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5 Retail-Apparel & Shoes Stocks to Buy on Splendid Industry Trends
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As Americans look to refresh their wardrobes — thanks to the resumption of social lifestyle, events and occasions — the Retail - Apparel And Shoes industry has been witnessing a resurgence in demand. Sales at clothing & clothing accessories stores have been increasing as more people venture out. Indeed, the pandemic-relief package and stepped-up vaccinations played a major role in boosting consumer confidence.
Meanwhile, companies 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. Levi Strauss & Co. (LEVI - Free Report) , Boot Barn Holdings, Inc. (BOOT - Free Report) , Genesco Inc. (GCO - Free Report) , Chico's FAS, Inc. and Tilly's, Inc. (TLYS - Free Report) 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. Again, some industry participants 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
Consumers’ Willingness to Spend: 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 allow them to woo shoppers. Per the Commerce Department, sales at clothing & clothing accessories stores grew 22.4% year over year during September 2021. This followed an increase of 38.5% in August from the prior-year period. Per Mastercard SpendingPulse, apparel sales are projected to increase 45.9% during the holiday season compared with the prior year.
Focus on Capital Discipline, Enhancing Brands: The industry players have been making strides to strengthen their financial position and improve profitability. In fact, they have been taking every step, from managing inventory and closing underperforming stores to optimizing capital expenditures and enhancing operational efficiency. In fact, companies’ sustained focus on cost containment, inventory management and speed-to-market initiatives have kept them afloat in a tough retail landscape. Efforts to enhance brands via marketing strategies, buyouts, innovations and alliances are likely to keep supporting players in the space.
Diversification & Digitization Key to Growth: With the change in consumer shopping pattern and behavior amid the pandemic, industry participants have been playing dual in-store and online roles. Apart from upgrading digitally, companies are coming up with unique products and better deals. Some of the companies are even trying their hand at subscription or rental services for their offerings. 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, companies such as The Gap, Inc. (GPS - Free Report) and Tapestry, Inc. (TPR - Free Report) have been replenishing shelves with in-demand merchandise and ramping up investments in digitization.
Focus on Margins: 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. Addressing these, a significant number of players in the industry have been making investments to strengthen their digital ecosystem and delivery capabilities. While these endeavors boost sales, they entail high costs. Apart from these, higher marketing, advertising and other store-related expenses might compress margins. Meanwhile, the impact of additional employee payments and benefits along with investments undertaken to preserve the safety and health of customers and team members amid the coronavirus crisis cannot be ruled out. Also, the industry is currently dealing with supply-chain bottlenecks, labor challenges and rising freight charges. That said, sustained cost-containment measures are needed for managing margins.
Zacks Industry Rank Indicates Solid 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 #89, which places it in the top 35% 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 encouraging 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 gaining confidence in this group’s earnings growth potential. Since the beginning of 2021, the industry’s bottom-line estimate for the current financial year has jumped almost 45.7%. Notably, earnings estimates for the next financial year have moved up 19.9% during the aforementioned period.
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 outperformed both the broader Zacks Retail – Wholesale sector and the Zacks S&P 500 composite over the past year.
While the stocks in this industry have collectively gained 45%, the Zacks S&P 500 composite has risen 42.6%. Meanwhile, the Zacks Retail – Wholesale sector has fallen 1.5%.
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 retail stocks, the industry is currently trading at 15.21X compared with the S&P 500’s 21.7X and the sector’s 27.53X.
Over the last five years, the industry has traded as high as 115.63X and as low as 8.57X, with the median being at 14.83X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
5 Apparel & Shoes Stocks to Keep a Close Eye On
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 the company gain market share and strengthen its position in the industry. For fiscal 2022, management anticipates new unit growth of 10% and exclusive brand penetration growth of 350 basis points. Impressively, the company has a trailing four-quarter earnings surprise of 35.3%, on average. Also, the Zacks Consensus Estimate for its current-fiscal EPS has moved up 23.6% in the past seven days. We also note that shares of this Zacks Rank #1 company have gained 141% so far this year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: BOOT
Genesco: This Nashville-based specialty retailer of footwear and accessories is poised to benefit from digital and omnichannel potential, robust full-priced selling, merchandise offerings and cost management. A healthy balance sheet allows the company to make strategic investments, while also returning capital to shareholders. Remarkably, the company’s bottom line has outperformed the Zacks Consensus Estimate in the last four quarters by a wide margin. Meanwhile, the Zacks Consensus Estimate for its current-fiscal EPS has been stable over the past 30 days. Shares of this Zacks Rank #1 company have soared 101.3% year to date.
