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5 Stocks to Play the Momentum in the Shoes & Retail Apparel Industry
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Companies in the Zacks Shoes and Retail Apparel industry have been benefiting from the changing lifestyle trends and the adoption of at-home fitness. This has boosted the demand for virtual fitness apps, wearable technology, workout footwear, activewear, workout equipment and more. Industry players’ focus on innovative activewear, footwear and engaging fitness apps is expected to boost revenues. Investments in the expansion of digital and supply-chain capabilities are anticipated to benefit the players due to consumers’ growing preference for online shopping.
The industry participants have been steadfastly investing in product innovations based on customer feedback and requirements. Investments in the product portfolio and e-commerce portals bode well for players like NIKE Inc. (NKE - Free Report) , Deckers Outdoor Corporation (DECK - Free Report) , Skechers U.S.A., Inc. (SKX - Free Report) , Carter’s Inc. (CRI - Free Report) and Wolverine World Wide, Inc. (WWW - Free Report) .
About the Industry
The Zacks Shoes and Retail Apparel industry comprises companies that design, source and market clothing, footwear and accessories for men, women and children under various brand names. The product offerings of the companies mostly include athletic and casual footwear, fashion apparel and activewear, sports equipment, bags, balls, and other sports and fashion accessories. The companies showcase their products through their branded outlets and websites. However, some companies also distribute products via other retail stores such as national chains, online retailers, sporting goods stores, department stores, mass merchandisers, independent retailers and catalogs.
Here's What Shapes Shoes and Retail Apparel Industry's Future
Home-Fitness Trend Catches Up: The pandemic has brought about several changes in lifestyles, including the adoption of fitness regimes to stay healthy. As lockdowns kept everyone indoors for most of 2020 and 2021, people have been increasingly opting for at-home fitness options, which has led to overwhelmed subscriptions for at-home fitness packs across most fitness apps. As the restrictions are being lifted and consumers are eager to step outdoors to hit the gyms, experts believe that the trend for at-home fitness is not likely to fade. In 2021, people are likely to be more inclined toward mindful exercises like yoga and meditation, as uncertainties regarding the pandemic remain and work-from-home continues. Backed by the trends, there is likely to be a strong demand for virtual fitness apps, wearable technology, workout footwear, activewear, workout equipment and more. Consumers are adding a variety of activewear to their wardrobes more than ever. At the same time, fitness enthusiasts, who have been unable to hit the gyms, are opting for fitness equipment to set up home-gyms. Companies selling footwear and fitness gear are reinventing their products to suit the at-home fitness needs of consumers.
E-Commerce Investments Take Center Stage: E-commerce has been playing a great role in making up for sales lost at stores from the onset of the pandemic. Most industry participants are aggressively bolstering their digital and e-commerce capacities through investments in differentiated retail concepts, mobile apps, dotcom and digital partners to stay put in a fiercely competitive environment. Efforts to speed up deliveries through investments in supply chain and order fulfillment avenues are likely to provide an edge in the market. Even as stores reopen, the companies continue to witness strong digital trends, which demonstrate that the shift to online shopping is here to stay. Simultaneously, companies are investing in renovations and improved checkouts as well as mobile point-of-sale capabilities to make stores attractive. The efforts to enhance the guest experience through multiple channels are likely to contribute significantly to improve traffic and transactions both in stores and online.
Industry Trends Tied to Consumer Spending: The prospects of the customer-focused industry are correlated with the purchasing power of consumers. We note that consumer spending activity, which is one of the pivotal factors driving the economy, increased considerably as markets started to reopen. Consumer spending in the United States increased 0.3% in July 2021, after 1.1% growth in June 2021. In second-quarter 2021, consumer spending rose 11.8%, according to the estimate for second-quarter gross domestic product (GDP). Consumer spending benefited from the pent-up consumer demand and willingness to spend on discretionary items. Consumer trends have been positive lately mostly due to the increased vaccination rates, stimulus payments, a favorable view on economic recovery and the reopening of the economy.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Shoes and Retail Apparel Industry is a 16-stock group within the broader Zacks Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #25, which places it in the top 10% 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 continued outperformance in the near term. 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 positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence in this group’s earnings growth potential. In the past year, the industry’s earnings estimates for the current year have been increased 19.4%.
