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4 Solid Bets From the Retail-Apparel & Shoes Industry for 2024
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As stimulus-driven spending gradually wanes and interest rates remain elevated, the Retail - Apparel And Shoes industry finds itself at a pivotal juncture. Consumers are adopting a more cautious stance toward their disposable income, signaling a return to more conservative spending habits. This shift in consumer sentiment is reverberating across various merchandise categories, creating challenges for businesses.
Given the tough operating environment, industry players are actively reevaluating their business models and adopting innovative strategies. Retailers have been focusing on superior product strategy, the advancement of omnichannel capabilities, prudent capital investments and greater customer reach. Backed by these initiatives, companies like Deckers Outdoor Corporation (DECK - Free Report) , The Gap, Inc. , Abercrombie & Fitch Co. (ANF - Free Report) and American Eagle Outfitters, Inc. (AEO - Free Report) are better placed.
About the Industry
The Retail - Apparel and Shoes industry encompasses the manufacturing, distribution and retailing of clothing, footwear and accessories. The industry is influenced by various factors, including fashion trends, consumer spending habits, economic dynamics and seasonal variations. Companies within the industry range from global apparel giants to domestic brands, each targeting specific market segments. The industry presents both opportunities and challenges. On the one hand, it demands continuous product innovation, brand distinctiveness and effective marketing to attract customers. On the other hand, fierce competition and price sensitivity pose hurdles. Technological advancements and the rise of online retail have revolutionized the industry, with consumers increasingly seeking convenience and personalized shopping experiences.
4 Key Trends to Watch in the Industry
Cautious Consumer Environment: The industry grapples with a complex set of challenges, as a soft demand environment casts a shadow on overall sales and revenue prospects. Consumers are contending with a host of economic issues, encompassing inflation, elevated interest rates and geopolitical tension. Cumulatively, these factors have been weighing on consumer sentiment. Moreover, rapid changes in consumer preferences, intensified by the ever-evolving nature of fashion trends, can lead to excess inventory and reduced sales for brands unable to adapt swiftly.
Pressure on Margins to Linger: The industry is quite fragmented, with companies vying for a bigger slice of the pie on attributes such as price, products and speed to market. To address these, a significant number of players in the industry have been investing in strengthening their digital ecosystem and delivery capabilities. While these endeavors bolster sales, they entail high costs. Apart from these, higher marketing, advertising and other store-related expenses might compress margins. Of late, the industry participants have been dealing with product cost inflation. Nonetheless, companies have been focusing on undertaking initiatives to mitigate cost-related challenges. These include streamlining operational structures, optimizing supply networks and adopting effective pricing policies.
Brand Enhancement, Capital Discipline: Industry participants have been focusing on deepening engagements with consumers, creating innovative and compelling products and enhancing digital and data analytics capabilities. The launch of newer styles, customization options and refreshed store environments enables them to woo shoppers. Efforts to enhance the brand portfolio via marketing strategies, buyouts, innovations and alliances are likely to keep supporting players in the space. The companies have been taking steps to strengthen their financial position. They have been making every move, from managing the inventory and closing underperforming stores to optimizing capital expenditures and enhancing operational efficiency.
Diversification & Digitization Key to Growth: With the change in consumer shopping patterns and behavior, industry participants have been playing dual in-store and online roles. They are building an omnichannel, coming up with loyalty and marketing programs, enhancing the supply chain and providing faster delivery options, be it doorstep delivery, curbside pickup or buy online and pick up at a store. Simultaneously, companies are investing in renovation, improved checkouts and mobile point-of-sale capabilities to keep stores relevant. Keeping in mind consumers’ product preferences and growing inclination toward online shopping, companies have been replenishing shelves with in-demand merchandise and ramping up investments in digitization.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Retail - Apparel And Shoes industry is a group within the broader Zacks Retail – Wholesale sector. The industry currently carries a Zacks Industry Rank #150, which places it in the bottom 40% 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 drab near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of the negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group’s earnings growth potential. Since the beginning of March 2023, the industry’s earnings estimate has declined 6.7%.
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 vs. Broader Market
The Zacks Retail - Apparel And Shoes industry has underperformed the broader Zacks Retail – Wholesale sector and the Zacks S&P 500 composite over the past year.
The industry has advanced 10.1% over this period compared with the S&P 500’s increase of 16.2%. Meanwhile, the broader sector has risen 15.4%.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing retail stocks, the industry is currently trading at 15.86X compared with the S&P 500’s 19.36X and the sector’s 21.66X.
