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Product cost inflation, tight labor market and supply-chain bottlenecks are some of the headwinds that players in the Zacks Retail - Apparel And Shoes industry have been encountering lately. These, along with geopolitical turbulence, thanks to the conflict between Russia and Ukraine, have dampened consumers' spirits.
That said, industry participants have been directing resources toward digital platforms, accelerating fleet optimization and augmenting the supply chain. Retailers have been focusing on superior product strategy, advancement of omni-channel capabilities and prudent capital investments. Backed by these initiatives, companies like Capri Holdings Ltd., Boot Barn Holdings, Inc., Designer Brands Inc. and Chico's FAS, Inc. are set to cash in on the opportunities.
About the Industry
The Zacks Retail - Apparel And Shoes industry comprises companies that offer apparel, footwear, accessories, intimates and beauty products, as well as fitness and lifestyle products for use in yoga, training and sports under various brands in domestic and international markets. Quite a few players offer bag collections, including business cases, computer bags and backpacks; leather goods, such as wallets, card cases, travel organizers, and belts; and watches, sunglasses, fragrances and ready-to-wear as well as cold-weather accessories.
Markedly, companies showcase products to customers directly through their branded retail stores, mobile applications, catalogs and websites. Some industry participants also provide products via department stores, specialty retailers, third-party e-commerce sites, and franchisees who operate brand-dedicated stores.
4 Key Trends to Watch in the Retail - Apparel And Shoes Industry
Pressure on Margins to Linger: The industry is quite fragmented, with companies vying for a bigger slice of the pie on attributes such as price, products and speed-to-market. In a bid to address these, a significant number of players in the industry have been investing in strengthening their digital ecosystem and delivery capabilities. While these endeavors bolster sales, they entail high costs.
Apart from these, higher marketing, advertising and other store-related expenses might compress margins. Of late, the industry participants have been dealing with product cost inflation, tight labor market and supply-chain headwinds. Nonetheless, companies have been focusing on undertaking initiatives to mitigate cost-related challenges. These include streamlining operational structures, optimizing supply networks as well as adopting effective pricing policies.
Consumer Confidence Slackens on Soaring Inflation: Escalating prices and the war between Russia and Ukraine continue to pose a threat to consumer spending activity and confidence. Per Conference Board data, the Consumer Confidence Index nudged down to 98.7 in June from May's downwardly revised reading of 103.2.
Undoubtedly, the industry's prospects are correlated with the purchasing power of consumers. But higher gasoline and food prices have been squeezing disposable income. The consumer price index rose 1% month on month in May, following an increase of 0.3% in April. On a year-over-year basis, the metric rose 8.6% — the fastest pace since December 1981.
Brand Enhancement, Capital Discipline: Industry participants have been focusing on deepening engagements with consumers, creating innovative and compelling products, and enhancing digital and data analytics capabilities. The launch of newer styles, customization options and refreshed store environments enable them to woo shoppers.
Efforts to enhance brand portfolio via marketing strategies, buyouts, innovations and alliances are likely to keep supporting players in the space. The companies have been taking steps to strengthen their financial position. In fact, they have been making every move, from managing inventory and closing underperforming stores to optimizing capital expenditures and enhancing operational efficiency.
Diversification & Digitization Key to Growth: With the change in consumer shopping patterns and behavior amid the pandemic, industry participants have been playing dual in-store and online roles. Initiatives such as building omni-channel, coming up with loyalty and marketing programs, enhancing supply chain and providing faster delivery options, be it doorstep delivery, curbside pickup or buy online and pick up at store, are worth mentioning.
Simultaneously, companies are investing in renovation, improved checkouts and mobile point-of-sale capabilities to keep stores relevant. Keeping in mind consumers' product preferences and growing inclination toward online shopping, companies have been replenishing shelves with in-demand merchandise and ramping up investments in digitization.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Retail - Apparel And Shoes industry is a group within the broader Zacks Retail – Wholesale sector. The industry currently carries a Zacks Industry Rank #176, which places it in the bottom 30% of more than 250 Zacks industries.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates drab near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry's positioning in the bottom 50% of the Zacks-ranked industries is a result of the negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group's earnings growth potential. Since the beginning of April 2022, the industry's earnings estimate has declined 16%.