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 the valuation picture.
Industry Outperforms Sector and S&P 500
The Zacks Shoes and Retail Apparel industry has outperformed both the S&P 500 and its sector over the past year.
While stocks in the industry have collectively rallied 49.1%, the Zacks S&P 500 composite and the Zacks Consumer Discretionary sector have risen 33.7% and 16.2%, respectively.
One-Year Price Performance
Shoes and Retail Apparel Industry's 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 32.98X compared with the S&P 500’s 21.8X and the sector’s 26.79X.
Over the last five years, the industry has traded as high as 36.76X, as low as 18.79X and at the median of 24.87X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
5 Shoes & Retail Apparel Stocks to Bank on
Skechers: The leading manufacturer and seller of footwear for men, women and children in the United States and overseas has been gaining from the continued demand for comfort products as well as the momentum in the direct-to-consumer business. The company remains committed to directing resources to enhance its digital capabilities, which include augmenting website features, mobile applications and loyalty programs. Management believes that investments made to integrate store and digital ecosystems for developing a seamless omni-channel experience will drive greater sales.
The company’s investments in long-term growth strategies, including brands and infrastructural capabilities, have also been yielding. Management is optimistic regarding the strength of its brands and the relevance of their products in the forthcoming periods. Shares of the Manhattan Beach, CA-based company have surged 67.2% in the past year. The company has reported an earnings beat of 34.5%, on average, in the trailing four quarters. Its consensus estimate for 2021 EPS has been unchanged in the past 30 days. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: SKX
NIKE: The return of sports activity, the reopening of stores, wholesale business strength and digital growth, owing to permanent shifts toward digital and health & wellness, continue to offer incredible opportunities for the athletic apparel and footwear giant. Strong customer connections through compelling brand experiences across NIKE Jordan and Converse, product innovation, and expanding digital advantage have been tailwinds. The company is benefiting from its efficient digital ecosystem, which comprises its online site as well as commercial and activity apps. Its apps have been witnessing improved customer engagement due to increased health and fitness consciousness, and rising exercise-at-home trends. With consumers becoming increasingly digitally focused, NIKE expects revenues in fiscal 2022 and beyond to benefit from robust digital growth. It expects revenue growth in fiscal 2025 to be led by NIKE Direct, which is anticipated to represent 60% of revenues on strong digital growth.
As part of the Consumer Direct Acceleration, the company’s immediate priorities include improving personalization, and creating a consistent end-to-end technology platform. It believes that digital acceleration reflects a strategic shift toward a future marketplace rather than being a temporary solution to the coronavirus-led challenges in the physical markets. The Zacks Consensus Estimate for its fiscal 2022 earnings has been unchanged in the past 30 days. It has reported an earnings surprise of 56%, on average, in the trailing four quarters. The Zacks Rank #2 (Buy) stock has gained 45.6% in the past year.
Price and Consensus: NKE
Deckers: The stock of this Goleta, CA-based sportswear company has risen 106.3% in the past year. The company’s focus on the acceleration of omni-channel capabilities, international expansion, new product categories, and customer-centric product and marketing strategies has been contributing to its upbeat performance. Greater acceptance of the UGG brand's diverse product line along with the progress in Europe and the Asia Pacific has been working in its favor. The HOKA ONE ONE brand continues to build a customer base through a combination of disruptive product innovation and a disciplined marketing approach. The company is striving toward creating a direct-to-consumer business that will represent 50% of total revenues.
Deckers has been constantly developing its e-commerce portal to capture incremental sales. It is focused on opening smaller-concept omni-channel outlets and expanding programs such as Retail Inventory Online; Infinite UGG; Buy Online, Return In Store; and Click and Collect to enhance customers’ shopping experiences. The actions are likely to boost the company’s profitability and shareholder returns, and enhance brand and store performance. Deckers has reported a substantial earnings beat, on average, in the trailing four quarters. The consensus estimate for the Zacks Rank #2 company’s fiscal 2022 EPS has been unchanged in the past 30 days.
