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5 Textile - Apparel Stocks to Buy on Robust Industry Trends

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Players in the Zacks Textile – Apparel industry have been benefiting from growing e-commerce sales as the pandemic-induced social distancing has boosted online shopping to a great extent. Apart from this, focus on enhancing brands through marketing strategies and innovation has been aiding players in this space.

However, soft store traffic due to continued virus fears and resurgence of cases in some countries has been a concern. Nevertheless, concerted efforts to bolster digital operations have been working in favor of Ralph Lauren Corporation (RL - Free Report) , Under Armour, Inc. (UAA - Free Report) , Columbia Sportswear Company (COLM - Free Report) , Crocs, Inc. (CROX - Free Report) and G-III Apparel Group, Ltd. (GIII - Free Report) , to name a few.

About the Industry

The Zacks Textile – Apparel industry includes companies and lifestyle brands, which produce, design, distribute and market basic and fashion apparel, footwear and accessories. The industry also comprises providers of athleticwear and related equipment and fitness accessories. Most of the textile apparel players operate through stores and digital networks in the United States and overseas.

4 Trends Shaping the Future of the Textile - Apparel Industry

Robust Digital Trends: Consumers’ inclination toward online shopping has accelerated amid the pandemic, which has put e-commerce at the forefront for players in the textile-apparel industry. In fact, even as stores reopen, companies continue to witness strong digital trends, which demonstrate that the shift to online shopping is here to stay. Notably, companies like V.F. Corporation (VFC - Free Report) , PVH Corp. (PVH - Free Report) and Hanesbrands Inc. (HBI - Free Report) have been benefiting from their strong digital endeavors to make the most of the surge in online demand. Incidentally, companies in the space have been investing in improving e-commerce sites, upgrading mobile apps, enhancing payment systems, linking online and store operations, and increasing fulfillment capabilities. Companies are also investing in renovation and improved checkouts as well as mobile point-of-sale capabilities to make stores attractive. Such concerted efforts to enhance shoppers’ experience via multiple channels are likely to help improve traffic and transactions, both in stores and online.

Focus on Enhancing Brands: Efforts to enhance brands via marketing strategies, licensing deals, buyouts, innovation and alliances are likely to keep supporting players in the space. Also, focus on keeping pace with changing consumer preferences is a major driver. In this regard, rising inclination toward health and fitness and elevated exercise at-home trends amid the pandemic should work in favor of sporting equipment and activewear providers like lululemon athletica inc. (LULU - Free Report) . Also, many companies offer fitness gadgets and adopt other tracking platforms to make the most of consumers’ evolving tastes.

Coronavirus-Related Concerns: While stores have reopened with pandemic-related curbs being lifted and brick-and-mortar traffic is seeing gradual revival, traffic has been below pre-pandemic levels as fears related to the virus are keeping a number of people indoors. In fact, some companies had to implement to another round of temporary store closures, especially in Europe, due to the resurgence of coronavirus cases. Certainly, these factors have been weighing on revenues of several textile-apparel players. That being said, several companies are likely to witness favorable year-over-year revenue comparisons in the coming quarters as the pandemic-led initial store closures caused a blow to revenues of most industry players in major part of 2020.

Margin Expansion Endeavors: A number of players in the textile-apparel space are witnessing margin expansion, thanks to reduced promotional activity, efforts to curtail SG&A costs as well as favorable product mix. Also, some companies are focused on restructuring and optimizing store activities, which again bodes well for margins. These actions especially bode well in the face of increased investments associated with digital transactions as well as other costs related to operations amid the pandemic.

Zacks Industry Rank Indicates Solid Prospects

The Zacks Textile – Apparel industry is housed within the broader Zacks Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #44, which places it in the top 17% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

The industry’s position in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually becoming more confident about this group’s earnings growth potential. Since the beginning of October 2020, the industry’s consensus earnings estimate for the current financial year has increased 17.2%.

Let’s look at the industry’s performance and current valuation.

Industry Versus Broader Market

The Zacks Textile – Apparel industry has outperformed the broader Zacks Consumer Discretionary sector as well as the S&P 500 composite over the past year.

The industry has soared a whopping 106.7% over this period compared with the S&P 500 and the broader sector’s increase of 54.6% and 50.9%, respectively.

One-Year Price Performance

Industry’s Current Valuation

On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing consumer discretionary stocks, the industry is currently trading at 24.11X compared with the S&P 500’s 22.26X and the sector’s 31.37X.

