NEW YORK (TheStreet) -- What do you do with an old piece of clothing when it's gone out of style? Some might save it in the back of the closet for a time when it's fashionable again; others might sell it and reinvest the proceeds in something newer and better. 

When it comes to apparel stocks, the latter approach is recommended -- especially for these five companies that have seen better days. As you do your spring cleaning, consider clearing these brands out of your portfolio.

These five apparel stocks are rated Sell, D+ or worse by TheStreet Ratings.

TheStreet Ratings, TheStreet's proprietary ratings tool, projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings.

Buying an S&P 500 stock that TheStreet Ratings rated a "buy" yielded a 16.56% return in 2014 beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a "buy" yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.

Check out which apparel stocks made the sell list. And when you're done be sure to read about which luxury goods stocks you should buy right now. Year-to-date returns are based on March 30, 2015 closing prices.


1.Bebe Stores Inc. (BEBE)
Rating: Sell, D
Market Cap: $291 million
Year-to-date return: 67%

Bebe Stores, Inc., together with its subsidiaries, designs, develops, and produces a range of women's apparel and accessories under the bebe, BEBE SPORT, and bbsp brand names.

"We rate BEBE STORES INC (BEBE) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. Among the areas we feel are negative, one of the most important has been a generally disappointing historical performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • BEBE's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 40.95%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Specialty Retail industry and the overall market, BEBE STORES INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • 40.32% is the gross profit margin for BEBE STORES INC which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -0.29% trails the industry average.
  • Net operating cash flow has significantly increased by 152.60% to $15.12 million when compared to the same quarter last year. In addition, BEBE STORES INC has also vastly surpassed the industry average cash flow growth rate of 22.32%.
  • BEBE STORES INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, BEBE STORES INC continued to lose money by earning -$0.75 versus -$0.97 in the prior year. This year, the market expects an improvement in earnings (-$0.32 versus -$0.75).

 

 

 

2. Destination XL Group (DXLG - Get Report)
Rating: Sell, D
Market Cap: $244 million
Year-to-date return: -8.6%

Destination XL Group, Inc., together with its subsidiaries, operates as a specialty retailer of big and tall men's apparel in the United States, England, and Canada. It operates in two segments, Retail and Direct.

"We rate DESTINATION XL GROUP INC (DXLG) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. Among the areas we feel are negative, one of the most important has been a generally disappointing historical performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • DXLG has underperformed the S&P 500 Index, declining 8.89% from its price level of one year ago. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Specialty Retail industry and the overall market, DESTINATION XL GROUP INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • 47.90% is the gross profit margin for DESTINATION XL GROUP INC which we consider to be strong. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of 1.29% trails the industry average.
  • DESTINATION XL GROUP INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, DESTINATION XL GROUP INC continued to lose money by earning -$0.22 versus -$1.24 in the prior year. This year, the market expects an improvement in earnings (-$0.13 versus -$0.22).
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Specialty Retail industry. The net income increased by 102.8% when compared to the same quarter one year prior, rising from -$55.15 million to $1.55 million.

 

 

 

3. New York & Co Inc. (NWY)
Rating: Sell, D
Market Cap: $154 million
Year-to-date return: -7.2%

New York & Company, Inc., together with its subsidiaries, operates as a specialty retailer of women's fashion apparel and accessories in the United States.

"We rate NEW YORK & CO INC (NWY) a SELL. This is driven by several weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, poor profit margins, weak operating cash flow and generally disappointing historical performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Specialty Retail industry. The net income has significantly decreased by 196.8% when compared to the same quarter one year ago, falling from $6.94 million to -$6.72 million.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Specialty Retail industry and the overall market, NEW YORK & CO INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for NEW YORK & CO INC is currently lower than what is desirable, coming in at 28.00%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -2.51% trails that of the industry average.
  • Net operating cash flow has decreased to $20.27 million or 48.46% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 45.18%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 200.00% compared to the year-earlier quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.

 

 

4. Pacific Sunwear of California Inc. (PSUN)
Rating: Sell, D
Market Cap: $195 million
Year-to-date return: 29%

Pacific Sunwear of California, Inc., together with its subsidiaries, operates as a specialty retailer in the action sports, fashion, and music influences of the California lifestyle.

"We rate PACIFIC SUNWEAR CALIF INC (PSUN) a SELL. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its unimpressive growth in net income, poor profit margins and generally disappointing historical performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Specialty Retail industry. The net income has decreased by 15.3% when compared to the same quarter one year ago, dropping from -$22.54 million to -$25.99 million.
  • The gross profit margin for PACIFIC SUNWEAR CALIF INC is currently lower than what is desirable, coming in at 28.63%. Regardless of PSUN's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, PSUN's net profit margin of -11.22% significantly underperformed when compared to the industry average.
  • In its most recent trading session, PSUN has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • PACIFIC SUNWEAR CALIF INC's earnings per share declined by 18.8% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, PACIFIC SUNWEAR CALIF INC continued to lose money by earning -$0.44 versus -$0.70 in the prior year. This year, the market expects an improvement in earnings (-$0.20 versus -$0.44).
  • Net operating cash flow has increased to $15.01 million or 12.14% when compared to the same quarter last year. Despite an increase in cash flow, PACIFIC SUNWEAR CALIF INC's cash flow growth rate is still lower than the industry average growth rate of 22.32%.

 

 

5. Aeropostale (ARO)
Rating: Sell, D-
Market Cap: $264 million
Year-to-date return: 44%

Aeropostale, Inc., together with its subsidiaries, operates as a mall-based specialty retailer of casual apparel and accessories.

"We rate AEROPOSTALE INC (ARO) a SELL. This is driven by multiple weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its disappointing return on equity, generally disappointing historical performance in the stock itself and poor profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Specialty Retail industry and the overall market, AEROPOSTALE INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • ARO's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 36.48%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • The gross profit margin for AEROPOSTALE INC is rather low; currently it is at 22.65%. Regardless of ARO's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of -2.27% trails the industry average.
  • ARO, with its decline in revenue, underperformed when compared the industry average of 13.1%. Since the same quarter one year prior, revenues fell by 11.4%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
  • Even though the current debt-to-equity ratio is 1.48, it is still below the industry average, suggesting that this level of debt is acceptable within the Specialty Retail industry.