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Zacks Industry Outlook Highlights Tapestry, American Eagle Outfitters, Urban Outfitters and Boot Barn Holdings
Read MoreHide Full Article
For Immediate Release
Chicago, IL – April 12, 2023 – Today, Zacks Equity Research discusses Tapestry, Inc. (TPR - Free Report) , American Eagle Outfitters, Inc. (AEO - Free Report) , Urban Outfitters, Inc. (URBN - Free Report) and Boot Barn Holdings, Inc. (BOOT - Free Report) .
The higher product cost, a tight labor market and supply-chain issues are some of the headwinds that players in the Zacks Retail - Apparel And Shoes industry have been encountering. These, along with the geopolitical turbulence due to the ongoing conflict between Russia and Ukraine, have been making things tough for companies. The demand for apparel has softened as consumers are spending more on necessities. Rising prices have squeezed consumers' disposable income.
To navigate troubled waters, industry participants have been directing resources toward digital platforms, accelerating fleet optimization and augmenting the supply chain. Retailers have been focusing on the superior product strategy, the advancement of omnichannel capabilities, prudent capital investments and greater customer reach. Backed by these initiatives, companies like Tapestry, Inc., American Eagle Outfitters, Inc., Urban Outfitters, Inc. and Boot Barn Holdings, Inc. are better placed.
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. Some industry participants also 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
Pressure on Margins to Linger: 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. To address these, a significant number of players in the industry have been investing in strengthening their digital ecosystem and delivery capabilities. While these endeavors bolster sales, they entail high costs.
Apart from these, higher marketing, advertising and other store-related expenses might compress margins. Of late, the industry participants have been dealing with product cost inflation, a tight labor market and supply-chain issues. Nonetheless, companies have been focusing on undertaking initiatives to mitigate cost-related challenges. These include streamlining operational structures, optimizing supply networks and adopting effective pricing policies.
Soft Consumer Activity May Hit Revenues: Elevating prices and geopolitical concerns continue to pose a threat to consumer spending activity. Undoubtedly, the industry's prospects are correlated with the purchasing power of consumers. However, higher gasoline and food prices have been discomforting family budgets.
Consequently, the demand for apparel has softened. Per the Commerce Department, U.S. retail and food services sales in February declined 0.4% sequentially. Sales at clothing & clothing accessories outlets fell 0.8% on a month-on-month basis. Industry experts cited that any deterioration in macroeconomic conditions will hurt consumer confidence and, in turn, spending activity.
Brand Enhancement, Capital Discipline: 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 enable them to woo shoppers.
Efforts to enhance the brand portfolio via marketing strategies, buyouts, innovations and alliances are likely to keep supporting players in the space. The companies have been taking steps to strengthen their financial position. They have been making every move, from managing the inventory and closing underperforming stores to optimizing capital expenditures and enhancing operational efficiency.
Diversification & Digitization Key to Growth: With the change in consumer shopping patterns and behavior, industry participants have been playing dual in-store and online roles. They are building an omnichannel, coming up with loyalty and marketing programs, enhancing the supply chain and providing faster delivery options, be it doorstep delivery, curbside pickup or buy online and pick up at a store, which 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 and growing inclination toward online shopping, companies have been replenishing shelves with in-demand merchandise and ramping up investments in digitization.
Zacks Industry Rank Indicates Bleak 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 #163, which places it in the bottom 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 drab near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. The industry's positioning in the bottom 50% of the Zacks-ranked industries is a result of the negative earnings outlook for the constituent companies in aggregate.
Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group's earnings growth potential. Since the beginning of January 2023, the industry's earnings estimate has declined 21.4%.
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 underperformed the broader Zacks Retail – Wholesale sector and the Zacks S&P 500 composite over the past year.
The industry has declined 20.2% over this period compared with the S&P 500's decline of 7.1%. Meanwhile, the broader sector has slumped 14.1%.
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 13.85X compared with the S&P 500's 18.48X and the sector's 22.14X.
Over the last five years, the industry has traded as high as 118.66X and as low as 8.8X, with the median being at 14.81X.
4 Stocks Worth Considering
Urban Outfitters: This leading lifestyle products and services company seems a promising bet due to its solid business strategies and sound fundamentals. Management has been strengthening its direct-to-consumer business, enhancing productivity across the existing channels and optimizing inventory levels. URBN's strategic growth initiative, FP Movement and store-growth endeavors are also impressive.
The Zacks Consensus Estimate for Urban Outfitters' current-fiscal sales and earnings per share (EPS) suggests growth of 4.3% and 41.7%, respectively, from the year-ago reported figure. It has an estimated long-term earnings growth rate of 18%. Shares of this Zacks Rank #1 (Strong Buy) company have risen 9.3% in the past year. You can see the complete list of today's Zacks #1 Rank stocks here.
