The Zacks Shoes and Retail Apparel industry comprises companies that design, source and market clothing, footwear and accessories for men, women and children, under various brand names. The product offerings of these companies mostly include athletic and casual footwear, fashion apparel and active-wear, sports equipment, bags, balls, as well as other sports and fashion accessories.
These companies showcase their products through their own branded outlets and websites. However, some companies also distribute products via other retail stores, such as national chains, online retailers, sporting goods stores, department stores, mass merchandisers, independent retailers and catalogs.
Here are the three major themes in the industry:
- These companies typically offer consumer discretionary items and benefit from a positive consumer environment. Rise in personal income due to a strengthening economy, tightened labor market and lower taxes are some of the factors that are boosting consumer spending and confidence. In fact, consumer spending, which accounts for nearly 70% of the U.S. economic activity, largely influences the production schedules of these companies.
- Most industry participants are aggressively bolstering their digital and e-commerce capacities to stay put in the fiercely competitive environment. These companies are committed to building direct connections with customers through investments in differentiated retail concepts, mobile apps, dotcom and digital partners. Apart from enhancing the digital ecosystem, the companies are focused on speeding up deliveries through investments in supply chain and order fulfillment avenues. While these endeavors could boost sales, the related costs will keep margins under pressure. Nevertheless, companies are also making efforts to curtail costs.
- Product innovation plays a key role in bolstering the sales graph of these players. These companies continually refresh their product offerings by adding innovative features or product lines to suit consumers’ needs. Further, the athletic wear section of the industry is benefiting from increasing health awareness and indulgence in fitness activities. Additionally, sporting goods companies in the industry are the prime beneficiaries of various sporting events held from time to time, as sponsorship for these events adds value to the image of leading brands. This constitutes a major source of revenues for this segment through improved opportunities for demand creation.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Shoes & Retail Apparel Industry is a 13-stock group within the broader Zacks Consumer Discretionary Sector. The industry currently carries a Zacks Industry Rank #25, which places it at the top 10% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates continued outperformance in the near term. 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.
Our proprietary Heat Map shows that the industry’s rank has improved considerably over the past eight weeks.
The industry’s positioning in the top 50% of the Zacks-ranked industries is a result of positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually gaining confidence in this group’s earnings growth potential. In the past three months, the industry’s earnings estimate for the current year has moved up nearly 2.2%.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Shareholder Returns
The Zacks Shoes and Retail Apparel Industry have outperformed both the S&P 500 and its own sector over the past year.
While the stocks in this industry have collectively gained 25.5%, the Zacks S&P 500 Composite and Zacks Consumer Discretionary Sector have rallied 4.6% and 0.3%, respectively.
One-Year Price Performance
Shoes and Retail Apparel Industry’s Valuation
On the basis of forward 12-month Price-to-earnings (P/E) ratio, which is commonly used for valuing Consumer Discretionary stocks, the industry is currently trading at 25.06X compared with the S&P 500’s 16.83X and the sector’s 18.25X.
Over the last five years, the industry has traded as high as 26.49X, as low as 18.63X, and at the median of 22.52X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
We expect the demand for health and fitness-related goods, including athletic footwear and apparel, to be on the rise due to increased consumer health awareness. Additionally, the industry is poised to gain from the introduction of innovative products and growing ease of shopping through robust omni-channel capabilities. Furthermore, a strong economy, with rising consumer spending, will benefit stocks in this consumer-driven industry.
While only one stock in the Zacks Shoes & Retail Apparel universe currently sports a Zacks Rank #1 (Strong Buy), we have also mentioned three more stocks with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Let’s have a look at them.
Deckers Outdoor Corporation (DECK): The current fiscal-year consensus EPS estimate of this Goleta, CA-based company has been unchanged for the last seven days. This Zacks Rank #1 stock has rallied 56.9% in the past year.
Price and Consensus: DECK
Rocky Brands Inc. (RCKY): This Nelsonville, OH-based footwear and apparel company has climbed 29% over the past year. The Zacks Consensus Estimate for the current-year EPS has been revised 1.5% upward in the last 30 days. The company currently carries a Zacks Rank #2.
Price and Consensus: RCKY
NIKE Inc. (NKE): The stock of this Beaverton, OR-based company has gained 31.5% in the past year. The Zacks Consensus Estimate for the current-year EPS has been unrevised in the last 30 days. The company holds a Zacks Rank #2, at present.
Price and Consensus: NKE
Skechers U.S.A. Inc. (SKX): The stock of this California-based company has surged 47.9% in three months’ time. The consensus EPS estimate for the current year remained unrevised over the last week. Currently, the company carries a Zacks Rank #2.
Price and Consensus: SKX
Zacks' Top 10 Stocks for 2019
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Skechers U.S.A., Inc. (SKX) : Free Stock Analysis Report
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