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lululemon & 3 Other Apparel Makers to Buy for Solid Returns

Rajani Lohia

lululemon athletica inc. LULU is playing its cards right to remain fashionable and trendy in a starkly competitive apparel market. Product innovation, superior omni-guest experiences and market expansion that form the core of its Power of Three strategy are likely to provide it an edge over other Textile – Apparel manufacturers. The company expects to double sales in the men’s and digital categories, and quadruple sales in the international unit by 2023, through this strategy.

The company is also focused on testing new categories, including tests for the self-care category launched in 50 stores and online in mid-June 2019. Additionally, it intends to tap into customers’ growing preference for athleisure, which should intensify competition with the likes of NIKE NKE and Adidas ADDYY. Expansion in the office luggage and travel bags as well as outerwear categories is also part of its product-related initiatives.

It is also looking to connect with customers with the launch of its loyalty program, which is currently in the test phase. Moreover, the extension of the “buy online pick up in store” capability across all stores in North America and improved mobile point-of-sale functionalities indicate that the company is well poised to deliver enhanced shopping experience.

These concrete actions have led to significant growth in traffic and conversion rates across stores and online. We note that the company’s constant-dollars comparable store sales (in-stores) improved 11%, while DTC sales grew 31% in second-quarter fiscal 2019.

Buoyed by the abovementioned factors, shares of this Vancouver, Canada-based company’s shares have rallied 59.2% so far this year compared with the industry’s growth of 13.5%. This Zacks Rank #2 (Buy) stock has also comfortably outperformed the Consumer Discretionary sector and the S&P 500 Index that advanced 19.7% and 18.5%, respectively.



Apparel Manufacturing Space Holds Potential

The Textile-Apparel companies stand to benefit from digital endeavors like upgrade of payment systems, buy online pick-up in store facility, improved websites and mobile apps.

Efforts to strengthen brands through marketing strategies, licensing deals, buyouts, innovation and alliances will also go a long way in enhancing consumers’ shopping experience. Further, these companies are going all out to expand international presence, with stringent focus on exploring opportunities in underpenetrated markets.

The U.S.-China trade war and tariff implications are a potent threat for these companies. However, a favorable consumer environment marked by a strengthening labor market, rising disposable income and an upbeat consumer sentiment provide the right background for growth of this customer-focused sector. According to a preliminary reading of the University of Michigan, U.S consumer sentiment index rose to 92 in September from a nearly three-year low reading of 89.8 in August.

In a nutshell, notable progress on these initiatives and a positive consumer sentiment make this industry attractive for investment.

3 More Stocks to Bet On

On the lines of lululemon, we have identified three more apparel stocks that have outperformed the industry year to date. These stocks also have a Zacks Rank #1 (Strong Buy) or 2 (Buy) and delivered positive earnings surprise in the trailing four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

V.F. Corp. VFC, a designer, manufacturer and seller of branded apparel and related products in the United States and internationally, is a solid bet. The company, with a Zacks Rank #2 and a long-term earnings growth rate of 10.6%, has an average positive earnings surprise of 9.6% in the trailing four quarters. Moreover, the Zacks Consensus Estimate for its current-year earnings has improved nearly 1% in the past 60 days. The stock has risen roughly 22.1% year to date.

Investors may also count on outdoor and active lifestyle apparel, footwear, accessories, and equipment company, Columbia Sportswear Company COLM. This Zacks Rank #1 company has a long-term earnings growth rate of 11.2%. Further, it outpaced the Zacks Consensus Estimate in each of the trailing four quarters. The consensus mark for current-year earnings has moved 4.4% north in the past 60 days. The stock has rallied about 13.4% year to date.

We also suggest investing in Delta Apparel Inc. DLA, which has long-term earnings growth rate of 15%. This lifestyle active wear apparel and related accessory products provider delivered average positive earnings surprise of 34.5% in the trailing four quarters. Moreover, the Zacks Consensus Estimate for its current-year earnings has been stable in the past 30 days. Shares of this Zacks Rank #1 company have rallied approximately 36.1% year to date.

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