Over the last five years, the industry has traded as high as 76.88X and as low as 9.13X, with the median being at 14.92X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
4 Stocks Worth Considering
Abercrombie & Fitch: The company's ability to adapt, innovate and connect with customers positions it for a prosperous future. Abercrombie & Fitch’s regional operating model, with a focus on the Americas, the EMEA and the APAC, provides a solid foundation for global expansion. Its strong brand portfolio, operational efficiency and regional strategy make it an attractive investment opportunity as it continues to navigate and thrive in the evolving retail landscape.
This leading, global, omnichannel specialty retailer of apparel and accessories for men, women and kids delivered a trailing four-quarter earnings surprise of 713%, on average. The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year sales suggests growth of 13.3% from the year-ago period. Shares of this Zacks Rank #1 (Strong Buy) company have rallied 259.8% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: ANF
Gap: The company demonstrates resilience and positive momentum in its financial performance. The company's strategic efforts, including significant cost savings, have strengthened its financial position. Market share gains in key brands like Old Navy and Gap highlight successful product strategies. With disciplined expense control, strong cash generation and a focus on brand revitalization, Gap stands out as a promising player.
This specialty apparel company delivered a trailing four-quarter earnings surprise of 137.9%, on average. Shares of this Zacks Rank #1 company have surged 53.3% in the past year.
Price and Consensus: GPS
American Eagle Outfitters: The company’s efforts to rationalize inventory and contain costs are paying off. The strong performance of key brands like American Eagle and Aerie, coupled with expansions into premium and activewear segments, indicates potential for growth. New store designs and online enhancements demonstrate a commitment to improving the customer experience.
The Zacks Consensus Estimate for American Eagle Outfitters’ current fiscal sales and EPS suggests growth of 4% and 39.2%, respectively, from the year-ago reported figure. AEO has a trailing four-quarter earnings surprise of 23%, on average. Shares of this Zacks Rank #2 (Buy) company have advanced 34.9% in the past year.
Price and Consensus: AEO
Deckers: The company has been targeting profitable and underpenetrated markets, emphasizing product innovations, store expansion and the strengthening of e-commerce capabilities. The company’s focus on expanding brand assortments, bringing more innovative lines of products, targeting consumers digitally and optimizing omni-channel distribution, positions it for continued success.
Impressively, the Zacks Consensus Estimate for Deckers’ current-fiscal sales and EPS calls for growth of 11.4% and 20.9%, respectively, from the year-ago reported figure. DECK has a trailing four-quarter earnings surprise of 26.3%, on average. We note that shares of this Zacks Rank #2 company have increased 81% in the past year.
Price and Consensus: DECK
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4 Solid Bets From the Retail-Apparel & Shoes Industry for 2024
As stimulus-driven spending gradually wanes and interest rates remain elevated, the Retail - Apparel And Shoes industry finds itself at a pivotal juncture. Consumers are adopting a more cautious stance toward their disposable income, signaling a return to more conservative spending habits. This shift in consumer sentiment is reverberating across various merchandise categories, creating challenges for businesses.
Given the tough operating environment, industry players are actively reevaluating their business models and adopting innovative strategies. Retailers have been focusing on superior product strategy, the advancement of omnichannel capabilities, prudent capital investments and greater customer reach. Backed by these initiatives, companies like Deckers Outdoor Corporation (DECK - Free Report) , The Gap, Inc. , Abercrombie & Fitch Co. (ANF - Free Report) and American Eagle Outfitters, Inc. (AEO - Free Report) are better placed.
About the Industry
The Retail - Apparel and Shoes industry encompasses the manufacturing, distribution and retailing of clothing, footwear and accessories. The industry is influenced by various factors, including fashion trends, consumer spending habits, economic dynamics and seasonal variations. Companies within the industry range from global apparel giants to domestic brands, each targeting specific market segments. The industry presents both opportunities and challenges. On the one hand, it demands continuous product innovation, brand distinctiveness and effective marketing to attract customers. On the other hand, fierce competition and price sensitivity pose hurdles. Technological advancements and the rise of online retail have revolutionized the industry, with consumers increasingly seeking convenience and personalized shopping experiences.
4 Key Trends to Watch in the Industry
Cautious Consumer Environment: The industry grapples with a complex set of challenges, as a soft demand environment casts a shadow on overall sales and revenue prospects. Consumers are contending with a host of economic issues, encompassing inflation, elevated interest rates and geopolitical tension. Cumulatively, these factors have been weighing on consumer sentiment. Moreover, rapid changes in consumer preferences, intensified by the ever-evolving nature of fashion trends, can lead to excess inventory and reduced sales for brands unable to adapt swiftly.
Pressure on Margins to Linger: The industry is quite fragmented, with companies vying for a bigger slice of the pie on attributes such as price, products and speed to market. To address these, a significant number of players in the industry have been investing in strengthening their digital ecosystem and delivery capabilities. While these endeavors bolster sales, they entail high costs. Apart from these, higher marketing, advertising and other store-related expenses might compress margins. Of late, the industry participants have been dealing with product cost inflation. Nonetheless, companies have been focusing on undertaking initiatives to mitigate cost-related challenges. These include streamlining operational structures, optimizing supply networks and adopting effective pricing policies.
