Companies in the Zacks Shoes and Retail Apparel industry have been benefiting from the spike in demand for fitness apparel and equipment due to accelerated at-home fitness and exercise-at-home trends. With the closure of gyms and consumers being confined to their homes, the awareness on exercising at home and staying healthy has increased. Consequently, industry players’ focus on innovative activewear products, footwear and engaging fitness apps are likely to boost revenues. Moreover, increased investments in the expansion of digital and supply chain capabilities are likely to benefit the players due to consumers’ growing preference for online shopping.
The industry players have been steadfastly investing in product innovations based on customer feedback and requirements. These investments in the product portfolio and e-commerce portals bode well for players like NIKE Inc. (NKE), Deckers Outdoor Corporation (DECK), Skechers U.S.A., Inc. (SKX), Carter’s Inc. (CRI) and Rocky Brands Inc. (RCKY).
About the Industry
The Zacks Shoes and Retail Apparel industry comprises companies that design, source and market clothing, footwear and accessories for men, women and children, under various brand names. The product offerings of these companies mostly include athletic and casual footwear, fashion apparel and active-wear, sports equipment, bags, balls, as well as other sports and fashion accessories.
These companies showcase their products through their own branded outlets and websites. However, some companies also distribute products via other retail stores, such as national chains, online retailers, sporting goods stores, department stores, mass merchandisers, independent retailers and catalogs.
What’s Shaping the Future of Shoes and Retail Apparel Industry
Exercise-At-Home Trend Catches Up: As gyms remain closed due to the pandemic, awareness on keeping fit and the many health benefits of regular exercise have accelerated the fitness-at-home and exercise-at-home trends across the globe. In the current scenario, the demand for home equipment, exercise bikes, weights, personal fitness trackers and other gear to stay fit have seen a surge. Moreover, personal fitness trainers are catching up with this trend by offering e-fitness courses. Companies in the Shoes and Retail Apparel industry have also been benefiting from this trend as they continue to roll out innovative fitness tutorial offerings for consumers through their fitness and activity apps. Moreover, industry players are poised to gain from strong demand for footwear and fitness equipment. The increasing home workouts trend is boosting demand for activewear apparel.
E-Commerce Investments Take Center Stage: Most industry participants are aggressively bolstering their digital and e-commerce capacities through investments in differentiated retail concepts, mobile apps, dotcom and digital partners to stay put in a fiercely competitive environment. In fact, companies with a strong digital ecosystem and activity apps like NIKE continue to stay strong despite pandemic-led headwinds. Additionally, efforts to speed up deliveries through investments in supply chain and order fulfillment avenues are likely to provide an edge in the market. Even as stores reopen, the companies continue to witness strong digital trends, which demonstrate that the shift to online shopping is here to stay. Simultaneously, companies are investing in renovation and improved checkouts as well as mobile point-of-sale capabilities to make stores attractive. These efforts to enhance guests’ experience through multiple channels are likely to contribute significantly to improve traffic and transactions both in stores and online.
Industry Trends Tied to Consumer Spending: The prospects of this customer-focused industry are correlated with the purchasing power of consumers. We note that consumer spending activity, which is one of the pivotal factors driving the economy, increased considerably between the second and third quarters as markets started reopening. Notably, consumer spending in the United States surged 40.6% in the third quarter of 2020, after a decrease of 33.2% in the second quarter. Despite the growth in consumer spending in the third quarter, momentum is likely to slow down owing to surging COVID-19 infections as well as strained incomes. Currently, some parts of the United States are witnessing a resurgence of COVID-19, which has made consumers less optimistic about the short term. Consumers are expecting slow economic recovery in the near term, which along with a stagnant labor market and lesser income levels are likely to impact consumer spending. Consequently, industry experts believe that consumer spending on discretionary items will continue to take a hit in the near term as financial fears prevail.
Zacks Industry Rank Indicates Dim Prospects
The Zacks Shoes and Retail Apparel Industry is an 11-stock group within the broader Zacks Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #76, which places it in the top 30% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates continued outperformance in the near term. 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 positioning 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 gaining confidence in this group’s earnings growth potential. In the past six months, the industry’s earnings estimate for the current year has increased 14.2%. Moreover, earnings estimates for 2021 have moved up 20.6% in the past six months.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms Sector & S&P 500
The Zacks Shoes and Retail Apparel industry has outperformed both the S&P 500 and its own sector over the past year.
While stocks in this industry have collectively rallied 32.6%, the Zacks S&P 500 composite and the Zacks Consumer Discretionary sector have risen 15.2% and 13.3%, respectively.
One-Year Price Performance
Shoes and Retail Apparel Industry’s Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing Consumer Discretionary stocks, the industry is currently trading at 36.28X compared with the S&P 500’s 22.69X and the sector’s 33.93X.
