The Zacks Textile – Apparel industry comprises lifestyle brands, engaged in designing, manufacturing, marketing and distributing fashion and basic apparel, footwear and accessories in the United States and international markets. The industry also houses providers of athleticwear and related equipment and fitness accessories. Most of the textile apparel players operate via stores and digital networks.
Let’s take a look at the industry’s three major themes:
- Companies in the textile-apparel space will continue benefitting from their brand enhancement initiatives. To this end, impressive product mix, alliances and buyouts, licensing agreements, constant innovation and marketing initiatives are likely to help tap growth opportunities. Further, consumers’ rising inclination toward health and fitness clearly works in favor of activewear and sporting equipment providers. Notably, many companies in this space are making efforts to catch up with changing trends by selling fitness gadgets and adopting other tracking platforms.
- Accelerated investment in the digital realm is another factor driving growth for most textile-apparel companies. Enhanced payment systems, buy online and pick up at store facility, improved e-commerce sites and effective mobile apps are some of the efforts by the companies. While costs associated with such investments and stiff competition may keep margins under pressure in the near term, companies are working on cost containment. Incidentally, players are executing stringent measures actions such as streamlining operations, optimizing portfolio and closing down underperforming stores.
- Companies in the textile-apparel space are looking to take strides internationally. Better global reach provides them with a solid business foundation and enables them to seek opportunities, especially in underpenetrated markets like Asia and Europe. That being said, risks related to volatile currency fluctuations and potential tariff impacts are concerns.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Textile – Apparel Industry is housed within the broader Zacks Consumer Discretionary Sector. The industry currently carries a Zacks Industry Rank #31, which places it in the top 12% 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 solid 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 end of July, the industry’s consensus earnings estimate for the current year has increased by 3.5%.
Given the lucrative prospects, we will present a few stocks that have the potential to outperform the market. But before that, it’s worth taking a look at the industry’s shareholder returns and current valuation.
Industry Outpaces Sector and S&P 500
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 31.2% over this period comfortably outdoing the S&P 500’s rise of 7.6%. Meanwhile, the broader sector has gained 2.3%.
One-Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month Price-to-earnings (P/E) ratio, which is commonly used for valuing consumer discretionary stocks, the industry is currently trading at 16.67X compared with the S&P 500’s 16.61X and the sector’s 17.89X.
Over the last five years, the industry has traded as high as 25.88X, as low as 16.25X, and at the median of 21.98X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
Textile-apparel players are set to continue gaining from their solid brand management, rising international demand and constant efforts to boost store and digital businesses. Further, rigorous cost-cutting and restructuring efforts are likely to help battle margin woes stemming from rising operating costs and increased marketing investments.
That said, we are presenting three stocks from the Textile – Apparel universe, which sport a Zacks Rank #1 (Strong Buy) and are well positioned to capitalize on the opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
Columbia Sportswear Company (COLM - Free Report) : For this marketer and distributor of outdoor and active lifestyle apparel, footwear, accessories and equipment, the consensus EPS estimate for the current year has increased over the last 30 days. This Zacks Rank #1 stock has more than doubled over the past year. The company has an estimated long-term earnings growth rate of 10.8% and a robust average positive earnings surprise for the trailing four quarters.
Price and Consensus: COLM
lululemon athletica inc. (LULU - Free Report) : The consensus EPS estimate for this yoga-inspired athletic apparel company has gone up over the last seven days. Lululemon has grown significantly in a year and has an estimated long-term earnings growth rate of 19.2%. Also, the company has an average positive earnings surprise of 19.2% for the last four quarters.
Price and Consensus: LULU
Crocs, Inc. (CROX - Free Report) : The Zacks Consensus Estimate for this Colorado-based company’s current year EPS has remained stable in the past 30 days. The company has an estimated long-term earnings growth rate of 15%. Further, this Zacks Rank #1 stock has rallied considerably in a year’s time. It also has a significant positive earnings surprise for the trailing four quarters.
Price and Consensus: CROX
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