Price and Consensus: GCO
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 increase customer base and gain market share. Product enhancement, planned inventories, operating discipline and marketing strategies help drive full-price selling, lower markdowns and produce higher gross margin. Management anticipates net sales growth of 32-35% for fiscal 2021. Markedly, shares of this Zacks Rank #1 company have advanced 243.4% year to date. The company has a trailing four-quarter earnings surprise of 70.5%, on average. Meanwhile, the Zacks Consensus Estimate for its current-fiscal EPS has been stable over the past 30 days.
Price and Consensus: CHS
Tilly's: As a part of its strategy to improve customer convenience and efficiency, Tilly's has been focusing on upgrading the mobile app, reinvesting in distribution efficiencies to expand capacity, and enhancing omni-channel capabilities, including in-store pickup, curbside pickup, same-day delivery and ship from store. Notably, the bottom line of this specialty retailer of casual apparel, footwear, accessories has outperformed the Zacks Consensus Estimate in the last four quarters by a wide margin. Meanwhile, the Zacks Consensus Estimate for its current-fiscal EPS has been stable over the past 30 days. Shares of this Zacks Rank #1 company have surged 80.8% year to date.
Price and Consensus: TLYS
Levi Strauss: Levi Strauss is witnessing broad-based strength across its business as it continues to recover from the impacts of the pandemic. The company has been elevating brands, investing in digital tools and capabilities, and pacing efforts to diversify across geographies, product categories and distribution channels. This designer, marketer and seller of jeans, casual wear and related accessories has a trailing four-quarter earnings surprise of 66.6%, on average. Also, the Zacks Consensus Estimate for its current-fiscal EPS has moved up 7.5% in the past 30 days. Shares of this Zacks Rank #2 company have advanced 31.7% so far in the year.
Price and Consensus: LEVI
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5 Retail-Apparel & Shoes Stocks to Buy on Splendid Industry Trends
As Americans look to refresh their wardrobes — thanks to the resumption of social lifestyle, events and occasions — the Retail - Apparel And Shoes industry has been witnessing a resurgence in demand. Sales at clothing & clothing accessories stores have been increasing as more people venture out. Indeed, the pandemic-relief package and stepped-up vaccinations played a major role in boosting consumer confidence.
Meanwhile, companies 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. Levi Strauss & Co. (LEVI - Free Report) , Boot Barn Holdings, Inc. (BOOT - Free Report) , Genesco Inc. (GCO - Free Report) , Chico's FAS, Inc. and Tilly's, Inc. (TLYS - Free Report) 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. Again, some industry participants 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
Consumers’ Willingness to Spend: 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 allow them to woo shoppers. Per the Commerce Department, sales at clothing & clothing accessories stores grew 22.4% year over year during September 2021. This followed an increase of 38.5% in August from the prior-year period. Per Mastercard SpendingPulse, apparel sales are projected to increase 45.9% during the holiday season compared with the prior year.
Focus on Capital Discipline, Enhancing Brands: The industry players have been making strides to strengthen their financial position and improve profitability. In fact, they have been taking every step, from managing inventory and closing underperforming stores to optimizing capital expenditures and enhancing operational efficiency. In fact, companies’ sustained focus on cost containment, inventory management and speed-to-market initiatives have kept them afloat in a tough retail landscape. Efforts to enhance brands via marketing strategies, buyouts, innovations and alliances are likely to keep supporting players in the space.
Diversification & Digitization Key to Growth: With the change in consumer shopping pattern and behavior amid the pandemic, industry participants have been playing dual in-store and online roles. Apart from upgrading digitally, companies are coming up with unique products and better deals. Some of the companies are even trying their hand at subscription or rental services for their offerings. 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, companies such as The Gap, Inc. (GPS - Free Report) and Tapestry, Inc. (TPR - Free Report) have been replenishing shelves with in-demand merchandise and ramping up investments in digitization.