Before we present a few stocks that you may want to consider for your portfolio, let's take a look at the industry's recent stock-market performance and valuation picture.
Industry Versus Broader Market
The Zacks Retail - Apparel And Shoes industry has underperformed the broader Zacks Retail – Wholesale sector and the Zacks S&P 500 composite over the past year.
The industry has fallen 60.3% over this period compared with the S&P 500's decline of 11.2%. Meanwhile, the broader sector has slumped 30.3%.
Industry's Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing retail stocks, the industry is currently trading at 9.53X compared with the S&P 500's 16.74X and the sector's 21.24X.
Over the last five years, the industry has traded as high as 118.93X and as low as 8.81X, with the median being at 14.9X.
4 Stocks Worth Considering
Boot Barn Holdings: This lifestyle retailer of western and work-related footwear, apparel and accessories has been successfully navigating through the challenging environment, courtesy of merchandising strategies, omni-channel capabilities and better expense management as well as marketing. This, combined with the expansion of the store base, has helped Boot Barn Holdings gain market share and strengthen its position in the industry.
Impressively, Boot Barn Holdings has an estimated long-term earnings growth rate of 20%. The Zacks Consensus Estimate for its current-fiscal earnings per share (EPS) has been stable over the past 30 days. We note that shares of this Zacks Rank #1 (Strong Buy) company have decreased 20.1% in the past year. You can see the complete list of today's Zacks #1 Rank stocks here.
Chico's FAS: This Florida-based fashion retailer's efforts to become a "digital-first, customer-led" company coupled with a strong portfolio of three unique brands, namely, Chico's, WHBM and Soma, position it well to expand its customer base and market share. Product enhancement, planned inventories, operating discipline and marketing strategies have been helping to drive full-price selling, lower markdowns and produce higher gross margin.
Chico's has a trailing four-quarter earnings surprise of 330.6%, on average. Meanwhile, the Zacks Consensus Estimate for its current-fiscal EPS has been stable over the past 30 days. Markedly, shares of this Zacks Rank #1 company have fallen 27.5% in the past year.
Designer Brands: Designer Brands' flexible business model, best-in-class omnichannel capabilities and Owned Brands portfolio have been the key drivers of growth. The company's efforts to expand sourcing and supply chain capabilities have been leading to speed to market with new designs and faster delivery times.
This designer, producer and retailer of footwear and accessories has a trailing four-quarter earnings surprise of 102.5%, on average. The Zacks Consensus Estimate for Designer Brands' current-fiscal EPS has been stable over the past 30 days. Shares of this Zacks Rank #1 company have declined 19.7% in the past year.
Capri Holdings: This designer, marketer, distributor and retailer of branded apparel and accessories has been reinforcing its position in the luxury fashion space and looks to maximize the potential of Versace, Jimmy Choo and Michael Kors brands through expanded products and categories. It has been deploying resources for a while to expand product offerings, upgrade the distribution infrastructure, create seamless omni-channel capabilities and deepen its engagement with customers.
Capri Holdings has a trailing four-quarter earnings surprise of 49.3%, on average. This Zacks Rank #2 (Buy) company has an estimated long-term earnings growth rate of 11.3%. Shares of the company have fallen 22.5% in the past year.
Why Haven't You Looked at Zacks' Top Stocks?
Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared +40.3%, +48.2%, +67.6%, +94.4%, and +95.3%. Today you can access their live picks without cost or obligation.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights Capri Holdings, Boot Barn Holdings, Designer Brands, and Chico's FAS
For Immediate Release
Chicago, IL – July 12, 2022 – Today, Zacks Equity Research discusses Capri Holdings Ltd. (CPRI - Free Report) , Boot Barn Holdings, Inc. (BOOT - Free Report) , Designer Brands Inc. (DBI - Free Report) and Chico's FAS, Inc. .