Price and Consensus: DECK
Carter’s: The stock of this Atlanta, GA-based marketer of branded apparel and related products for babies and children in North America has been benefiting from a robust product portfolio, better promotions, productivity and enhanced pricing. Improved demand for its products, particularly in stores, driven by store reopenings, the acceleration of the vaccine program and relaxing of the pandemic-induced restrictions have been tailwinds. Carter’s is seeking opportunities to strengthen its e-commerce capabilities through investments.
Management expanded its omnichannel facilities to include curbside pickup, same-day pickup, buy online and pick up at store and ship from store. Easy access to a broad array of online products when shopping in stores and easy access to its new credit card program acted as major growth drivers. Management anticipates e-commerce penetration to rise to 42% by 2024. The consensus estimate for its 2021 EPS has been unchanged in the past 30 days. The company has reported an earnings surprise of 191.7%, on average, in the trailing four quarters. Shares of the Zacks Rank #2 company rallied 23.6% in the past year.
Price and Consensus: CRI
Wolverine: This Rockford, MI-based company designs, manufactures and distributes a wide variety of casual and active apparel and footwear. Wolverine has been progressing well on its growth strategies, including a focus on brand empowerment, e-commerce enhancement and international expansion. Among the company’s sales channels, e-commerce has been the fastest growing and the key growth driver. It has been utilizing its digital capabilities to enhance the speed of information and product flow. Wolverine’s major brands, namely Merrell and Saucony, are also performing quite well.
The company focuses on developing brands that suit consumer needs aptly on the back of advanced technologies and accurate market insights. It emphasizes launches across different brand banners and brings forward a robust pipeline of products. As part of its long-term business growth strategies, the company is striving to develop an efficient sourcing structure and diversify the global business. It has reported an earnings beat of 23.1%, on average, in the trailing four quarters. Shares of the Zacks Rank #2 company have advanced 41.5% in the past year. The consensus estimate for its 2021 EPS has been unchanged in the past 30 days.
Price and Consensus: WWW
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5 Stocks to Play the Momentum in the Shoes & Retail Apparel Industry
Companies in the Zacks Shoes and Retail Apparel industry have been benefiting from the changing lifestyle trends and the adoption of at-home fitness. This has boosted the demand for virtual fitness apps, wearable technology, workout footwear, activewear, workout equipment and more. Industry players’ focus on innovative activewear, footwear and engaging fitness apps is expected to boost revenues. Investments in the expansion of digital and supply-chain capabilities are anticipated to benefit the players due to consumers’ growing preference for online shopping.
The industry participants have been steadfastly investing in product innovations based on customer feedback and requirements. Investments in the product portfolio and e-commerce portals bode well for players like NIKE Inc. (NKE - Free Report) , Deckers Outdoor Corporation (DECK - Free Report) , Skechers U.S.A., Inc. (SKX - Free Report) , Carter’s Inc. (CRI - Free Report) and Wolverine World Wide, Inc. (WWW - Free Report) .
About the Industry
The Zacks Shoes and Retail Apparel industry comprises companies that design, source and market clothing, footwear and accessories for men, women and children under various brand names. The product offerings of the companies mostly include athletic and casual footwear, fashion apparel and activewear, sports equipment, bags, balls, and other sports and fashion accessories. The companies showcase their products through their branded outlets and websites. However, some companies also distribute products via other retail stores such as national chains, online retailers, sporting goods stores, department stores, mass merchandisers, independent retailers and catalogs.
Here's What Shapes Shoes and Retail Apparel Industry's Future
Home-Fitness Trend Catches Up: The pandemic has brought about several changes in lifestyles, including the adoption of fitness regimes to stay healthy. As lockdowns kept everyone indoors for most of 2020 and 2021, people have been increasingly opting for at-home fitness options, which has led to overwhelmed subscriptions for at-home fitness packs across most fitness apps. As the restrictions are being lifted and consumers are eager to step outdoors to hit the gyms, experts believe that the trend for at-home fitness is not likely to fade. In 2021, people are likely to be more inclined toward mindful exercises like yoga and meditation, as uncertainties regarding the pandemic remain and work-from-home continues. Backed by the trends, there is likely to be a strong demand for virtual fitness apps, wearable technology, workout footwear, activewear, workout equipment and more. Consumers are adding a variety of activewear to their wardrobes more than ever. At the same time, fitness enthusiasts, who have been unable to hit the gyms, are opting for fitness equipment to set up home-gyms. Companies selling footwear and fitness gear are reinventing their products to suit the at-home fitness needs of consumers.