Over the last five years, the industry has traded as high as 29.28X, as low as 13.28X, and at the median of 18.13X, as the chart below shows.

Price-to-Earnings Ratio (Past 5 Years)


5 Textile - Apparel Stocks to Keep a Close Eye on

Ralph Lauren: The designer, marketer and distributor of lifestyle products in North America, Europe and Asia has been gaining on solid efforts to expand digital and omni-channel capabilities through investments in mobile, omni-channel and fulfillment. The company’s omni-channel services, including digital clienteling, Buy Online Ship from Store, curbside pickup, contactless delivery and mobile checkout options, bode well. Apart from this, Ralph Lauren is poised to continue gaining from its “Next Great Chapter” strategic plan. The Zacks Consensus Estimate for this Zacks Rank #1 (Strong Buy) company’s current financial-year earnings per share (EPS) has risen by 2 cents in the past 30 days. The New York-based company, with a long-term earnings growth rate of 8.1%, has seen its shares soar 72.7% in the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.

Price and Consensus: RL

Columbia Sportswear: The designer, marketer and distributor, and licenser of outdoor, active, and everyday lifestyle apparel, footwear, accessories, and equipment has been benefitting from its solid direct-to-consumer (DTC) e-commerce business. In the first quarter of 2021, the company’s DTC e-commerce sales surged 35% and formed 20% of the company’s total sales mix. Certainly, DTC e-commerce is seeing robust momentum with more consumers opting to shop online. To this end, Columbia Sportswear is on track with its Experience First initiative, which is aimed at enhancing e-commerce operations to keep pace with the evolving consumer environment. Encouragingly, management’s guidance for 2021 includes continued growth in DTC e-commerce as well as growth revival in DTC brick-and-mortar sales. The Zacks Consensus Estimate for Columbia Sportswear’s current financial-year EPS has jumped 5.1% to $4.29 in the past 30 days. Notably, the Zacks Rank #1 stock has moved up 34.9% in the past six months. The company has long-term earnings growth rate of 32%.

Price and Consensus: COLM

Crocs: The company has been making significant progress in expanding digital and omni-channel capabilities. Notably, Crocs witnessed a strong online show amid the coronavirus pandemic, which aided the top line in first-quarter 2021, which also marked the company’s 16th successive quarter of double-digit e-commerce growth. Notably, Crocs has been benefiting from its brand strength even amid a pandemic-led tough retail environment. Further, this designer, manufacturer, developer, distributor and marketer of casual lifestyle footwear and accessories has an estimated long-term earnings growth rate of 15%. Encouragingly, this Zacks Rank #1 company has seen its shares rise as much as 83.1% in the past six months. Moreover, Crocs’ bottom line has beaten the consensus mark by a wide margin, on average, in the trailing four quarters. The Zacks Consensus Estimate for this Niwot, CO-based company’s current financial-year EPS has jumped 46% in the past 30 days.

Price and Consensus: CROX

Under Armour: The Zacks Rank #2 (Buy) company is moving well with its multi-year transformation plan. The company is focused on strengthening its brand through enhanced customer connections, effective innovation and strict go-to-market process. Apart from this, the company’s increased focus on digitization amid the pandemic-led rise in online shopping bodes well. We believe that efforts to build brand image, strengthen supply chain, manage inventory and contain costs should benefit Under Armour. The Zacks Consensus Estimate for the current financial-year bottom line has surged 63.2% in the past 30 days. Shares of the company have gained 54.7% in the past six months. Encouragingly, Under Armour has an estimated long-term earnings growth rate of 32.2%.

Price and Consensus: UAA

GIII Apparel: The company’s shares have surged a whopping 92.6% in the past six months. This designer and marketer of men’s and women’s apparel has been focused on bolstering brands across channels through new launches, improved marketing strategies and broader consumer reach. It also plans to make efficient utilization of digital and social media platforms. The company is progressing well with optimization of sourcing strategies. Additionally, G-III Apparel’s strategy to expand product portfolio and make itself a diversified apparel and accessories company through acquisitions and licensing of well-known brands is noteworthy. The Zacks Consensus Estimate for this Zacks Rank #2 company’s current financial-year EPS has remained unchanged over the past 30 days. The New York-based company’s bottom line has surpassed the Zacks Consensus Estimate by 49.7%, on average, in the trailing four quarters. Impressively, GIII Apparel has an estimated long-term earnings growth rate of 11.6%.

Price and Consensus: GIII

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