Fashion trends especially in clothing, footwear and lifestyle come and go but there is one trend that is defying this cyclical pattern. Sports apparel has been right at the top of the global fashion category for some time now.
Consumers’ penchant for athletic apparel grew after athletic and casual fashion categories merged to create the vastly popular athleisure category. The athletic apparel category progressed by leaps and bounds mostly due to consumer awareness about the products and brands since 2008, according to Piper Jaffray’s Taking Stock with Teens Survey. And that mindshare continues to grow.
In fact, the rise in popularity of athletic apparel category seems more like a consumer lifestyle trend rather than a cyclical fashion trend. And this new trend will surely help athletic apparel stocks climb north in the near term. Sporting goods, in particular, posted the strongest gain in January since 2013 per Commerce Department data released on Mar 11. And how can we forget that Americans have regained confidence on their well-being, a tell-tale sign that spending on athletic apparels will pick up steam shortly.
Consumer confidence bounced back in February on a healthy labor market and an end to the U.S. government’s longest shutdown in history. Consumers’ assessment of current conditions improved and expectations about the future strengthened, indicating sturdy economic growth (read more: Americans Regain Confidence in February: 5 Top Gainers).
With all these in mind, let us now look at some of the best athletic stocks that are positioned to run higher.
Skechers U.S.A., Inc. SKX is well known for designing and distributing footwear for men, women, and children. The company has always focused on comfort over style. And that policy has paid off well, with the company posting steady revenue growth for the past several years. At the same time, the consumer backdrop remains healthy and this should support growth at Sketchers.
More importantly, Sketchers trades at nearly 15 times forward earnings, whereas rival NIKE, Inc. NKE and Lululemon Athletica Inc. LULU both are trading at more than 30 times forward earnings. So, from a valuation perspective SKX stock remains discounted compared to its peers.
The company currently has a Zacks Rank #2 (Buy). In the past 60 days, Skechers has seen six earnings estimates move up, while none moved down for the current year. The Zacks Consensus Estimate for earnings rose 4.6% in the same period. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The company’s expected earnings growth rate for the next quarter is 20.7%, more than the Shoes and Retail Apparel industry’s projected gain of 13%. The company has outperformed the broader industry so far this year (+42.6% vs +14.6%).
NIKE, Inc. is, undoubtedly, the market leader in the athletic apparel category. Nike has time and again quite successfully squashed competition and expanded its dominance. Its initiatives toward product innovation and expansion into men’s yoga apparel are helping Nike stock to remain on a winning course.
The stock currently has a Zacks Rank #2. In the past 60 days, Nike has seen one earnings estimate move up, while none moved down for the current year. The Zacks Consensus Estimate for earnings rose 0.4% in the same period.
The company’s expected earnings growth rate for the next quarter is 18.8%, more than the Shoes and Retail Apparel industry’s projected gain of 5.6%. The company has outperformed the broader industry on a year-to-date basis (+15.7% vs +14.6%).
Foot Locker, Inc. FL operates as an athletic shoes and apparel retailer. The company operates in two segments, Athletic Stores and Direct-to-Customers. But Foot Locker is Nike’s retailer. After all, 70% of the products that are sold in Foot Locker stores and online are Nike products. Thus, Foot Locker’s numbers automatically improved as Nike continued to dominate the athletic apparel space. And over the past few quarters, Foot Lockers’ stock has climbed from $40 to $60.
The company currently has a Zacks Rank #1 (Strong Buy). In the past 60 days, Foot Locker has seen 10 earnings estimates move up, while none moved down for the current year. The Zacks Consensus Estimate for earnings rose 4.9% in the same period.
The stocks expected earnings growth rate for the current quarter is 11.7%, in contrast to the Shoes and Retail Apparel industry is projected to decline 64.5%. The company has outperformed the broader industry over the last one-year period (+36.4% vs -15.2%).
Columbia Sportswear Company COLM designs, sources, markets, and distributes outdoor and active lifestyle apparel, footwear and accessories. Columbia Sportswear just came out from a quarter and a full year that witnessed record sales and considerable improvement in profit margins. In fact, management believes that the company will be able to post revenues in the mid-to-high-single-digit range going forward.
By the way, the company isn’t that expensive either, around 23x forward earnings, a level which has traditionally been quite normal for Columbia Sportswear.
The company currently has a Zacks Rank #1. In the past 60 days, Columbia Sportswear has seen seven earnings estimates move up, while none moved down for the current year. The Zacks Consensus Estimate for earnings rose 6.6% in the same period.
The company’s expected earnings growth rate for the current quarter and year are a solid 9.1% and 8.2%, respectively. The company has outperformed the Textile - Apparel industry so far this year (+22.3% vs +18.5%).
The hottest name in the athletic apparel space currently is Lululemon Athletica Inc. The company has recorded significant improvement in the past decade banking on high-quality women’s yoga apparel.
Lululemon now is looking forward to be a broader athletic apparel brand and not just a yoga apparel brand. This shift is likely to happen smoothly as it has already built a reputation for developing high-quality clothing. Lest we forget that Lululemon is pretty small compared to the other players in the space, so there is more room for LULU stock to climb higher (read more: The Best And Worst Stocks of the 10-Year Bull Market).
The company currently has a Zacks Rank #2. In the past 60 days, Lululemon has seen 14 earnings estimates move up, while none moved down for the current year. The Zacks Consensus Estimate for earnings rose 2.2% in the same period.
The company’s expected earnings growth rate for the current year is nearly 46%, more than the Textile - Apparel industry’s projected rise of 23.3%. The company has outperformed the broader industry in a year’s time (+82% vs +18.4%).
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, would you like to know about our 10 finest buy-and-holds for the year?
Who wouldn't? Our annual Top 10s have beaten the market with amazing regularity. In 2018, while the market dropped -5.2%, the portfolio scored well into double-digits overall with individual stocks rising as high as +61.5%. And from 2012-2017, while the market boomed +126.3, Zacks' Top 10s reached an even more sensational +181.9%.
See Latest Stocks Today >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
lululemon athletica inc. (LULU) : Free Stock Analysis Report
Foot Locker, Inc. (FL) : Free Stock Analysis Report
Skechers U.S.A., Inc. (SKX) : Free Stock Analysis Report
NIKE, Inc. (NKE) : Free Stock Analysis Report
Columbia Sportswear Company (COLM) : Free Stock Analysis Report
To read this article on Zacks.com click here.