Smaller Clothing Retailers on the Move

 | Jan 06, 2012 | 3:00 PM EST  | Comments
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One of the most prominent market gainers in Thursday's session was Zumiez (ZUMZ), which bolted 17.5% on six times average volume after raising its quarterly sales and earnings view.

It's one of a few small- and mid-cap clothing retailers that are showing good chart action along with solid sales and earnings trends.

Zumiez had been a growth leader in the two years since its 2005 IPO, but it slumped with the general market beginning in 2007 and has had a tough time working its way back.

There have been some recent signs, though, that strength may be re-emerging at the company. January marks Zumiez's fourth month in a row of price gains. In October and November, when the Nasdaq Composite posted losses, Zumiez outperformed the pack.

Fundamentally, the company has also shown some promise in recent quarters. Earnings growth bolted 132% in 2011 over 2010. Analysts expect this year's income to come in at $1.16 per share, up 32% from last year.

The stock already posted a monster gain not too long ago, gapping up 24% on Dec. 2 as it boosted its sales outlook. Volume on that gain was nearly seven times greater than normal. The stock pulled back to its 50-day line earlier this week before vaulting higher on Thursday's news.

With Thursday's action, the stock cleared a bullish price consolidation. Since the general market action is also more positive, the stock could be a viable buy candidate at the moment.

Another small-cap apparel retailer with a good chart is Genesco (GCO). The stock is trading about 1.3% below its December all-time high of $64.

Most consumers don't recognize the Genesco corporate moniker, but some of its brands are familiar. The company operates stores including Johnston & Murphy, Lids and Journeys, all familiar sights in shopping malls across the nation. It also holds a license from Levi Strauss to market Dockers shoes for men.

Like Zumiez, Genesco is working on its fourth month of upside trade, although there's still plenty of January to go, of course.

Despite the bullish chart action, the stock could be ready for a breather, given how far it has run since early 2010. As it has rallied over the past two years, it has not retreated far enough to undercut prior lows.

Though it may seem counterintuitive that a sharp pullback could be constructive, that's often the case. That type of chart action often flushes out investors who lack conviction and makes room for value hunters to grab shares at a lower price. It's not uncommon for new 52-week lows to be followed by fresh buying sprees that lead to new highs in the ensuing months.

As for Genesco's fundamentals, the company has been putting its best foot forward. Earnings have been growing in the past two years, with those increases driven by strong sales, a more bullish indicator than earnings spurred by cost cuts.

While the stock is technically within buy range, I see some reason to use a bit of caution, given the two-year price run-up.

Another small-cap leader from the ranks of clothing retailers is Body Central (BODY), which operates more than 200 Body Central and Body Shop stores around the country.

The stock went public at $13 in October 2010. Shares were trading between $22 and $23 early in Friday's session, a gain of about 74% since its Nasdaq debut.

The company has already amassed a solid record of earnings and sales increases in recent quarters, and analysts have confidence in its ability to grow more. Wall Street sees earnings of $1.22 per share for 2011, a gain of 72% over 2010. The company is expected to report its fourth quarter in late March.

Body Central's chart also shows potential, but be aware: This is a very small company, and as such, it tends to show some big intraweek price swings. The company's market cap is just $364 million, and the stock trades 148,000 shares per day, which puts in on the thin side.

Some of these volatile small-caps can be challenging for investors to hold, so buyers should keep that in mind when they enter a position.

The stock began forming a steep correction in April, and it has been gradually climbing out of that formation since August. It's not yet near a buy point, but investors in small-cap growth stocks may want to keep tracking it to see what kind of volume accompanies an approach to its previous price high of $26.98.

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