Retail-Apparel & Shoes Industry Outlook: Prospects Bright

Lifestyle

The Zacks Retail – Apparel And Shoes industry comprises companies that provide apparel, activewear, footwear, accessories also like fitness and lifestyle products under various brand names in domestic and international markets. These companies showcase products through their own outlets and websites. However, a number of industry participants distribute products via other specialty shopsdepartment shops, franchise stores, and catalogs. Some of the prominent names in the industry are Capri Holdings Limited (CPRI), Foot Locker, Inc. (FL), L Brands, Inc. (LB), The Gap, Inc. (GPS) and Urban Outfitters, Inc. (URBN).

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

The industry’s prospects are closely tied to the purchasing power of consumers, who look pretty confident now. A sturdy market and rising income levels are paving the way for higher spending. While apparel is the core segment of the industry, increasing the popularity of fitness activities is driving the need for suitable footwear. Quick product innovation plays an important role in bolstering sales. Companies’ constant endeavors toward bringing new styles enable them to resort to full price, rather than markdowns, which successively help drive revenues. Notably, sales at both clothing & clothing accessories stores have increased by 1.6% on a sequential basis during the month of December 2019.
Industry participants are playing dual in-store and online roles with evolving consumer shopping patterns. Apart from upgrading digitally, companies are arising from unique products and better deals. Some of the companies are even trying their hand at subscription or rental services for their offerings. Again, the growing popularity of second-hand clothes and accessories is persuading fashion retailers to change the business model. Initiatives such as building omnichannel, coming up with loyalty and marketing programs, enhancing supply chain and providing faster delivery options are also worth mentioning. Simultaneously, companies are investing in renovation and improved checkouts and mobile point-of-sale capabilities to stay stores relevant. These should boost the revenues of the industry players as well.
The industry is sort of fragmented with companies vying for a much bigger slice of the pie on attributes like price, products, and speed-to-market. Players during this space are battling competition from online retailers, particularly Amazon (AMZN) and private-label brands and fashion-fast names like H&M and Zara. Addressing these, a big number of players within the industry are making investments to strengthen their digital ecosystem and accelerating shipping and delivery capabilities. While these endeavors might boost sales, they entail high costs. Apart from these, higher marketing, advertising and other store-related expenses, and adverse currency rates because of a robust U.S. Dollar might also compress margins. Nevertheless, companies try all means to contain costs.
Zacks Industry Rank Indicates Solid Prospects

The Zacks Retail – Apparel And shoe industry is a 36-stock group within the broader Zacks Retail-Wholesale shoe sector. The industry currently carries a Zacks Industry Rank #103, which places it within the top 40% of quite 250 Zacks industries.

The group’s Zacks Industry Rank, which is essentially the type of the Zacks Rank of all the member stocks, indicates encouraging near-term prospects. Our research shows that the highest 50% of the Zacks-ranked industries outperform rock bottom 50% by an element of quite 2 to 1. The industry’s position in the top 50% of the Zacks-ranked industries is a result of a positive earnings outlook for the constituent companies in aggregate. Looking at the mixture earnings estimate revisions, it appears that analysts are gradually gaining confidence during this group’s earnings growth potential. Since the beginning of December, the industry’s earnings estimate for the current year has increased by approximately 5.3%.

We will present a couple of stocks that have the potential to outperform the market supported a robust earnings outlook. But it’s worth taking a glance at the industry’s shareholder returns and current valuation first.

Industry Versus Broader Market

The Zacks Retail – Apparel And shoe industry has underperformed both the broader Retail-Wholesale Sector and the Zacks S&P 500 composite over the past year.

While the stocks during this industry have collectively lost 25.1%, the Zacks S&P 500 Composite and Zacks Retail-Wholesale Sector have gained 23.8% and 17.9%, respectively.

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