The Zacks Shoes and Retail Apparel industry comprises companies that designs, sources and markets 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 activewear, 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 benefit from a positive consumer sentiment, as they mostly offer consumer discretionary items. 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.
- 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. On the other hand, companies that market fashion footwear, apparel and accessories are poised to gain from the upcoming holiday season, which is their key selling period.
- Most of the industry participants are aggressively bolstering their digital and e-commerce capacities to stay put in the fiercely competitive environment. They are committed toward building direct connections with customers through investments in differentiated retail concepts, mobile apps, dotcom and digital partners. Apart from enhancing their digital ecosystem, the companies are focused on meeting consumer demand faster by improving the speed of fulfilling online orders. While these endeavors could boost sales, the related costs will keep margin under pressure. Nevertheless, companies are also making efforts to curtail costs.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Shoes & Retail Apparel Industry is a 12-stock group within the broader Zacks Consumer Discretionary Sector. The industry currently carries a Zacks Industry Rank #47, which places it at the top 19% 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 year, the industry’s earnings estimate for the current year has been increased by nearly 3%.
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 has outperformed both the S&P 500 and its own sector over the past year.
While the stocks in this industry have collectively gained 30.5%, the Zacks S&P 500 Composite and Zacks Consumer Discretionary Sector have rallied 4.1% and 2.8%, 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 22.77X compared with the S&P 500’s 15.9X and the sector’s 17.41X.
Over the last five years, the industry has traded as high as 25.92X, as low as 18.63X, and at the median of 22.18X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
Increasing health hazards due to changing lifestyle preferences, growing obesity rates, and urbanization are resulting in increased focus on health and fitness. This should keep demand for athletic footwear and apparel going. Additionally, the industry is poised to gain from the introduction of newer styles and the growth of omni-channel that are revamping customer experiences.
While only one stock in the Zacks Shoes & Retail Apparel universe currently holds a Zacks Rank #1 (Strong Buy), we have also mentioned another stock with a Zacks Rank #2 (Buy). Additionally, we suggest two more stocks from the same industry, which we believe investors should hold on to, as they carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
Let’s have a look at them.
Rocky Brands Inc. (RCKY): This Nelsonville, OH-based footwear and apparel company has surged 58.3% in the past year. The Zacks Consensus Estimate for the current-year EPS was revised 7.6% upward in the last 30 days. The company currently has a Zacks Rank #1.
Price and Consensus: RCKY
Deckers Outdoor Corportaion (DECK): The consensus EPS estimate for this Goleta, CA-based company moved 4.7% higher for the current fiscal year in the last seven days. This Zacks Rank #2 stock has rallied 85.7% over the past year.
Price and Consensus: DECK
Skechers U.S.A. Inc. (SKX): The stock of this California-based company gained 6.8% in the past month. The consensus EPS estimate for the current year was revised 5.8% upward in the last 30 days. The company currently has a Zacks Rank #3.
Price and Consensus: SKX
Steven Madden, Ltd. (SHOO): The stock of this New York-based company has gained 23.8% in the past year. The Zacks Consensus Estimate for current-year EPS has been stable in the last 30 days. The company currently has a Zacks Rank #3.
Price and Consensus: SHOO
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