Industry: Retail - Apparel & Shoes
Link: https://www.zacks.com/commentary/1950519/4-retail-apparel-shoes-stocks-braving-industry-wide-challenges
Product cost inflation, tight labor market and supply-chain bottlenecks are some of the headwinds that players in the Zacks Retail - Apparel And Shoes industry have been encountering lately. These, along with geopolitical turbulence, thanks to the conflict between Russia and Ukraine, have dampened consumers' spirits.
That said, industry participants have been directing resources toward digital platforms, accelerating fleet optimization and augmenting the supply chain. Retailers have been focusing on superior product strategy, advancement of omni-channel capabilities and prudent capital investments. Backed by these initiatives, companies like Capri Holdings Ltd., Boot Barn Holdings, Inc., Designer Brands Inc. and Chico's FAS, Inc. are set to cash in on the opportunities.
About the Industry
The Zacks Retail - Apparel And Shoes industry comprises companies that offer apparel, footwear, accessories, intimates and beauty products, as well as fitness and lifestyle products for use in yoga, training and sports under various brands in domestic and international markets. Quite a few players offer bag collections, including business cases, computer bags and backpacks; leather goods, such as wallets, card cases, travel organizers, and belts; and watches, sunglasses, fragrances and ready-to-wear as well as cold-weather accessories.
Markedly, companies showcase products to customers directly through their branded retail stores, mobile applications, catalogs and websites. Some industry participants also provide products via department stores, specialty retailers, third-party e-commerce sites, and franchisees who operate brand-dedicated stores.
4 Key Trends to Watch in the Retail - Apparel And Shoes Industry
Pressure on Margins to Linger: The industry is quite fragmented, with companies vying for a bigger slice of the pie on attributes such as price, products and speed-to-market. In a bid to address these, a significant number of players in the industry have been investing in strengthening their digital ecosystem and delivery capabilities. While these endeavors bolster sales, they entail high costs.
Apart from these, higher marketing, advertising and other store-related expenses might compress margins. Of late, the industry participants have been dealing with product cost inflation, tight labor market and supply-chain headwinds. Nonetheless, companies have been focusing on undertaking initiatives to mitigate cost-related challenges. These include streamlining operational structures, optimizing supply networks as well as adopting effective pricing policies.
Consumer Confidence Slackens on Soaring Inflation: Escalating prices and the war between Russia and Ukraine continue to pose a threat to consumer spending activity and confidence. Per Conference Board data, the Consumer Confidence Index nudged down to 98.7 in June from May's downwardly revised reading of 103.2.
Undoubtedly, the industry's prospects are correlated with the purchasing power of consumers. But higher gasoline and food prices have been squeezing disposable income. The consumer price index rose 1% month on month in May, following an increase of 0.3% in April. On a year-over-year basis, the metric rose 8.6% — the fastest pace since December 1981.
Brand Enhancement, Capital Discipline: Industry participants have been focusing on deepening engagements with consumers, creating innovative and compelling products, and enhancing digital and data analytics capabilities. The launch of newer styles, customization options and refreshed store environments enable them to woo shoppers.
Efforts to enhance brand portfolio via marketing strategies, buyouts, innovations and alliances are likely to keep supporting players in the space. The companies have been taking steps to strengthen their financial position. In fact, they have been making every move, from managing inventory and closing underperforming stores to optimizing capital expenditures and enhancing operational efficiency.
Diversification & Digitization Key to Growth: With the change in consumer shopping patterns and behavior amid the pandemic, industry participants have been playing dual in-store and online roles. Initiatives such as building omni-channel, coming up with loyalty and marketing programs, enhancing supply chain and providing faster delivery options, be it doorstep delivery, curbside pickup or buy online and pick up at store, are worth mentioning.
