The Zacks Shoes and Retail Apparel industry put up a stellar show in the first half of fiscal 2019, which clearly reflects in their robust earnings outcome. Deeper focus on alliances and buyouts, licensing agreements, marketing initiatives and strides to gain footing in underpenetrated markets, indicate that upbeat scores are likely to continue throughout 2019. This makes investors hopeful that these shoes and apparel makers will cut out an impressive second half.
The shoes and retail apparel industry has grown 18.4% year to date, marginally higher than the broader market’s (S&P 500) rally of 18.1%. Furthermore, the industry is placed among the top 39% (99 out of the 255 Zacks industries).
One of the major reasons for this bullishness is the steady rise in revenues of these companies given the ongoing endeavors to bring new styles to market. This allows companies to grab more of full price sales while reducing markdowns. Moreover, these quick product innovations enable apparel makers to create a niche in the market as fashions trends keep changing, thanks to the intervention of social media in commerce. That said, apparel brands capable of quickly responding to fashion changes stand out, keeping the top-line momentum going.
Additionally, apparel companies are keen on expanding e-commerce channels, which is a major margin booster with more direct sales to consumers. Simultaneously, the companies are making stores attractive with renovations and improving checkouts as well as mobile point-of-sale capabilities to enhance guest experience. These efforts to attract guests through multiple channels have been contributing significantly to improve traffic and transactions both in-stores and online.
Not to forget, a steady U.S. economy with a strengthening labor market, rising disposable income and an upbeat consumer environment, provide the right background for growth of this customer-focused industry through the year ahead.
Stocks in Focus
The above-mentioned factors are expected to keep supporting the apparel manufacturing segment in the second half of 2019. However, investors should continue to track factors that might adversely impact the well-being of this space, limiting overall growth.
Here, we focus on shoes and apparel stocks that still have upside left. These stocks carry a Zacks Rank #3 (Hold) or higher and have current-year earnings growth expectation of 5% or more.
Adidas AG ADDYY designs and sells athletic and sports lifestyle products worldwide. This Germany-based company delivered an average positive earnings surprise of 11.2% in the trailing four quarters. Shares of the company have surged 50.4% year to date. The company’s earnings are expected to grow 8.9% in 2019. It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Skechers U.S.A., Inc. SKX, a Manhattan Beach, CA-based footwear manufacturer and distributor in the United States and overseas, is also a solid bet. The company delivered an average positive earnings surprise of 5.6% in the trailing four quarters. The stock has estimated earnings per share growth rate of 5.2% for the current fiscal year. Shares of this Zacks Rank #2 company have soared roughly 47.1% so far this year.
NIKE, Inc. NKE is engaged in the business of designing, developing and marketing of athletic footwear, apparel, equipment and accessories, and services for men, women and children worldwide. Based in Beaverton, OR, the company carries a Zacks Rank #3 and has rallied 19.1% year to date. The company’s current-year earnings are projected to increase 16.5%. The company delivered an average positive earnings surprise of 6.4% in the trailing four quarters.
Carter’s Inc. CRI is the largest marketer of branded apparel and related products for babies, and young children in North America. This Atlanta, GA-based company delivered an average positive earnings surprise of 17.8% in the trailing four quarters. The stock with estimated earnings per share growth rate of 5.6% for the current fiscal year has gained about 12.2% so far in the year. It carries a Zacks Rank #3.
Rocky Brands, Inc. RCKY, which manufactures and markets footwear and apparel in the United States, has a Zacks Rank #3. The company delivered an average positive earnings surprise of 28.1% in the trailing four quarters. The stock with estimated earnings per share growth rate of 6.4% for the current fiscal year has risen roughly 8.5% year to date.
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