Retail is tough to crack; no segment is more so than mall-based retailers. Many, if not most, are tied to fashion trends and spending habits, and malls have not been a bastion of consumer strength for years. Despite this, there are growing signs within the group that times are changing for the better, and that has their respective markets set up for gains. 

Abercrombie & Fitch Blaze the Trail Foreward 

Abercrombie & Fitch (NYSE: ANF) is an iconic brand with a long history in the consumer apparel industry. The company’s stock price leads the group after a significant turnaround effort and the results it drives. The company’s results have outperformed consensus for 3 consecutive quarters in calendar 2023, and the estimates for Q3 and the year are rising.

Highlights of the Q2 report include YOY growth, outperformance, and increased guidance to a range above the consensus. The critical takeaway is that business has stabilized above the 2019 levels with growth in the picture and better than expected. 

The many positive drivers of the results and the outlook include wider margins. Margin widened at the gross and operating levels aided by efficiency, cost reductions, and inventory management. Inventory will be a factor for all retailers going into the holiday season. Abercrombie & Fitch inventory is down 30% YOY, which aided the bottom line and puts it in a solid position ahead. ANF stock does not currently pay a dividend but may reinstate distributions soon. 

Shares of the stock have more than doubled this year and appear set to continue higher. 

The Gap Inc. has Bottomed, Reversal in Sight 

The Gap Inc. (NYSE: GPS) is not in quite the same position as Abercrombie & Fitch, but it has bottomed, and there is a reversal in sight. Q3 results could drive the reversal despite the weak guidance. The analysts have lowered their revenue and earnings targets and set the bar low. Regardless, the company expects margin expansion to continue this year, which was the highlight of the Q2 release.

Margin expanded at the gross and operating levels to deliver outperformance on the bottom line. More importantly, the company’s cash flow and FCF are sufficient to continue paying substantial dividends. The $56 million paid out in Q2 amounts to 5% in annualized yield, and there is some expectation for distribution growth.

American Eagle is Flying Higher After Break Out 

American Eagle Outfitters(NYSE: AEO) share prices have already confirmed a reversal after breaking out to new highs. The market is being led higher by results and analysts, which began boosting price targets ahead of the Q2 release. This is a case of analysis lowering their earnings and revenue targets to a level easy to beat, combined with evidence of strong performance elsewhere in the group.

A solid report could drive the market higher, and the next target for solid resistance is about 20% above the current action. It should be noted that institutions have been buying the stock and helped put the bottom in the market. 

Ulta is 1 Beautiful Stock 

Ulta Beauty's (NYSE: ULTA) Q2 results did not inspire a rally but inspired confidence in the company’s ability to navigate the current environment. Takeaways from the report are that growth is expected to continue, but margins may come under pressure. That led the analyst to lower some of their targets and pressured the stock to an attractive entry point, not the point of impending doom.

Analysts continue to rate the Moderate Buy because the company is taking market share from blue-chip beauty brands and benefits from consumer shifts toward everyday essentials like beauty and health. They see this stock trading about 30% higher, a target that has been relatively steady over the last 3 months and consistent with all-time high levels. 

Foot Locker Needs Airing Out 

Foot Locker (NYSE: FL) is a solid company and a traditional mall anchor, but 1 that is hurting from the shift away from discretionary and its suppliers lean into DTC. That lean includes digital channels such as 1 Nike developed over the last few years. That channel is helping Nike to drive results, and it is sapping sales and margin for Foot Locker, as it is for other shoe manufacturers.

Highlights from its report include a guidance cut and dividend suspension that will weigh on share prices for the foreseeable future. Shares of Foot Locker are trading at a 20-year low and may trend lower.