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Textile - Apparel Industry Outlook: Prospects Seem Promising

Vrishali Bagree

The Zacks Textile – Apparel industry comprises companies and lifestyle brands which manufacture, design, distribute and market basic and fashion apparel, footwear and accessories. The industry also includes providers of athleticwear and related equipment and fitness accessories. Most of the textile apparel players operate through stores and digital networks in the United States and overseas.

Let’s take a look at the industry’s three major themes:

  • Players in the space are poised to keep gaining from efforts to strengthen brands via marketing strategies, licensing deals, buyouts, innovation and alliances. Focus on keeping pace with changing consumer preferences is also a major driver. To this end, rising inclination toward health and fitness is working in favor of activewear and sporting equipment providers. Also, many companies offer fitness gadgets and adopt other tracking platforms to make the most of consumers’ evolving tastes.

  • Textile-apparel companies should keep benefitting from digital endeavors like upgraded payment systems, online purchases and pick-up facility at stores, improved e-commerce sites and effective mobile apps. Although costs related to digital investments along with competition may hurt margins, diligent cost-containment efforts are expected to help. Evidently, players are streamlining operations, optimizing portfolios and closing down underperforming stores to cut down costs.

  • Strong international presence is a major positive for many players in the textile-apparel universe. Extended global reach provides them with a sturdy business foundation and enables them to seek opportunities, especially in underpenetrated markets like Asia and Europe. However, this comes with risks associated with unfavorable currency movements and tariff impact.

Zacks Industry Rank Indicates Solid Prospects

The Zacks Textile – Apparel industry is housed within the broader Zacks Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #36, which places it in the top 14% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, indicates robust near-term prospects. 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.

The industry’s position 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 becoming more confident about this group’s earnings growth potential. Since the end of May, the industry’s consensus earnings estimate for the current year has increased 2.3%.

Given the promising prospects, we will present a few stocks that have the potential to outperform the market. But before that, it’s worth taking a look at the industry’s shareholder returns and current valuation.

Industry Underperforms Sector and S&P 500

The Zacks Textile – Apparel industry has underperformed the broader Zacks Consumer Discretionary sector as well as the S&P 500 composite year to date.

The industry has rallied 15.1% over this period, compared with the S&P 500’s rise of 15.5%. Meanwhile, the broader sector has gained 17.8%.

One-Year Price Performance