The Retail-Wholesale sector is bubbling with joy following a splendid holiday season that has turned the tide of the sector, which had been struggling due to soft store traffic and the rise of omni-channel. Clearly, the holiday season this year was witness to the transformation the retail space has undergone, evolving as a segment where buying and selling is now not restricted to stores alone. The sector now fully lives up to the mantra “Everything Everywhere” in the real sense.
Notably, we saw majority of retailers coming up with favorable sales and comparable store sales (comps) data for the combined months of November and December, which mainly comprises the holiday season. Not only this, the optimism of the holiday numbers and the continuation of the factors aiding those results, led these retailers to raise views for the upcoming fourth-quarter results. The retail sector primarily gained from favorable economic data including steady improvement in wages, lower unemployment rate, rising consumer confidence and modest inflation, all of which contributed to increased consumer spending during the holiday period.
Looking at how much the sector actually gained during the period, the nation’s largest trade group — National Retail Federation (“NRF”) revealed that retail sales during November/December increased 5.5% to $691.9 billion.
Further, per MasterCard SpendingPulse, sales (excluding automobiles) during the November/December period jumped 4.9% compared with 3.7% rise in the prior-year period. This marked the biggest year-over-year increase in holiday spending since 2011.
Additionally, on a stand-alone basis, U.S. retail and food services sales in December rose 0.4% from November and 5.4% from Dec 2016 to $495.4 billion, as per the Commerce Department. This followed 0.9% growth recorded in November 2017.
This shows that most crucial selling period was extremely successful this year, with retailers being at the gaining end. While the season has passed by, the trends at play during the holiday period have continued into January 2018 suggesting a strong 2018 for the retail sector.
While the sector on the whole benefited from season, we will here focus on the Retail-Apparel & Shoes industry, which seems to be doing very well lately. The industry is gaining as players are quickly adopting the omni-channel retailing concept, renewed store formats and focus on providing the most fashionable and in-trend merchandise. Additionally, the companies are benefiting from effective inventory management and cost control techniques. This along with the aforementioned economic factors led many companies in the industry to put up a stellar show this the holiday season.
Overall, the industry’s growth graph shows a gain of 28.8% in the last three months, significantly outpacing the S&P 500’s growth of just 9%. Further, the industry is placed at the top 19% (49 of 256) of Zacks Industry Rank.
That said, we bring to you four apparel & shoes stocks that are positioned to gain from the current trends in the industry and the uplift in the outlook of the overall sector. We have hand-picked some industry outperformers with Zacks Rank #1 (Strong Buy) or 2 (Buy), VGM Score of A or B, robust earnings surprise trend and strong fundamentals, to boost your returns.
First on the list is American Eagle Outfitters Inc. (AEO - Free Report) , a specialty retailer of casual apparel, accessories and footwear for men and women. The company has delivered positive earnings surprises with an average beat of 2.6% in the trailing four quarters. Moreover, the company’s long-term expected earnings growth rate of 7.5% show potential. The company delivered comps growth of 8% for the holiday period and reiterated outlook for the fourth quarter. The Zacks Consensus Estimate for the current fiscal rose nearly 1% in the last seven days. Notably, the stock has returned a solid 34.5% in the last three months, comfortably outpacing the industry’s growth. The company currently has a VGM Score of A and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Investors may also consider Zumiez Inc. , a mall-based specialty retailer of action sports related apparel, footwear, equipment and accessories. The company currently has a Zacks Rank #1 and a VGM Score of A. The company has delivered positive earnings surprises with an average beat of 22.2% in the trailing four quarters. The Zacks Consensus Estimate for the current quarter rose 11.3% in the last 30 days. The long-term expected earnings growth rate for Zumiez is 18%. The stock has gained 30.9% in the last three months, ahead of the industry’s upside.
Another lucrative option is Secaucus, NJ-based The Children’s Place Inc. (PLCE - Free Report) . The company operates as a children's specialty apparel retailer, is a solid bet. The company has delivered positive earnings surprises with an average beat of 14% in the trailing four quarters. The Zacks Consensus Estimate for the current quarter rose 9% in the last seven days. The company’s long-term expected earnings growth rate is 9%. The company currently has a Zacks Rank #2 and a VGM Score of A. The stock has returned a solid 46.3% in the last three months, significantly outperforming the industry’s growth.
Last but not the least, investors may consider Boot Barn Holdings Inc. (BOOT - Free Report) , a lifestyle retail chain, operating specialty retail stores in the United States. It currently carries a VGM Score of A. This Zacks Rank #2 company has delivered positive earnings surprises with an average beat of 22.2% in the trailing four quarters. The Zacks Consensus Estimate for the current fiscal rose 9.8% in the last seven days. The company’s long-term expected earnings growth rate is 15.7%. The stock has gained a whopping 146.5% in the last three months, surpassing the industry’s growth.
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