The Zacks Textile – Apparel industry comprises companies and lifestyle brands which manufacture, design, distribute and market basic and fashion apparel, footwear and accessories. The industry also includes providers of athleticwear and related equipment and fitness accessories. Most of the textile apparel players operate through stores and digital networks in the United States and overseas.
Let’s take a look at the industry’s three major themes:
- Players in the space are poised to keep gaining from efforts to strengthen brands via marketing strategies, licensing deals, buyouts, innovation and alliances. Focus on keeping pace with changing consumer preferences is also a major driver. To this end, rising inclination toward health and fitness is working in favor of activewear and sporting equipment providers. Also, many companies offer fitness gadgets and adopt other tracking platforms to make the most of consumers’ evolving tastes.
- Textile-apparel companies should keep benefitting from digital endeavors like upgraded payment systems, online purchases and pick-up facility at stores, improved e-commerce sites and effective mobile apps. Although costs related to digital investments along with competition may hurt margins, diligent cost-containment efforts are expected to help. Evidently, players are streamlining operations, optimizing portfolios and closing down underperforming stores to cut down costs.
- Strong international presence is a major positive for many players in the textile-apparel universe. Extended global reach provides them with a sturdy business foundation and enables them to seek opportunities, especially in underpenetrated markets like Asia and Europe. However, this comes with risks associated with unfavorable currency movements and tariff impact.
Zacks Industry Rank Indicates Solid Prospects
The Zacks Textile – Apparel industry is housed within the broader Zacks Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #36, which places it in the top 14% 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 robust 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 May, the industry’s consensus earnings estimate for the current year has increased 2.3%.
Given the promising 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 Underperforms Sector and S&P 500
The Zacks Textile – Apparel industry has underperformed the broader Zacks Consumer Discretionary sector as well as the S&P 500 composite year to date.
The industry has rallied 15.1% over this period, compared with the S&P 500’s rise of 15.5%. Meanwhile, the broader sector has gained 17.8%.
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 18.56X compared with the S&P 500’s 16.88X and the sector’s 18.14X.
Over the last five years, the industry has traded as high as 23.16X, as low as 14.14X, and at the median of 18.56X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
Textile-apparel players are set to gain from their efficient brand management, solid store and digital efforts and extensive international reach. To top it, stringent cost-cutting and restructuring activities should help companies counter margin woes related to escalating operating costs and elevated marketing investments.
That said, we are presenting three stocks from the Textile – Apparel universe, out of which one sports a Zacks Rank #1 (Strong Buy) and two carry a Zacks Rank #2 (Buy). Notably, these stocks are well positioned to capitalize on the opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
Crocs, Inc. (CROX - Free Report) : The consensus earnings estimate for the current fiscal year for this footwear company has gone up 2.6% over the last seven days. Crocs has rallied 35.2% in a year and has an estimated long-term earnings growth rate of 15%. Also, the company has a significant average positive earnings surprise for the last four quarters.
Price and Consensus: CROX
Columbia Sportswear Company (COLM - Free Report) : For this marketer and distributor of outdoor and active lifestyle apparel, footwear, accessories and equipment, the consensus earnings estimate for the current year has increased 4.4% over the last 30 days. This Zacks Rank #2 stock has rallied 16.5% over the past year. The company has an estimated long-term earnings growth rate of 11.2% and a robust earnings surprise history.
Price and Consensus: COLM
lululemon athletica inc. (LULU - Free Report) : The Zacks Consensus Estimate for this fitness-related apparel and accessories provider’s current fiscal-year earnings has gone up 2.2% in the past 60 days. The company has an estimated long-term earnings growth rate of 18.4%. Further, this Zacks Rank #2 stock has gained nearly 42% in a year’s time. It also has an average positive earnings surprise of nearly 16% for the trailing four quarters.
Price and Consensus: LULU