Brand Enhancement, Capital Discipline: Industry participants have been focusing on deepening engagements with consumers, creating innovative and compelling products and enhancing digital and data analytics capabilities. The launch of newer styles, customization options and refreshed store environments enables them to woo shoppers. Efforts to enhance the brand portfolio via marketing strategies, buyouts, innovations and alliances are likely to keep supporting players in the space. The companies have been taking steps to strengthen their financial position. They have been making every move, from managing the inventory and closing underperforming stores to optimizing capital expenditures and enhancing operational efficiency.
Diversification & Digitization Key to Growth: With the change in consumer shopping patterns and behavior, industry participants have been playing dual in-store and online roles. They are building an omnichannel, coming up with loyalty and marketing programs, enhancing the supply chain and providing faster delivery options, be it doorstep delivery, curbside pickup or buy online and pick up at a store. Simultaneously, companies are investing in renovation, improved checkouts and mobile point-of-sale capabilities to keep stores relevant. Keeping in mind consumers’ product preferences and growing inclination toward online shopping, companies have been replenishing shelves with in-demand merchandise and ramping up investments in digitization.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Retail - Apparel And Shoes industry is a group within the broader Zacks Retail – Wholesale sector. The industry currently carries a Zacks Industry Rank #150, which places it in the bottom 40% 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 drab near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of the negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group’s earnings growth potential. Since the beginning of March 2023, the industry’s earnings estimate has declined 6.7%.
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 vs. Broader Market
The Zacks Retail - Apparel And Shoes industry has underperformed the broader Zacks Retail – Wholesale sector and the Zacks S&P 500 composite over the past year.
The industry has advanced 10.1% over this period compared with the S&P 500’s increase of 16.2%. Meanwhile, the broader sector has risen 15.4%.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing retail stocks, the industry is currently trading at 15.86X compared with the S&P 500’s 19.36X and the sector’s 21.66X.
Over the last five years, the industry has traded as high as 76.88X and as low as 9.13X, with the median being at 14.92X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
4 Stocks Worth Considering
Abercrombie & Fitch: The company's ability to adapt, innovate and connect with customers positions it for a prosperous future. Abercrombie & Fitch’s regional operating model, with a focus on the Americas, the EMEA and the APAC, provides a solid foundation for global expansion. Its strong brand portfolio, operational efficiency and regional strategy make it an attractive investment opportunity as it continues to navigate and thrive in the evolving retail landscape.
This leading, global, omnichannel specialty retailer of apparel and accessories for men, women and kids delivered a trailing four-quarter earnings surprise of 713%, on average. The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year sales suggests growth of 13.3% from the year-ago period. Shares of this Zacks Rank #1 (Strong Buy) company have rallied 259.8% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: ANF
Gap: The company demonstrates resilience and positive momentum in its financial performance. The company's strategic efforts, including significant cost savings, have strengthened its financial position. Market share gains in key brands like Old Navy and Gap highlight successful product strategies. With disciplined expense control, strong cash generation and a focus on brand revitalization, Gap stands out as a promising player.
This specialty apparel company delivered a trailing four-quarter earnings surprise of 137.9%, on average. Shares of this Zacks Rank #1 company have surged 53.3% in the past year.
Price and Consensus: GPS
American Eagle Outfitters: The company’s efforts to rationalize inventory and contain costs are paying off. The strong performance of key brands like American Eagle and Aerie, coupled with expansions into premium and activewear segments, indicates potential for growth. New store designs and online enhancements demonstrate a commitment to improving the customer experience.
The Zacks Consensus Estimate for American Eagle Outfitters’ current fiscal sales and EPS suggests growth of 4% and 39.2%, respectively, from the year-ago reported figure. AEO has a trailing four-quarter earnings surprise of 23%, on average. Shares of this Zacks Rank #2 (Buy) company have advanced 34.9% in the past year.
Price and Consensus: AEO
Deckers: The company has been targeting profitable and underpenetrated markets, emphasizing product innovations, store expansion and the strengthening of e-commerce capabilities. The company’s focus on expanding brand assortments, bringing more innovative lines of products, targeting consumers digitally and optimizing omni-channel distribution, positions it for continued success.
Impressively, the Zacks Consensus Estimate for Deckers’ current-fiscal sales and EPS calls for growth of 11.4% and 20.9%, respectively, from the year-ago reported figure. DECK has a trailing four-quarter earnings surprise of 26.3%, on average. We note that shares of this Zacks Rank #2 company have increased 81% in the past year.
Price and Consensus: DECK