 51% in 2013, led by apparel and footwear companies who showed tremendous resilience and the ability to gain market share despite a highly competitive retail environment. 

There were almost too many 2013 winners in the wholesale and manufacturing sector to list.   Fifth and Pacific, though a mere shadow of its former Liz Claiborne self, spent the better part of the year expanding its flagship Kate Spade brand and entering into contracts to divest of Juicy Couture and Lucky Brand. In 2011, the company began a major divestiture effort, selling its former namesake Liz Claiborne brand to JCPenney, Dana Buchman brand to Kohl’s, and Monet, Kensie and others to various buyers. Down to one brand now, the company will focus its efforts on Kate Spade.

G-III Apparel was the number two performing manufacturing stock last year, with a price increase of over 120%. The company applies its tremendous supply chain expertise to licensed businesses under the Calvin Klein, Kenneth Cole, Cole Haan, Guess?, Tommy Hilfiger, Jones New York, Jessica Simpson, Sean John, Nine West, Levi’s, sports league businesses, and others.

The biggest loser in manufacturing was Perry Ellis International. The company exited several private label programs to focus on its branded businesses, and saw sluggish sales at its outlet stores.

Despite a year-end rally due to a $200 million investment by Blackstone, footwear maker Crocs ended the year down from almost 4%. Crocs has had a difficult time diversifying beyond the brightly-colored plastic clog, where competition has become fierce.

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