NEW YORK, NY -- (Marketwire) -- 02/12/13 -- The total market size for the U.S. retail industry increased by a mere 9%, and this was primarily due to a 37% increase in sales from international markets. However, the domestic sales and direct-to-consumer business has been suffering. Although this might not seem to be a noteworthy recovery, it does exhibit some good signs for U.S.-based retailers such as Abercrombie & Fitch Co. (NYSE: ANF) and Pacific Sunwear of California Inc. (NASDAQ: PSUN). The U.S. like for like sales increased by 2% while the international like for like sales declined by 18%. In addition, relative store sales for U.S. retail stores and direct-to-consumer business segment rose by 7%, in addition to 16% increase in the same quarter last year.
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U.S. retail chain stores including the direct-to-consumer business has consistently reported a positive relative sales growth in the previous 11 quarters. The lifeless revenue growth is mainly due to the consolidation of below par retail stores. U.S. retailers were contemplating to shut down a total of 55-60 stores in 2012. However, the overall apparel industry is showing signs of recovery in the U.S., hence going forward the apparel stocks could be a strategic investment.
Abercrombie's Q3 fiscal 2012 earnings completely outdid the market expectations. The results have exhibited considerable increase in revenues in addition to a strong third quarter in the previous year. This was underpinned by a significant contribution from the overseas markets, where the revenues grew by 37%. The stock is currently trading at $50.31, which is 92% of its 52 week high. Going forward the stock has the potential to gain another 8% before it finds resistance at the $54 mark. The stock has rallied back with a vengeance after seeing disappointing lows in mid-2012. The outlook on Abercrombie & Fitch is extremely bullish and the stock could rise further going forward.
Pacific Sunwear revenue went from $225 million to $235 million and like for like sales of negative 1% to plus 3%. The market is expecting the company loss per share from continuing operations to be lower than its previously announced forecast range of $(0.09) to $(0.17). The stock is currently trading at $2.28 which is 83% of its 52-week high. There is a potential upside of 17% to the stock before it finds resistance.
The U.S. retail outlook is showing signs of considerable improvement, stocks such as Abercrombie and Fitch, Gap and Pacific Sunwear of California have a potential for a positive payout. The industry may recover slowly in the U.S.; however contribution from the international markets will drive U.S. apparel industry in the future. Revenue contribution from emerging markets such as Brazil, Russia and China going forward will give investors robust payouts. The investments in the international markets could take some time to realize; hence investors with a long-term horizon may find the apparel stocks lucrative moving forward.
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