E-Commerce Investments Take Center Stage: E-commerce has been playing a great role in making up for sales lost at stores from the onset of the pandemic. Most industry participants are aggressively bolstering their digital and e-commerce capacities through investments in differentiated retail concepts, mobile apps, dotcom and digital partners to stay put in a fiercely competitive environment. Efforts to speed up deliveries through investments in supply chain and order fulfillment avenues are likely to provide an edge in the market. Even as stores reopen, the companies continue to witness strong digital trends, which demonstrate that the shift to online shopping is here to stay. Simultaneously, companies are investing in renovations and improved checkouts as well as mobile point-of-sale capabilities to make stores attractive. The efforts to enhance the guest experience through multiple channels are likely to contribute significantly to improve traffic and transactions both in stores and online.
Industry Trends Tied to Consumer Spending: The prospects of the customer-focused industry are correlated with the purchasing power of consumers. We note that consumer spending activity, which is one of the pivotal factors driving the economy, increased considerably as markets started to reopen. Consumer spending in the United States increased 0.3% in July 2021, after 1.1% growth in June 2021. In second-quarter 2021, consumer spending rose 11.8%, according to the estimate for second-quarter gross domestic product (GDP). Consumer spending benefited from the pent-up consumer demand and willingness to spend on discretionary items. Consumer trends have been positive lately mostly due to the increased vaccination rates, stimulus payments, a favorable view on economic recovery and the reopening of the economy.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Shoes and Retail Apparel Industry is a 16-stock group within the broader Zacks Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #25, which places it in the top 10% 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 continued outperformance in the near term. 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 positioning in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gaining confidence in this group’s earnings growth potential. In the past year, the industry’s earnings estimates for the current year have been increased 19.4%.
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 the valuation picture.
Industry Outperforms Sector and S&P 500
The Zacks Shoes and Retail Apparel industry has outperformed both the S&P 500 and its sector over the past year.
While stocks in the industry have collectively rallied 49.1%, the Zacks S&P 500 composite and the Zacks Consumer Discretionary sector have risen 33.7% and 16.2%, respectively.
One-Year Price Performance
Shoes and Retail Apparel Industry's 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 32.98X compared with the S&P 500’s 21.8X and the sector’s 26.79X.
Over the last five years, the industry has traded as high as 36.76X, as low as 18.79X and at the median of 24.87X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
5 Shoes & Retail Apparel Stocks to Bank on
Skechers: The leading manufacturer and seller of footwear for men, women and children in the United States and overseas has been gaining from the continued demand for comfort products as well as the momentum in the direct-to-consumer business. The company remains committed to directing resources to enhance its digital capabilities, which include augmenting website features, mobile applications and loyalty programs. Management believes that investments made to integrate store and digital ecosystems for developing a seamless omni-channel experience will drive greater sales.
The company’s investments in long-term growth strategies, including brands and infrastructural capabilities, have also been yielding. Management is optimistic regarding the strength of its brands and the relevance of their products in the forthcoming periods. Shares of the Manhattan Beach, CA-based company have surged 67.2% in the past year. The company has reported an earnings beat of 34.5%, on average, in the trailing four quarters. Its consensus estimate for 2021 EPS has been unchanged in the past 30 days. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: SKX
NIKE: The return of sports activity, the reopening of stores, wholesale business strength and digital growth, owing to permanent shifts toward digital and health & wellness, continue to offer incredible opportunities for the athletic apparel and footwear giant. Strong customer connections through compelling brand experiences across NIKE Jordan and Converse, product innovation, and expanding digital advantage have been tailwinds. The company is benefiting from its efficient digital ecosystem, which comprises its online site as well as commercial and activity apps. Its apps have been witnessing improved customer engagement due to increased health and fitness consciousness, and rising exercise-at-home trends. With consumers becoming increasingly digitally focused, NIKE expects revenues in fiscal 2022 and beyond to benefit from robust digital growth. It expects revenue growth in fiscal 2025 to be led by NIKE Direct, which is anticipated to represent 60% of revenues on strong digital growth.
