The Zacks Retail - Apparel And Shoes industry comprises companies that offer apparel, activewear, footwear, accessories, electronics as well as fitness and lifestyle products under various brand names in the domestic and international markets. These companies showcase products through their own outlets and websites. However, some companies distribute products via other specialty retail outlets, department stores, franchise stores and catalogs.
Let’s take a look at the industry’s three major themes:
- The industry’s prospects are closely tied with the purchasing power of consumers, who look way more confident now. A buoyant consumer environment, courtesy of a solid labor market and rise in disposable income, forms the perfect base for higher spending. This is quite evident from the 1.6% increase in March retail sales. While apparel is the core segment of the industry, increasing popularity of fitness activities is driving the need for suitable footwear.
- Industry participants are playing dual in-store and online roles with evolving consumers’ shopping pattern. Apart from upgrading digitally, companies are coming up with unique products and better bargains to attract customers. Initiatives such as building omni-channel, coming up with loyalty and marketing programs, enhancing supply chain and providing faster delivery options are also worth a mention. These efforts should boost revenues of the players in the industry.
- 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. The space has turned highly competitive since Amazon (AMZN - Free Report) started dominating all possible business arenas and altering the way consumers shop. A significant number of players have been making heavy investments to strengthen their digital ecosystem and accelerating shipping and delivery capabilities. While these endeavors could boost sales, they entail high costs. Apart from these, higher marketing, advertising and other store-related expenses might also compress margins. Nevertheless, companies are trying all means to contain costs.
Zacks Industry Rank Indicates Solid Prospects
The Zacks Retail - Apparel And Shoes industry is a 54-stock group within the broader Zacks Retail – Wholesale sector. The industry currently carries a Zacks Industry Rank #79, which places it in the top 31% 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.
We will present a few stocks that have the potential to outperform the market based on a strong earnings outlook. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Versus Broader Market
The Zacks Retail - Apparel And Shoes industry has underperformed both the broader Retail – Wholesale Sector and the Zacks S&P 500 composite over the past year.
While the stocks in this industry have collectively lost 14.8%, the Zacks S&P 500 Composite and Zacks Retail – Wholesale Sector have gained 8% and 8.2%, 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 retail stocks, the industry is currently trading at 14.57X compared with the S&P 500’s 17.20X and the sector’s 24.50X.
Over the last five years, the industry has traded as high as 19.35X, as low as 11.78X and at the median of 15.47X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
Players in the industry are riding on the wave of favorable consumer environment and strategic endeavors. Efforts such as increased digital penetration, store openings, merchandising improvement and international expansion bode well for the industry. Participants in the industry are making all possible efforts to enhance brand offerings through store refurbishment and bringing in a more compelling assortment. These factors are likely to help stocks in the industry generate higher revenues. However, rise in SG&A expenses and stiff competition remain deterrents.
That said, we are presenting four stocks from the Retail - Apparel And Shoes industry which sport a Zacks Rank #1 (Strong Buy) or 2 (Buy) and are well positioned to capitalize on the opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
Boot Barn Holdings, Inc. (BOOT - Free Report) : Shares of this lifestyle retailer of western and work-related footwear, apparel and accessories have gained roughly 74% so far in the year. The Zacks Consensus Estimate for the company’s current fiscal EPS has remained stable in the past 60 days. The company has an estimated long-term earnings growth rate of 20.7%. This Zacks Rank #1 company delivered average positive earnings surprise of 14.6% for the last four quarters.
Price and Consensus: BOOT
The Children's Place, Inc. (PLCE - Free Report) : This Zacks Rank #1 stock has advanced approximately 21% in the past three months The Zacks Consensus Estimate for the company’s current fiscal EPS has risen 3.9% in the past 30 days. This children's specialty apparel retailer has an estimated long-term earnings growth rate of 8%.
Price and Consensus: PLCE
Canada Goose Holdings Inc. (GOOS - Free Report) : Shares of this designer, manufacturer and seller of premium outdoor apparel have gained 38% in a year. The Zacks Consensus Estimate for the company’s current fiscal EPS has increased 2.1% in the past 60 days. The company has an estimated long-term earnings growth rate of 31.3%. This Zacks Rank #2 company delivered average positive earnings surprise of 82.7% in the trailing four quarters.
Price and Consensus: GOOS
Stitch Fix, Inc. (SFIX - Free Report) : Shares of this seller of a range of apparel, shoes, and accessories have increased about 55% so far in the year. The Zacks Consensus Estimate for the company’s current fiscal EPS has increased 37.5% in the past 60 days. The company has an estimated long-term earnings growth rate of 22.5%. This Zacks Rank #2 company has outperformed the Zacks Consensus Estimate by a wide margin in the trailing four quarters.
Price and Consensus: SFIX