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Textile - Apparel Industry Outlook: Spinning a Bright Yarn?

Vrishali Bagree

The Zacks Textile – Apparel industry comprises companies and lifestyle brands which produce, 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.

Notably, some of the prominent industry players are V.F. Corporation (VFC), lululemon athletica (LULU), Guess?, Inc. (GES), Hanesbrands (HBI), Ralph Lauren (RL) and Columbia Sportswear (COLM).

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

  • Efforts to enhance brands via marketing strategies, licensing deals, buyouts, innovation and alliances are likely to keep backing players in the space. Also, focus on keeping pace with changing consumer preferences is a major driver. In this regard, 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, stringent cost-containment measures are expected to offer some support. Markedly, players are streamlining operations, optimizing portfolios and closing down underperforming stores to curtail costs.
     
  • Wide international presence is a major positive for many players in the textile-apparel space. Expanded 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 volatile 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 #69, which places it in the top 27% 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 solid 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 bright 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 over the past year.

The industry has rallied 12% over this period, compared with the S&P 500’s rise of 20.1%. Meanwhile, the broader sector has risen 17.4%.

One-Year Price Performance



Industry’s Current 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 18.15X compared with the S&P 500’s 18.13X and the sector’s 19.6X.

Over the last five years, the industry has traded as high as 23.16X, as low as 14.14X, and at the median of 18.11X, as the chart below shows.

Price-to-Earnings Ratio (Past 5 Years)


 
Bottom Line

Robust store and digital efforts, wide international reach and impressive brand management are likely to continue backing players in the textile-apparel space. Moreover, stringent cost-cutting and restructuring activities should help companies offset margin woes related to escalating operating costs and increased marketing investments.

That said, we are presenting four stocks from the Textile – Apparel universe, which are well positioned to capitalize on opportunities.

Crocs, Inc. (CROX): The consensus earnings estimate for the company’s current fiscal year for this footwear company has moved up 12.5% over the last 60 days. Crocs has rallied 37.1% in a year and has an estimated long-term earnings growth rate of 15%. Also, the Zacks Rank #1 (Strong Buy) company has a trailing four-quarter positive earnings surprise of about 38%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

Price and Consensus: CROX



Tailored Brands, Inc. (TLRD) For this specialty retailer of men's suits, and provider of tuxedo rental products, the consensus earnings estimate for the current fiscal year has increased by a penny over the last 30 days. This Zacks Rank #2 (Buy) stock has gained 8.9% over the past three months. Further, the company has a robust earnings surprise history.

Price and Consensus: TLRD



Under Armour, Inc. (UAA): The Zacks Consensus Estimate for this athletic footwear, apparel, and accessories provider’s current-year earnings has stayed unchanged in the past 30 days. The Zacks Rank #3 (Hold) company has an estimated long-term earnings growth rate of 27.2%. Further, Under Armour has gained 8.9% so far this year. To top it, the company has a trailing four-quarter positive earnings surprise of 57.6%, on average.

Price and Consensus: UAA



PVH Corp. (PVH): For this designer and marketer of branded dresses, shirts, sportswear, jeanswear, intimate and various accessories, the consensus earnings estimate for the current fiscal year has increased 0.6% over the last 30 days. Notably, this Zacks Rank #3 stock has gained 9.2% so far this year. Also, the company has a trailing four-quarter positive earnings surprise of 5.1%, on average.

Price and Consensus: PVH



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