Focus on Margins: 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. Addressing these, a significant number of players in the industry have been making investments to strengthen their digital ecosystem and delivery capabilities. While these endeavors boost sales, they entail high costs. Apart from these, higher marketing, advertising and other store-related expenses might compress margins. Meanwhile, the impact of additional employee payments and benefits along with investments undertaken to preserve the safety and health of customers and team members amid the coronavirus crisis cannot be ruled out. Also, the industry is currently dealing with supply-chain bottlenecks, labor challenges and rising freight charges. That said, sustained cost-containment measures are needed for managing margins.
Zacks Industry Rank Indicates Solid 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 #89, which places it in the top 35% 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 encouraging 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 gaining confidence in this group’s earnings growth potential. Since the beginning of 2021, the industry’s bottom-line estimate for the current financial year has jumped almost 45.7%. Notably, earnings estimates for the next financial year have moved up 19.9% during the aforementioned period.
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 outperformed both the broader Zacks Retail – Wholesale sector and the Zacks S&P 500 composite over the past year.
While the stocks in this industry have collectively gained 45%, the Zacks S&P 500 composite has risen 42.6%. Meanwhile, the Zacks Retail – Wholesale sector has fallen 1.5%.
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 retail stocks, the industry is currently trading at 15.21X compared with the S&P 500’s 21.7X and the sector’s 27.53X.
Over the last five years, the industry has traded as high as 115.63X and as low as 8.57X, with the median being at 14.83X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
5 Apparel & Shoes Stocks to Keep a Close Eye On
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 the company gain market share and strengthen its position in the industry. For fiscal 2022, management anticipates new unit growth of 10% and exclusive brand penetration growth of 350 basis points. Impressively, the company has a trailing four-quarter earnings surprise of 35.3%, on average. Also, the Zacks Consensus Estimate for its current-fiscal EPS has moved up 23.6% in the past seven days. We also note that shares of this Zacks Rank #1 company have gained 141% so far this year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: BOOT
Genesco: This Nashville-based specialty retailer of footwear and accessories is poised to benefit from digital and omnichannel potential, robust full-priced selling, merchandise offerings and cost management. A healthy balance sheet allows the company to make strategic investments, while also returning capital to shareholders. Remarkably, the company’s bottom line has outperformed the Zacks Consensus Estimate in the last four quarters by a wide margin. Meanwhile, the Zacks Consensus Estimate for its current-fiscal EPS has been stable over the past 30 days. Shares of this Zacks Rank #1 company have soared 101.3% year to date.
Price and Consensus: GCO
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 increase customer base and gain market share. Product enhancement, planned inventories, operating discipline and marketing strategies help drive full-price selling, lower markdowns and produce higher gross margin. Management anticipates net sales growth of 32-35% for fiscal 2021. Markedly, shares of this Zacks Rank #1 company have advanced 243.4% year to date. The company has a trailing four-quarter earnings surprise of 70.5%, on average. Meanwhile, the Zacks Consensus Estimate for its current-fiscal EPS has been stable over the past 30 days.
Price and Consensus: CHS
Tilly's: As a part of its strategy to improve customer convenience and efficiency, Tilly's has been focusing on upgrading the mobile app, reinvesting in distribution efficiencies to expand capacity, and enhancing omni-channel capabilities, including in-store pickup, curbside pickup, same-day delivery and ship from store. Notably, the bottom line of this specialty retailer of casual apparel, footwear, accessories has outperformed the Zacks Consensus Estimate in the last four quarters by a wide margin. Meanwhile, the Zacks Consensus Estimate for its current-fiscal EPS has been stable over the past 30 days. Shares of this Zacks Rank #1 company have surged 80.8% year to date.
Price and Consensus: TLYS
Levi Strauss: Levi Strauss is witnessing broad-based strength across its business as it continues to recover from the impacts of the pandemic. The company has been elevating brands, investing in digital tools and capabilities, and pacing efforts to diversify across geographies, product categories and distribution channels. This designer, marketer and seller of jeans, casual wear and related accessories has a trailing four-quarter earnings surprise of 66.6%, on average. Also, the Zacks Consensus Estimate for its current-fiscal EPS has moved up 7.5% in the past 30 days. Shares of this Zacks Rank #2 company have advanced 31.7% so far in the year.
Price and Consensus: LEVI