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Activewear & School Goers to Boost Apparel Spending: 4 Picks

Nitish Marwah

Americans spent generously on apparel, bought new cars and went to fancy restaurants in June, as per reports from the U.S. Commerce Department. Per the latest data on Jun 16, U.S. retail sales increased 0.4% in the last month, surpassing the consensus estimate of an increase of 0.2%. Economists have stated that an increase in consumer spending would help offset the impact of weak business investment and a protracted trade war with China.

Meanwhile, consumers have developed a special liking for comfortable and fashionable brand of clothes termed as activewear. Experts believe that such clothing is the future of this space. Furthermore, back-to-school spending this season was also boosted by increased spending on clothing and accessories. Under such circumstances, investing in apparel stocks seems prudent.

Fashionable Consumers Prefer Comfort & Convenience

Per a report by the NPD Group released earlier this month, apparels such as sweats, swimwear, sleepwear and dresses will drive growth for the apparel industry over the next couple of years. While consumers have become fashion-conscious now more than ever, they somehow refuse to give up on the comfort and convenience that activewears offer.

Moreover, NPD Group’s chief industry advisor Marshal Cohen believes that the apparel industry will ride on the success of such clothes, which “act active but look fashion.” He also stated that fashion today is all about easy style and major players in the space should look to capitalize on that.

To back such tall claims, there are numbers. Shoppers’ preference for comfort wear is evident in excellent sales figures for activewears. One of the primary reasons why this category stands out is its ability to combine comfort and style. According to the report, sales for sweats and active bottoms surged 8% to $23.6 billion in the 12 months through May 2019. Over the same period, sales for sleepwear increased about 2% to $7.8 billion.

Clothing to Contribute to a Major Chunk of Back-to-School Spending

Per National Retail Federation (NRF) and Prosper Insights and Analytics’ annual survey, families of kids in elementary school through high school are expected to spend $696.70 on average on school supplies, which includes clothes and accessories. This surpassed the previous record of $687.72 set in 2017.

Such families are expected to spend the most on clothing and accessories, an average of $239.82 in this season. This would also surpass expenditure on shoes and supplies such as backpacks, notebooks and lunchboxes.

Sales figures for shoes and school supplies are expected to average around $135.96 and $117.49, respectively. Furthermore, the families plan to shop the most at department stores, followed by discount stores, online retailers and clothing stores.

Meanwhile, members of Gen Z, who form the largest part of the school going crowd, have now become much more active in purchasing decisions. Also, these shoppers are expected to spend $36.71 of their own money on average.

4 Hot Choices

A growing desire among consumers these days for comfortable and stylish clothing is a cue that most of the apparel companies have been taking a note of. As a matter of fact, the future of the space lies in such brand of clothes. Moreover, kids have also become more involved in purchasing decisions related to school accessories, which include clothing.

In this context, we have selected four stocks that are expected to gain from these factors. These stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Guess', Inc. GES is a designer and distributor of lifestyle collections of apparel and accessories for men, womenand children.

The company is based out of Los Angeles, CA and carries a Zacks Rank #1. The expected earnings growth rate for the current year is 28.23%. The Zacks Consensus Estimate for the current year has improved 6.8% over the past 60 days.

Lululemon Athletica Inc. LULU designs, distributes and retails athletic apparel and accessories for women, men and female youth. 

The company is based out of Vancouver, BC and carries a Zacks Rank #2. The expected earnings growth rate for the current year is 22.31%. The Zacks Consensus Estimate for the current year has improved 2.2% over the past 60 days.

Under Armour, Inc. UAA is a developer and distributor of branded performance apparel, footwear and accessories.

The company carries a Zacks Rank #1 and is based out of Baltimore, MD. The expected earnings growth rate for the current year is 28.93%. The Zacks Consensus Estimate for the current year has improved 2.9% over the past 60 days.

Express, Inc. EXPR is a specialty retailer of women's and men's apparel in the United States.  The company operates retail outlets in high-traffic shopping malls, lifestyle centers and street locations across the United States.

This Zacks Rank #2 company is based out of Columbus, OH. The Zacks Consensus Estimate for the current year has improved 54.2% over the past 60 days.

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