Hot Picks: Analyst sees value in apparel names as tariffs pressure valuations

Tariff pressures and shifting consumer trends are shaping opportunities in the apparel and consumer sectors, with some companies showing resilience through brand strength, pricing power and digital growth. An equity analyst says several names remain attractively valued despite recent volatility.

BNN Bloomberg spoke with Zachary Warring, equity research analyst at CFRA, who outlined where he sees upside across footwear, lifestyle retail and digital-supported consumer products, pointing to margin momentum and undervalued share prices.

Key Takeaways

• On Holding’s brand momentum and pricing power helped offset tariff impacts, supporting margin expansion.
• The stock is seen as undervalued, trading below its three-year average forward earnings multiple.
• Abercrombie & Fitch remains inexpensive even after a strong post-earnings rally.
• The retailer has managed to absorb much of the tariff impact while growing revenue through digital marketing.
• Hasbro’s expanding digital gaming segment is driving higher-margin growth and insulating the business from tariffs.

Read the full transcript below:

ANDREW: Time for Hot Picks. Two of our names are in apparel. Zachary Warring of CFRA is our guest. Zachary, thank you very much indeed for joining us. Your first idea is called On, and they make footwear. On Holding is the publicly traded listing. What has caught your attention here?

ZACHARY: Yeah, you know, we really like On. They’re a fast-growing footwear company, and they’re also moving into apparel. We think the move into apparel will help growth over the next three to five years. But their footwear business is one of the hottest brands in the world right now, and we think shares are undervalued. You know, they’ve fallen because of the tariff talk. They do most of their business in the U.S. right now. They do have a Europe business and an Asian business, but the largest part of their business is in the U.S., so they’ve been impacted pretty significantly from tariffs and the tariff talk in the U.S.

However, in their last quarter, they actually saw gross margins increase pretty significantly too. So it kind of just shows their pricing power. And we really like the name. We think shares trade around 25 times forward earnings, and that’s well below their three-year average. We think this is an opportunity.

ANDREW: And what is distinctive about their clothing?

ZACHARY: So their footwear — it’s a newer brand. They’re just doing a really good job in innovation. But I think in general, they’re just a really hot brand. People love the product that they’re putting out. They look very clean and aesthetically pleasing. So we think they’re in the same ballpark as Nike in terms of innovation. They’re doing a really good job there. But we just think shares are really undervalued here.

ANDREW: What about Abercrombie & Fitch? They have been in vogue lately.

ZACHARY: Yeah. So, you know, Abercrombie obviously had a really big pop after earnings. Shares were up 40 per cent that day. That’s continued over the next couple of trading days as well. And we still think there’s plenty of value in shares. Shares trade under 10 times forward earnings still. This is well below their three-year average.

Once again, this is another company that’s been significantly impacted from the tariff talk. I think investors are really sitting and waiting to see what the actual impact of these tariffs is going to be over a full-year period, and you’re just starting to get some of the impacts. So they are seeing an impact, but they’ve been able to offset a pretty good portion of the tariff impact. And I think from a value standpoint, they trade under 10 times. I think their three-year average is around 15 as well. So there’s significant value, I think, emerging in these shares.

ANDREW: And then finally, Hasbro. They do sell clothing linked to their toys, but it’s not a big part of their business. What is attracting you to Hasbro these days?

ZACHARY: Yeah. So the reason we really like Hasbro is their digital business. So obviously, most people know Hasbro from their consumer products division — they sell a lot of toys. They’re a toy manufacturer. But over the last three to five years, they’ve grown their digital business significantly, and it carries a much higher operating margin — 40 per cent-plus operating margin.

So as that business has grown and become a bigger portion of total revenues, you’ve really seen their operating margins improve. And it makes them a little bit more insulated from some of the tariff talk and some of these tariffs that the new administration has put in. So, you know, valuation is fair here. I think they trade about 16 times forward earnings, which is above their three-year average. But before 2019, the company traded above 20 times forward earnings. So we think there’s an opportunity here as investors catch on to the margin story.

ANDREW: I’m sorry, where — what is their big source of profits, though, these days? Where would most of their earnings come from?

ZACHARY: It’s digital. So their digital business is driving most of their profits right now, especially as their consumer products division, or their toy division, has faltered. And you’ve seen a big decline in their consumer products division over the last three years, since COVID. The COVID highs — as you came out of COVID, they did really well, but since then you’ve seen a big decline.

And we think as you turn the corner of the tariffs here in the next year, in the second half of next year, you’re going to start to see not only margins improve for their consumer products division and aid the digital products division, we think revenues will also turn around.

ANDREW: Thanks very much indeed. Zachary, always great having you join us.

ZACHARY: Thanks for having me.

ANDREW: Zachary Warring of CFRA.

---

This BNN Bloomberg summary and transcript of the Dec. 1, 2025 interview with Zachary Warring are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.