As part of the Consumer Direct Acceleration, the company’s immediate priorities include improving personalization, and creating a consistent end-to-end technology platform. It believes that digital acceleration reflects a strategic shift toward a future marketplace rather than being a temporary solution to the coronavirus-led challenges in the physical markets. The Zacks Consensus Estimate for its fiscal 2022 earnings has been unchanged in the past 30 days. It has reported an earnings surprise of 56%, on average, in the trailing four quarters. The Zacks Rank #2 (Buy) stock has gained 45.6% in the past year.
Price and Consensus: NKE
Deckers: The stock of this Goleta, CA-based sportswear company has risen 106.3% in the past year. The company’s focus on the acceleration of omni-channel capabilities, international expansion, new product categories, and customer-centric product and marketing strategies has been contributing to its upbeat performance. Greater acceptance of the UGG brand's diverse product line along with the progress in Europe and the Asia Pacific has been working in its favor. The HOKA ONE ONE brand continues to build a customer base through a combination of disruptive product innovation and a disciplined marketing approach. The company is striving toward creating a direct-to-consumer business that will represent 50% of total revenues.
Deckers has been constantly developing its e-commerce portal to capture incremental sales. It is focused on opening smaller-concept omni-channel outlets and expanding programs such as Retail Inventory Online; Infinite UGG; Buy Online, Return In Store; and Click and Collect to enhance customers’ shopping experiences. The actions are likely to boost the company’s profitability and shareholder returns, and enhance brand and store performance. Deckers has reported a substantial earnings beat, on average, in the trailing four quarters. The consensus estimate for the Zacks Rank #2 company’s fiscal 2022 EPS has been unchanged in the past 30 days.
Price and Consensus: DECK
Carter’s: The stock of this Atlanta, GA-based marketer of branded apparel and related products for babies and children in North America has been benefiting from a robust product portfolio, better promotions, productivity and enhanced pricing. Improved demand for its products, particularly in stores, driven by store reopenings, the acceleration of the vaccine program and relaxing of the pandemic-induced restrictions have been tailwinds. Carter’s is seeking opportunities to strengthen its e-commerce capabilities through investments.
Management expanded its omnichannel facilities to include curbside pickup, same-day pickup, buy online and pick up at store and ship from store. Easy access to a broad array of online products when shopping in stores and easy access to its new credit card program acted as major growth drivers. Management anticipates e-commerce penetration to rise to 42% by 2024. The consensus estimate for its 2021 EPS has been unchanged in the past 30 days. The company has reported an earnings surprise of 191.7%, on average, in the trailing four quarters. Shares of the Zacks Rank #2 company rallied 23.6% in the past year.
Price and Consensus: CRI
Wolverine: This Rockford, MI-based company designs, manufactures and distributes a wide variety of casual and active apparel and footwear. Wolverine has been progressing well on its growth strategies, including a focus on brand empowerment, e-commerce enhancement and international expansion. Among the company’s sales channels, e-commerce has been the fastest growing and the key growth driver. It has been utilizing its digital capabilities to enhance the speed of information and product flow. Wolverine’s major brands, namely Merrell and Saucony, are also performing quite well.
The company focuses on developing brands that suit consumer needs aptly on the back of advanced technologies and accurate market insights. It emphasizes launches across different brand banners and brings forward a robust pipeline of products. As part of its long-term business growth strategies, the company is striving to develop an efficient sourcing structure and diversify the global business. It has reported an earnings beat of 23.1%, on average, in the trailing four quarters. Shares of the Zacks Rank #2 company have advanced 41.5% in the past year. The consensus estimate for its 2021 EPS has been unchanged in the past 30 days.
Price and Consensus: WWW