Tapestry: The company's focus on deepening customer engagement, creating innovative products, venturing into under-penetrated markets and enhancing digital capabilities bodes well. This provider of luxury accessories and branded lifestyle products has been benefiting from the successful execution of the Acceleration Program. It intends to build significant data and analytics capabilities and operate with a clearly defined path and strategy for each of its brands, namely, Coach, Kate Spade and Stuart Weitzman.
Tapestry has a trailing four-quarter earnings surprise of 10.6%, on average. It has an estimated long-term earnings growth rate of 12.5%. The Zacks Consensus Estimate for Tapestry's current-fiscal EPS suggests growth of 7.2% from the year-ago reported figure. Shares of this Zacks Rank #3 (Hold) company have rallied 19.9% in the past year.
American Eagle Outfitters: The company's efforts to rationalize the inventory and contain costs are paying off. Continued strength in the Aerie brand and a solid online show bode well. The company is on track with its Real Power Real Growth value creation plan. This leading global specialty retailer offering high-quality, on-trend clothing, accessories and personal care products has an estimated long-term earnings growth rate of 12.6%.
The Zacks Consensus Estimate for Urban Outfitters' current-fiscal sales and EPS suggests growth of 1.3% and 15.5%, respectively, from the year-ago reported figure. AEO has a trailing four-quarter earnings surprise of 0.9%, on average. Shares of this Zacks Rank #3 company have decreased 15.8% in the past year.
Boot Barn Holdings: This lifestyle retailer of western and work-related footwear, apparel and accessories has been successfully navigating through the challenging environment with merchandising strategies, omnichannel capabilities and better expense management, as well as marketing. These, combined with the expansion of the store base, have helped Boot Barn Holdings gain market share and strengthen its position in the industry.
Impressively, Boot Barn Holdings has an estimated long-term earnings growth rate of 10.6%. The Zacks Consensus Estimate for Boot Barn Holdings' current-fiscal sales suggests growth of 12.7% from the year-ago reported figure. BOOT has a trailing four-quarter earnings surprise of 8.7%, on average. We note that shares of this Zacks Rank #3 company have decreased 20.5% in the past year.
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It's a little-known chemical company that's up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks' Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights Tapestry, American Eagle Outfitters, Urban Outfitters and Boot Barn Holdings
For Immediate Release
Chicago, IL – April 12, 2023 – Today, Zacks Equity Research discusses Tapestry, Inc. (TPR - Free Report) , American Eagle Outfitters, Inc. (AEO - Free Report) , Urban Outfitters, Inc. (URBN - Free Report) and Boot Barn Holdings, Inc. (BOOT - Free Report) .
Industry: Retail - Apparel & Shoes
Link: https://www.zacks.com/commentary/2076796/4-retail-apparel-shoes-stocks-to-track-despite-industry-woes
The higher product cost, a tight labor market and supply-chain issues are some of the headwinds that players in the Zacks Retail - Apparel And Shoes industry have been encountering. These, along with the geopolitical turbulence due to the ongoing conflict between Russia and Ukraine, have been making things tough for companies. The demand for apparel has softened as consumers are spending more on necessities. Rising prices have squeezed consumers' disposable income.
To navigate troubled waters, industry participants have been directing resources toward digital platforms, accelerating fleet optimization and augmenting the supply chain. Retailers have been focusing on the superior product strategy, the advancement of omnichannel capabilities, prudent capital investments and greater customer reach. Backed by these initiatives, companies like Tapestry, Inc., American Eagle Outfitters, Inc., Urban Outfitters, Inc. and Boot Barn Holdings, Inc. are better placed.
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. Some industry participants also 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
Pressure on Margins to Linger: 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. To address these, a significant number of players in the industry have been investing in strengthening their digital ecosystem and delivery capabilities. While these endeavors bolster sales, they entail high costs.
Apart from these, higher marketing, advertising and other store-related expenses might compress margins. Of late, the industry participants have been dealing with product cost inflation, a tight labor market and supply-chain issues. Nonetheless, companies have been focusing on undertaking initiatives to mitigate cost-related challenges. These include streamlining operational structures, optimizing supply networks and adopting effective pricing policies.
Soft Consumer Activity May Hit Revenues: Elevating prices and geopolitical concerns continue to pose a threat to consumer spending activity. Undoubtedly, the industry's prospects are correlated with the purchasing power of consumers. However, higher gasoline and food prices have been discomforting family budgets.