Simultaneously, companies are investing in renovation, improved checkouts and mobile point-of-sale capabilities to keep stores relevant. Keeping in mind consumers' product preferences and growing inclination toward online shopping, companies have been replenishing shelves with in-demand merchandise and ramping up investments in digitization.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Retail - Apparel And Shoes industry is a group within the broader Zacks Retail – Wholesale sector. The industry currently carries a Zacks Industry Rank #176, which places it in the bottom 30% of more than 250 Zacks industries.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates drab near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry's positioning in the bottom 50% of the Zacks-ranked industries is a result of the negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group's earnings growth potential. Since the beginning of April 2022, the industry's earnings estimate has declined 16%.
Before we present a few stocks that you may want to consider for your portfolio, let's take a look at the industry's recent stock-market performance and valuation picture.
Industry Versus Broader Market
The Zacks Retail - Apparel And Shoes industry has underperformed the broader Zacks Retail – Wholesale sector and the Zacks S&P 500 composite over the past year.
The industry has fallen 60.3% over this period compared with the S&P 500's decline of 11.2%. Meanwhile, the broader sector has slumped 30.3%.
Industry's Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing retail stocks, the industry is currently trading at 9.53X compared with the S&P 500's 16.74X and the sector's 21.24X.
Over the last five years, the industry has traded as high as 118.93X and as low as 8.81X, with the median being at 14.9X.
4 Stocks Worth Considering
Boot Barn Holdings: This lifestyle retailer of western and work-related footwear, apparel and accessories has been successfully navigating through the challenging environment, courtesy of merchandising strategies, omni-channel capabilities and better expense management as well as marketing. This, combined with the expansion of the store base, has helped Boot Barn Holdings gain market share and strengthen its position in the industry.
Impressively, Boot Barn Holdings has an estimated long-term earnings growth rate of 20%. The Zacks Consensus Estimate for its current-fiscal earnings per share (EPS) has been stable over the past 30 days. We note that shares of this Zacks Rank #1 (Strong Buy) company have decreased 20.1% in the past year. You can see the complete list of today's Zacks #1 Rank stocks here.
Chico's FAS: This Florida-based fashion retailer's efforts to become a "digital-first, customer-led" company coupled with a strong portfolio of three unique brands, namely, Chico's, WHBM and Soma, position it well to expand its customer base and market share. Product enhancement, planned inventories, operating discipline and marketing strategies have been helping to drive full-price selling, lower markdowns and produce higher gross margin.
Chico's has a trailing four-quarter earnings surprise of 330.6%, on average. Meanwhile, the Zacks Consensus Estimate for its current-fiscal EPS has been stable over the past 30 days. Markedly, shares of this Zacks Rank #1 company have fallen 27.5% in the past year.
Designer Brands: Designer Brands' flexible business model, best-in-class omnichannel capabilities and Owned Brands portfolio have been the key drivers of growth. The company's efforts to expand sourcing and supply chain capabilities have been leading to speed to market with new designs and faster delivery times.
This designer, producer and retailer of footwear and accessories has a trailing four-quarter earnings surprise of 102.5%, on average. The Zacks Consensus Estimate for Designer Brands' current-fiscal EPS has been stable over the past 30 days. Shares of this Zacks Rank #1 company have declined 19.7% in the past year.
Capri Holdings: This designer, marketer, distributor and retailer of branded apparel and accessories has been reinforcing its position in the luxury fashion space and looks to maximize the potential of Versace, Jimmy Choo and Michael Kors brands through expanded products and categories. It has been deploying resources for a while to expand product offerings, upgrade the distribution infrastructure, create seamless omni-channel capabilities and deepen its engagement with customers.
Capri Holdings has a trailing four-quarter earnings surprise of 49.3%, on average. This Zacks Rank #2 (Buy) company has an estimated long-term earnings growth rate of 11.3%. Shares of the company have fallen 22.5% in the past year.
Why Haven't You Looked at Zacks' Top Stocks?
Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared +40.3%, +48.2%, +67.6%, +94.4%, and +95.3%. Today you can access their live picks without cost or obligation.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.