Rising inflationary pressure and supply-chain disruptions have been a concern for several Zacks Textile – Apparel industry players. High SG&A expensesare affecting many firms, especially due to elevated freight and logistic costs.
Nevertheless, efforts to boost store and digital operations together with robust brand enhancement endeavors keep Lululemon Athletica Inc. LULU, Columbia Sportswear Company COLM, Guess?, Inc. GES and Gildan Activewear Inc. GIL well-positioned for gains.
About the Industry
The Zacks Textile – Apparel industry includes companies and lifestyle brands, which manufacture, design, distribute, source, market and sell apparel, footwear and accessories for men and women. These include fashion apparel like dresses, pants, skirts, shorts, shirts, jackets, blouses and knitwearas well as intimate apparel like underwear and shapewear. The industry also comprises companies offering apparel for a healthy lifestyle and athletic activities, such as yoga, running, and training, to name a few. Some companies also deal in fitness-related accessories like gloves, bags, headwear and sports masks. The industry participants operate through direct-to-consumer (brick-and-mortar and online), wholesale, and licensing distribution channels. Most players operate through stores and digital networks in the United States and internationally.
4 Trends Shaping the Future of the Textile - Apparel Industry
Cost Concerns: Textile-apparel companies are encountering escalated input cost inflation, persistently weighing on their profits. Several firms are battling supply-chain disruptions stemming from prolonged COVID-associated factors, congestion at ports and reduced airfreight capacity. The ongoing supply-chain issues are inducing delays and resulting in increased freight costs. Incidentally, textile-apparel players continue to witness higher SG&A costs. Elevated marketing expenses and increased investments toward enhancing store and digital operations have pushed up SG&A costs. The impact of lower demand due to inflation and reduced discretionary expenses is also a major concern for the payers. Also, a challenging and competitive labor market is a concern. These factors pose threats to companies’ margins.
International Exposure Poses Risks: Owing to its international presence, Textile-apparel companies are exposed to unfavorable currency fluctuations. Political unrest, like turmoil related to current geopolitical events and the related sanctions, restrictions or other responses, could dent companies’ performance. Several players are facing the impacts of the Ukraine war, including supply-chain and regulatory hurdles.
Improved Store Traffic, Solid Digital Trends: Textile-apparel players are capitalizing on the importance of physical retail and the convenience of online engagement. Companies in the space are witnessing a rebound in brick-and-mortar sales driven by an increase in traffic as consumers returned to stores for shopping. Textile-apparel players are focused on investments to enhance the in-store experience. Consumers’ growing inclination toward online shopping has put e-commerce at the forefront for players in the textile-apparel industry. The companies in the space have been investing in improving e-commerce sites, upgrading mobile apps, enhancing payment systems, linking online and store operations, and increasing fulfillment capabilities. Buy online, pickup in-store and curbside delivery options are gaining traction for many industry players.
Brand-Enhancing Endeavors: Efforts to bolster brands via marketing strategies, licensing deals, buyouts, and alliances are likely to keep supporting Textile-apparel players. New product launches are an important part of Textile-apparel players’ growth. Companies in the space regularly enhance products through innovation to remain competitive and tap the evolving consumer preferences. The pandemic pushed the comfortable leisurewear category, which has been working in favor of activewear providers.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Textile – Apparel industry is housed within the broader Zacks Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #233, which places it in the bottom 7% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is 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 bottom 50% of the Zacks-ranked industries results from a negative aggregate earnings outlook for the constituent companies. Looking at the aggregate earnings estimate revisions, analysts are gradually becoming less confident about this group’s earnings growth potential. Since the beginning of May 2022, the industry’s consensus earnings estimate for the current financial year has fallen 9.6%.
Let’s look at the industry’s performance and current valuation.
Industry Versus Broader Market
The Zacks Textile – Apparel industry has outperformed the broader Zacks Consumer Discretionary sector while it underperformed the S&P 500 composite in the past year.
The industry declined 35.8% during this period compared with the broader sector’s plunge of 40.3%. The S&P 500 has declined 14.6% in the same time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), commonly used for valuing consumer discretionary stocks, the industry is currently trading at 11.43X compared with the S&P 500’s 16.59X and the sector’s 21.07X.
Over the last five years, the industry has traded as high as 32.1X, as low as 9.98X and at the median of 18.06X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
4 Textile - Apparel Stocks to Keep a Close Eye on
Lululemon: The yoga-inspired athletic apparel company is gaining from strong momentum in its business, driven by a favorable response to its products. Lululemon is keen on capturing the growing online demand through accelerated e-commerce investments. The Zacks Rank #2 (Buy) company is leveraging its stores to facilitate omni-channel capabilities, including the buy online pickup in store and ship-from-store.
The Zacks Consensus Estimate for Lululemon’s fiscal 2022 earnings per share (EPS) has climbed 4.6% in the past 30 days to $9.87. LULU’s stock has moved up 2.4% in the past six months. Lululemon has an expected EPS growth rate of 20% for three-five years. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: LULU
Columbia Sportswear: The designer, marketer and distributor of outdoor, active and everyday lifestyle apparel, footwear and accessories currently carries a Zacks Rank #3 (Hold). Columbia Sportswear is gaining from its strategic priorities, like demand creation investments, to drive brand awareness. It remains committed to enhancing consumers’ experience and its digital capacity in all networks and regions.
The Zacks Consensus Estimate for Columbia Sportswear’s 2022 EPS has remained unchanged over the past 30 days at $5.18. Shares of COLM have dipped 22.8% in the past six months. Columbia Sportswear has an expected EPS growth rate of 8.1% for three-five years.
Price and Consensus: COLM
Guess?: The Zacks Rank #3 company is engaged in designing, marketing, distributing and licensing lifestyle collections of apparel and accessories. Guess? has been benefiting from its solid digital business. The company is on track to progress in its customer-centric initiatives, including omnichannel capabilities, advanced data analytics and customer segmentation.
Guess?’s commitment to six key strategies also bodes well. These include organization and culture, functional capacities, brand relevance with three main consumer groups (heritage, Millennials and Generation Z customers), customer focus, product brilliance and international footprint. The Zacks Consensus Estimate for Guess?’s fiscal 2023 EPS has climbed almost 4% in the past 30 days to $2.63. GES’s stock has dropped 26.2% in the past six months.
Price and Consensus: GES
Gildan Activewear: The manufacturer and seller of various apparel products is benefiting from strength in its Activewear category. Gildan Activewear is reaping the benefits of its back-to-basic strategy. Focus on supply chain enhancements and cost savings bodes well for GIL.
The Zacks Consensus Estimate for Gildan Activewear’s 2022 EPS has remained unchanged in the past 30 days at $3.10. GIL’s stock has dipped 19.4% in the past six months. The Zacks Rank #3 company has an expected EPS growth rate of 9% for three-five years.
Price and Consensus: GIL
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