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5 Textile - Apparel Stocks to Buy on Splendid Industry Patterns

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Players in the Zacks Textile – Apparel industry have been benefiting from strong e-commerce operations, given customers’ growing online inclination. That said, companies are seeing a revival in brick-and-mortar operations, with things opening up and curbs being lifted.

High SG&A expenses, especially due to increased freight costs, is a concern for many players. Nonetheless, efforts to boost store and digital operations together with robust brand enhancement endeavors keep PVH Corp. (PVH - Free Report) , Ralph Lauren Corporation (RL - Free Report) , Columbia Sportswear Company (COLM - Free Report) , Hanesbrands Inc. (HBI - Free Report)   and Under Armour, Inc. (UAA - Free Report) well positioned for gains.

About the Industry

The Zacks Textile – Apparel industry includes companies and lifestyle brands, which manufacture, design, distribute, source, market and sell apparel, footwear and accessories for men and women. These include fashion apparel like dresses; pants; skirts; shorts; shirts; jackets; blouses and knitwear, as well as intimate apparel like underwear and shapewear. The industry also comprises companies offering apparel for healthy lifestyle and athletic activities, such as yoga, running, and training, to name a few. Some of these companies also deal in fitness-related accessories like gloves, bags, headwear and sports masks. The industry participants operate through direct-to-consumer (brick-and-mortar and online), wholesale, and licensing distribution channels. Most players operate through stores and digital networks in the United States as well as internationally.

3 Trends Shaping the Future of the Textile - Apparel Industry

Reviving Store Traffic, Robust Digital Trends: Textile-apparel players are benefiting from reviving traffic at brick-and-mortar stores. With stores reopening and pandemic-related restrictions being eased, a number of companies are witnessing a rebound in store traffic. This in turn is boosting year-over-year revenue comparisons of several companies, whose sales were affected by temporary store closures in the year-ago period. That said, companies continue to witness solid digital trends even with the stores reopening. Consumers’ growing inclination toward online shopping has put e-commerce at the forefront for players in the textile-apparel industry. 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. Buy online, pickup in store and curbside delivery options have been aiding digital sales of a number of industry players. V.F. Corporation (VFC - Free Report) , lululemon athletica inc. LULU and Guess?, Inc. GES are some of the companies which have been benefiting from strong digital endeavors.

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 have been working in favor of sporting equipment and activewear providers. Also, many companies offer fitness gadgets and adopt other tracking platforms to make the most of consumers’ evolving tastes.

Escalated Cost Concerns: Companies are encountering escalated SG&A costs due to several factors, especially higher freight costs. A number of companies in the textile-apparel space are encountering supply-chain disruptions stemming from pandemic-led factory closures, congestion at ports and reduced airfreight capacity.  The ongoing issues at ports and reduced airfreight capacity have not only led to delays but also resulted in increased freight costs. We note that a number of companies projected increased freight and logistic costs for the near term in their last quarterly release. Additionally, elevated marketing expenses and increased investments toward enhancing store and digital operations have been pushing up SG&A costs. Apart from this, a tough and competitive labor market is leading to higher wage costs for some players. These factors pose threats to companies’ margins.

Zacks Industry Rank Indicates Robust Prospects

The Zacks Textile – Apparel industry is housed within the broader Zacks Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #12, which places it in the top 5% 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 strong 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 March 2021, the industry’s consensus earnings estimate for the current financial year has surged 45.7%.

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 rallied 38.3% over this period compared with the S&P 500 and the broader sector’s increase of 36.2% and 13.8%, 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 19.16X compared with the S&P 500’s 21.4X and the sector’s 25.32X.

Over the last five years, the industry has traded as high as 29.19X, as low as 13.28X, and at the median of 18.14X, as the chart below shows.

Price-to-Earnings Ratio (Past 5 Years)

5 Textile - Apparel Stocks to Keep a Close Eye on

PVH Corp.: The Zacks Rank #1 (Strong Buy) stock has rallied 55.9% in a year’s time. The company has been witnessing impressive performance in the digital platform, with customers shifting to online purchases. PVH has been on track with the expansion of direct-to-consumer digital business and strengthening its network with third-party digital partners.  The company is well placed for growth on the back of strength in many of its brands (especially Tommy Hilfiger) as well as opportunities with regard to distribution. The Zacks Consensus Estimate for the company’s current financial-year earnings per share (EPS) has jumped 29.8% in the past 30 days. This designer, marketer and retailer of men's, women's, and children's apparel and accessories has long-term earnings growth rate of 38.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Price and Consensus: PVH

Ralph Lauren: The designer, marketer and distributor of lifestyle products has been benefiting from its efforts to strengthen digital and omni-channel capabilities through investments in mobile, omni-channel and fulfillment. The company’s digital investments are focused on creation of content for all platforms, enhancing digital capabilities to improve user experience and leveraging Artificial Intelligence and data to serve its consumers more efficiently. Apart from this, Ralph Lauren’s “Next Great Chapter” strategic plan bodes well. The Zacks Consensus Estimate for this Zacks Rank #1 company’s current financial-year EPS has risen 18.8% in the past 60 days. The New York-based company, with a long-term earnings growth rate of 15%, has seen its shares surge 43.2% in the past year.

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. The DTC brick & mortar is also reviving with things opening up and people stepping out. That said, DTC e-commerce is likely to continue seeing robust momentum as even with stores reopening, a number of consumers prefer to shop online.  All in all, Columbia Sportswear is well positioned to gain from the existing consumer and outdoor patterns. The Zacks Consensus Estimate for Columbia Sportswear’s current financial-year EPS has climbed 6.2% in the past 60 days. Notably, the Zacks Rank #1 stock has moved up 12.8% in the past year and has long-term earnings growth rate of 33.5%.

Price and Consensus: COLM


Hanesbrands: The company’s shares have risen 25.6% in the past year. The company, which is engaged in designing, manufacturing, sourcing and selling a range of basic apparel, is progressing well with its Full Potential plan. The plan is designed on four pillars, namely, growing the global Champion brand, re-igniting innerwear growth, driving consumer-centricity and focusing on the portfolio. Driving e-commerce excellence is also a core part of the company’s Full Potential plan.  Hanesbrands has been committed toward creating e-commerce excellence across all online channels.  The Zacks Consensus Estimate for the company’s current financial-year EPS has moved up 7.6% over the past 60 days. This Zacks Rank #1 company has an estimated long-term earnings growth rate of 8.5%.

Price and Consensus: HBI


 

Under Armour: The Zacks Rank #2 (Buy) company is progressing 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. Under Armour’s efforts to boost its direct-to-consumer (DTC) business through store expansion initiatives and enhancement of its e-commerce platform bode well. The Zacks Consensus Estimate for the current financial-year EPS has risen 69.7% in the past 60 days. Shares of the company have soared 79.3% in the past year. Encouragingly, Under Armour has an estimated long-term earnings growth rate of 26.4%.

Price and Consensus: UAA