Over the last five years, the industry has traded as high as 36.5X, as low as 18.63X and at the median of 23.51X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
5 Shoes & Retail Apparel Stocks to Keep a Close Eye On
We have one stock in the Zacks Shoes & Retail Apparel universe currently sporting a Zacks Rank #1 (Strong Buy) and one with a Zacks Rank #2 (Buy). Additionally, we suggest three more with a Zacks Rank #3 (Hold) from the same industry, which investors may hold on to. You can see the complete list of today’s Zacks #1 Rank stocks here.
Let’s have a look at them.
Rocky Brands, Inc: The consensus 2021 EPS estimate for this Nelsonville, OH-based company, which makes and sells footwear and apparel in the United States, Canada and internationally, has remained unchanged in the past 30 days. The company is gaining from strong consumer demand for product lines and importance of its brands to its wholesale partners. Additionally, continued strength of its direct-to-consumer channels and quick adaptation to the global shift in consumer buying habits position it for growth. Shares of this Zacks Rank #1 company have advanced 1.7% in the past year.
Price and Consensus: RCKY
Deckers Outdoor Corporation: The stock of this Goleta, CA-based sportswear company has risen 79.2% in the past year. Despite the pandemic-related challenges, strength in the company’s brands, direct-to-consumer platform and positive impacts of the solid execution of its strategies are working in its favor. As part of its strategic endeavors, Deckers is targeting profitable and underpenetrated markets, and remains focused on product innovations, store expansion and enhancement of e-commerce capabilities. Its focus on expanding its brand assortments, bringing more innovative line of products, targeting consumers digitally and optimizing omni-channel distribution bode well.
The company is focused on opening smaller concept omni-channel outlets and expanding programs such as Retail Inventory Online; Infinite UGG; Buy Online, Return In Store; and Click and Collect to enhance customers’ shopping experience. These actions are likely to boost profitability and shareholder returns as well as enhance brand and store performance. The company has reported positive earnings surprise of 480.5%, on average, in the trailing four quarters. The company’s consensus fiscal 2021 EPS estimate has moved up by a penny in the past 30 days. It carries a Zacks Rank #2.
Price and Consensus: DECK
NIKE Inc: The athletic apparel and footwear giant is well-poised to gain from the recent structural tailwinds, including permanent shifts toward digital, athletic wear, and health and wellness continue to offer incredible opportunity. The company is benefiting from its efficient digital ecosystem that comprises its online site as well as commercial and activity apps. The company’s apps have been witnessing improved customer engagement due to increased health and fitness consciousness and rising exercise-at-home trends. With consumers becoming increasingly digitally focused, NIKE is optimistic about its e-commerce operations and has been investing in further enhancement of capabilities therein. It has been boosting scale by widening assortments available online as well as enhancing distribution center capacities.
As part of the Consumer Direct Acceleration, the company’s immediate priorities include improving personalization and creating a consistent end-to-end technology platform. Further, it has been striving to better harness consumer data to understand online shopping preferences and meet demand more efficiently. The company believes the digital acceleration reflects a strategic shift toward a new future marketplace, rather than being a temporary solution to the coronavirus-related challenges in physical markets. The Zacks Consensus Estimate for fiscal 2022 earnings has moved up 0.5% in the past 30 days. The Zacks Rank #3 company’s shares have increased 37.3% in the past year.
Price and Consensus: NKE
Skechers U.S.A., Inc: The stock of this leading manufacturer and seller of footwear for men, women, and children in the United States and overseas, remains committed to directing resources to enhance its digital capabilities, which includes augmenting website features, mobile application and loyalty program. Management believes that investments made to integrate store and digital ecosystems for developing a seamless omni-channel experience is likely to drive greater sales.
Apart from this, the company’s investments to boost direct-to-consumer capabilities and global distribution infrastructure are encouraging. It is also focused on designing and developing new products. We believe that greater emphasis on new line of products, store remodeling projects, cost-containment efforts, inventory management, and global distribution platform bodes well. Shares of the Manhattan Beach, CA-based company have dropped 16.9% in the past year. The company has reported positive earnings surprise of 22.1%, on average, in the trailing four quarters. The Zacks Rank #3 company’s consensus 2021 EPS estimate has remained stable in the past 30 days.
Price and Consensus: SKX
Carter’s Inc: The stock of this Atlanta, GA-based marketer of branded apparel and related products for babies, and young children in North America, have been benefiting from robust product portfolio, lesser promotions, reduced spending, improved margins and a sturdy e-commerce business. Carter’s is seeking opportunities to strengthen e-commerce capabilities through investments to speed up deliveries. Moreover, its revamped website with improved products, convenient shopping options and enhanced checkout experience is aiding online sales.
Moreover, omni-channel efforts like the relaunching of the ship-in-store, same-day pickup and curbside pickup facilities bode well. Shares of the company declined 16.9% in the past year. The consensus EPS estimate for the 2021 year has been unchanged in the past 30 days. It has an expected long-term EPS growth rate of 3.9%. Currently, the company carries a Zacks Rank #3.
Price and Consensus: CRI
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