Consequently, the demand for apparel has softened. Per the Commerce Department, U.S. retail and food services sales in February declined 0.4% sequentially. Sales at clothing & clothing accessories outlets fell 0.8% on a month-on-month basis. Industry experts cited that any deterioration in macroeconomic conditions will hurt consumer confidence and, in turn, spending activity.
Brand Enhancement, Capital Discipline: 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 enable them to woo shoppers.
Efforts to enhance the brand portfolio via marketing strategies, buyouts, innovations and alliances are likely to keep supporting players in the space. The companies have been taking steps to strengthen their financial position. They have been making every move, from managing the inventory and closing underperforming stores to optimizing capital expenditures and enhancing operational efficiency.
Diversification & Digitization Key to Growth: With the change in consumer shopping patterns and behavior, industry participants have been playing dual in-store and online roles. They are building an omnichannel, coming up with loyalty and marketing programs, enhancing the supply chain and providing faster delivery options, be it doorstep delivery, curbside pickup or buy online and pick up at a store, which 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 and growing inclination toward online shopping, companies have been replenishing shelves with in-demand merchandise and ramping up investments in digitization.
Zacks Industry Rank Indicates Bleak 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 #163, which places it in the bottom 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 drab near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. The industry's positioning in the bottom 50% of the Zacks-ranked industries is a result of the negative earnings outlook for the constituent companies in aggregate.
Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group's earnings growth potential. Since the beginning of January 2023, the industry's earnings estimate has declined 21.4%.
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 underperformed the broader Zacks Retail – Wholesale sector and the Zacks S&P 500 composite over the past year.
The industry has declined 20.2% over this period compared with the S&P 500's decline of 7.1%. Meanwhile, the broader sector has slumped 14.1%.
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 13.85X compared with the S&P 500's 18.48X and the sector's 22.14X.
Over the last five years, the industry has traded as high as 118.66X and as low as 8.8X, with the median being at 14.81X.
4 Stocks Worth Considering
Urban Outfitters: This leading lifestyle products and services company seems a promising bet due to its solid business strategies and sound fundamentals. Management has been strengthening its direct-to-consumer business, enhancing productivity across the existing channels and optimizing inventory levels. URBN's strategic growth initiative, FP Movement and store-growth endeavors are also impressive.
The Zacks Consensus Estimate for Urban Outfitters' current-fiscal sales and earnings per share (EPS) suggests growth of 4.3% and 41.7%, respectively, from the year-ago reported figure. It has an estimated long-term earnings growth rate of 18%. Shares of this Zacks Rank #1 (Strong Buy) company have risen 9.3% in the past year. You can see the complete list of today's Zacks #1 Rank stocks here.
Tapestry: The company's focus on deepening customer engagement, creating innovative products, venturing into under-penetrated markets and enhancing digital capabilities bodes well. This provider of luxury accessories and branded lifestyle products has been benefiting from the successful execution of the Acceleration Program. It intends to build significant data and analytics capabilities and operate with a clearly defined path and strategy for each of its brands, namely, Coach, Kate Spade and Stuart Weitzman.
Tapestry has a trailing four-quarter earnings surprise of 10.6%, on average. It has an estimated long-term earnings growth rate of 12.5%. The Zacks Consensus Estimate for Tapestry's current-fiscal EPS suggests growth of 7.2% from the year-ago reported figure. Shares of this Zacks Rank #3 (Hold) company have rallied 19.9% in the past year.
American Eagle Outfitters: The company's efforts to rationalize the inventory and contain costs are paying off. Continued strength in the Aerie brand and a solid online show bode well. The company is on track with its Real Power Real Growth value creation plan. This leading global specialty retailer offering high-quality, on-trend clothing, accessories and personal care products has an estimated long-term earnings growth rate of 12.6%.
The Zacks Consensus Estimate for Urban Outfitters' current-fiscal sales and EPS suggests growth of 1.3% and 15.5%, respectively, from the year-ago reported figure. AEO has a trailing four-quarter earnings surprise of 0.9%, on average. Shares of this Zacks Rank #3 company have decreased 15.8% in the past year.
Boot Barn Holdings: This lifestyle retailer of western and work-related footwear, apparel and accessories has been successfully navigating through the challenging environment with merchandising strategies, omnichannel capabilities and better expense management, as well as marketing. These, combined with the expansion of the store base, have helped Boot Barn Holdings gain market share and strengthen its position in the industry.
Impressively, Boot Barn Holdings has an estimated long-term earnings growth rate of 10.6%. The Zacks Consensus Estimate for Boot Barn Holdings' current-fiscal sales suggests growth of 12.7% from the year-ago reported figure. BOOT has a trailing four-quarter earnings surprise of 8.7%, on average. We note that shares of this Zacks Rank #3 company have decreased 20.5% in the past year.
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It's a little-known chemical company that's up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks' Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.