Back to top

Image: Bigstock

5 Must-Buy Retailers With Solid Earnings Estimate Revisions

Read MoreHide Full Article

The U.S. economy remains resilient even though the interest rate is currently at its 23-year high. The Fed is yet to give any information on the time of its first rate cut. On the contrary, in its June FOMC meeting, the central bank gave a clear indication that, at best, only one rate cut of 25 basis points is expected this year, instead of three anticipated in March. Market participants are currently expecting the first cut in December.

Despite a tough scenario, the labor market remains resilient, the services PMI (Purchasing Managers’ Index) is expanding gradually and the manufacturing PMI has shown signs of improvement. Moreover, personal consumption expenditure remains strong. Consequently, the retail sector has flourished over the past year.

The Zacks-defined Retail - Apparel and Shoes Industry is currently in the top 36% of the Zacks Industry Rank. In the past year, the industry has provided 41.7% returns, while its year-to-date return is 19.4%. Since it is ranked in the top half of Zacks Ranked Industries, we expect the consulting services industry to outperform the market over the next 3 to 6 months.

Positive Catalysts

Players in the industry have been benefiting from strong consumer demand for activewear/athleisure products and footwear, and the trend is expected to continue in the second half of 2024. Athletic goods and apparel companies offer products ranging from footwear, sweatshirts, leggings, pants, jackets and tops to yoga wear and running clothes for men and women. The increasing focus on fashion is boosting the demand for innovative clothes and footwear in the United States.

Industry participants have been focused on product innovations, active promotions, store expansion and enhancing e-commerce capabilities to gain market share. Favorable health and wellness trends have been the key to inspiring footwear manufacturers to expand their product portfolios.

The companies continue to innovate styles, materials and colors, and incorporate functional designs to grab a large share of the fast-growing market. Multi-functional shoes, which cater to casual and formal looks, have been gaining popularity.

E-commerce has been playing a crucial role in the athleisure market’s growth. The companies in the segment are looking to build a customer base through websites, social media and other digital channels.

As consumers continue to shop from home, the growth of athletic-inspired apparel and digital sales is likely to continue. Companies focused on expanding their athletic-based apparel lines and building on e-commerce capabilities are expected to witness growth in the long run.

Efforts to accelerate deliveries through investments in supply chains and order fulfillment avenues are likely to provide an edge to industry players. Simultaneously, companies are investing in renovations and improved checkouts, as well as mobile point-of-sale capabilities, to make stores attractive. Efforts to enhance experiences through multiple channels are likely to contribute significantly to improving traffic and transactions in stores and online.

Our Top Picks

We have narrowed our search to five retail – apparel and shoe industry stocks that have strong potential for 2024. These stocks have seen positive earnings estimate revisions within the last 30 days. Each of our picks currently carries either a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The chart below shows the price performance of our five picks year to date.

Zacks Investment Research
Image Source: Zacks Investment Research

The Gap Inc. (GPS - Free Report) received a boost on the back of lower airfreight and improved promotions which aided its margins. GPS is on track with the execution of its Power Plan 2023. Lower advertising expenses and technology investments resulting from cost-saving actions also bode well for GPS. Gross margin expanded owing to gains from higher merchandise margins, lower commodity costs and better promotional activity.

Zacks Rank #1 The GAP has an expected revenue and earnings growth rate of 0.2% and 21.7%, respectively, for the current year (ending January 2025). The Zacks Consensus Estimate for current-year earnings has improved 3.6% over the last seven days.

Abercrombie & Fitch Co. (ANF - Free Report) has benefited from continued momentum across both brands, which bolstered its holiday sales. ANF has been witnessing strong sales growth for each of its brands. ANF witnessed favorable margin trends mainly driven by reduced freight costs and improved average unit retail. For the first quarter of fiscal 2024, net sales are projected to be up low double-digits from $836 million reported in the year-ago period.

Zacks Rank #1 Abercrombie & Fitch has an expected revenue and earnings growth rate of 10.4% and 47.3%, respectively, for the current year (ending January 2025). The Zacks Consensus Estimate for current-year earnings has improved 3.5% over the last seven days.

J.Jill Inc. (JILL - Free Report) operates as an omnichannel retailer for women's apparel under the J.Jill brand in the United States. JILL offers apparel, footwear, and accessories, including scarves and jewelry. JILL markets its products through retail stores, its website, and catalogs.

Zacks Rank #1 J.Jill has an expected revenue and earnings growth rate of 2.5% and 11.8%, respectively, for the current year (ending January 2025). The Zacks Consensus Estimate for current-year earnings has improved 4.5% over the last seven days.

Canada Goose Holdings Inc. (GOOS - Free Report) designs, manufactures and sells performance luxury apparel for men, women, youth, children, and babies in Canada, the United States, Greater China, the rest of Asia Pacific, Europe, the Middle East, and Africa. GOOS operates through three segments: Direct-to-Consumer, Wholesale, and Other.

Canada Goose offers parkas, lightweight down jackets, rainwear, windwear, apparel, fleece, footwear, and accessories for the fall, winter, and spring seasons. GOOS operates through national e-commerce markets and directly operated retail stores.

Zacks Rank #1 Canada Goose has an expected revenue and earnings growth rate of 0.01% and 13.7%, respectively, for the current year (ending March 2025). The Zacks Consensus Estimate for current-year earnings has improved 6.4% over the last 30 days.

Stitch Fix Inc. (SFIX - Free Report) is actively refining its operational and strategic approach across merchandising, pricing, and logistics, aiming for efficiency and margin growth. SFIX has significantly reduced its inventory from a peak, reflecting disciplined management that is expected to continue.

SFIX’s efforts to expand gross margins are evident in cost negotiations and logistical optimizations, with an anticipated increase in margins. SFIX’s strategic priorities include operational excellence, enriching client interactions for higher lifetime value and adapting to evolving needs for sustainable growth.

Zacks Rank #2 Stitch Fix has an expected earnings growth rate of 30.4 for next year (ending July 2025). The Zacks Consensus Estimate for next-year earnings has improved 12.3% over the last 30 days.

Published in