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4 Retail-Apparel & Shoes Stocks Turning Odds Into Opportunities
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The Retail - Apparel And Shoes industry, once a cornerstone of consumer spending and fashion trends, is currently navigating a challenging landscape. Fluctuating consumer confidence, driven by underlying inflationary pressures, has significantly altered spending patterns. As disposable incomes tighten, consumers are prioritizing essential purchases over discretionary spending, leading to a decline in demand for apparel and footwear. Additionally, the ripple effects of inflation have driven up operational costs for retailers, from higher wages to increased prices for goods and services. Attempting to pass these costs on to consumers only compounds the problem.
Nonetheless, the industry participants are proactively addressing the changing consumer environment by 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) , Abercrombie & Fitch Co. (ANF - Free Report) , American Eagle Outfitters, Inc. (AEO - Free Report) and Boot Barn Holdings, Inc. (BOOT - Free Report) are better placed.
About the Industry
The Retail - Apparel & 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 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
Soft Demand May Hit Revenues: Elevated interest rates, underlying inflationary pressures and geopolitical uncertainties are weighing on consumer spending, a critical driver for the retail sector. The industry’s outlook is increasingly tied to consumer purchasing power, which is being strained by rising prices, squeezing family budgets and weakening demand. According to the latest report from the Commerce Department, sales at clothing and accessories stores declined by 0.1% in July on a sequential basis, reflecting the growing pressure on the sector.
Pressure on Margins to Linger: The retail apparel and shoes industry is highly competitive, with companies battling for market share through pricing, product offerings and speed to market. To stay ahead, many players have been heavily investing in digital infrastructure and enhancing delivery capabilities. While these initiatives can drive sales growth, they come with substantial costs. Additionally, increased spending on marketing, advertising and store operations is putting further pressure on margins. The industry is also grappling with rising product costs due to inflation. However, companies are actively working to offset these challenges by streamlining operations, optimizing supply chains and implementing strategic pricing strategies.
Brand Enhancement & Capital Discipline: Industry players are increasingly focused on deepening consumer engagement through innovative products, personalized experiences, and enhanced digital and data analytics capabilities. The introduction of new styles, customization options and revamped store environments is designed to attract and retain shoppers. Efforts to strengthen brand portfolios through targeted marketing, strategic acquisitions, innovation and partnerships are expected to continue supporting growth in the sector. Additionally, companies are taking steps to bolster their financial health, including managing inventory more effectively, closing underperforming stores, optimizing capital expenditures and improving operational efficiency.
Diversification & Digitization Key to Growth: As consumer shopping behaviors evolve, companies are adapting by integrating both in-store and online operations. They are developing omnichannel capabilities, implementing loyalty and marketing programs and enhancing supply chains to offer faster delivery options such as doorstep delivery, curbside pickup and buy online, pick up in-store. At the same time, investments in store renovations, improved checkout processes and mobile point-of-sale systems are helping maintain relevance. To align with consumer preferences and the shift toward online shopping, companies are continually replenishing shelves with popular merchandise and increasing investments in digital technologies.
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 #175, which places it in the bottom 30% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates dim 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 February 2024, the industry’s earnings estimate has declined by 15.6%.
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 outperformed the broader Zacks Retail-Wholesale sector but underperformed the Zacks S&P 500 composite over the past year.
The industry has advanced 24.3% over this period compared with the S&P 500’s growth of 26.2%. Meanwhile, the broader sector has risen 19.5%.
One-Year Price Performance
Industry's Current Valuation
Based on forward 12-month price-to-earnings (P/E), which is commonly used for valuing retail stocks, the industry is currently trading at 16.73X compared with the S&P 500’s 21.46X and the sector’s 22.7X.
Over the last five years, the industry has traded as high as 36.14X and as low as 8.01X, with the median being at 14.59X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
4 Stocks Worth Considering
Boot Barn Holdings: With an expanding store network, a growing and loyal customer base and a focus on high-margin exclusive brands, Boot Barn Holdings stands poised for sustained growth. The company’s strategic investments in new store openings are expected to enhance its market presence and drive incremental revenues. Additionally, its commitment to strengthening e-commerce and omnichannel capabilities is likely to boost online sales and improve customer engagement. Boot Barn's successful execution of supply-chain efficiencies and merchandise margin expansion further supports its revenue growth potential.
The Zacks Consensus Estimate for Boot Barn Holdings’ current fiscal sales and EPS suggests growth of 10.7% and 8.9%, respectively, from the year-ago reported figure. This leading lifestyle retailer of western and work-related footwear, apparel and accessories has an average trailing four-quarter earnings surprise of 7.1%. Shares of this Zacks Rank #1 (Strong Buy) company have surged 48.7% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: BOOT
Deckers: The company has shown robust growth through its strategic focus on expanding its brand presence and strengthening direct-to-consumer channels. This approach, along with a commitment to innovation in product development and a keen focus on international market expansion, has positioned the company for continued success. Deckers' commitment to elevating renowned brands like UGG and HOKA into global lifestyle icons enhances brand equity and market reach.
The Zacks Consensus Estimate for Deckers’ current financial-year sales and earnings suggests growth of 11.5% and 8.3%, respectively, from the year-ago reported numbers. This Zacks Rank #2 (Buy) company has a trailing four-quarter earnings surprise of 47.2%, on average. Shares of Deckers have improved 69.6% in the past year.
Price and Consensus: DECK
Abercrombie & Fitch: By integrating digital and physical retail experiences, Abercrombie & Fitch offers a seamless shopping experience, driving higher customer satisfaction and loyalty. Moreover, strategic marketing initiatives, particularly targeted campaigns in key markets, have been highly effective in boosting brand visibility and customer acquisition. The introduction of innovative product lines meets specific customer needs and broadens the brand's appeal. Abercrombie & Fitch’s regional operating model, with a focus on the Americas, the EMEA and the APAC, provides a solid foundation for global expansion.
This leading, global, omnichannel specialty retailer of apparel and accessories for men, women and kids delivered a trailing four-quarter earnings surprise of 210.3%, on average. The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year sales and earnings suggests growth of 11.5% and 51.1% from the year-ago period. Shares of this Zacks Rank #2 company have surged 295.3% in the past year.
Price and Consensus: ANF
American Eagle Outfitters: The company is poised for sustained growth due to its enhanced digital and in-store experiences, expanded product assortments and effective marketing initiatives. Upgrades to online platforms and store designs are set to draw more customers and drive sales. The robust performance of key brands like American Eagle and Aerie, along with strategic expansions into premium and activewear segments, highlights significant growth potential. Moreover, targeted marketing campaigns and strategic promotions are expected to further boost revenues.
The Zacks Consensus Estimate for American Eagle Outfitters’ current fiscal sales and EPS suggests growth of 3.3% and 17.1%, respectively, from the year-ago reported figure. AEO has a trailing four-quarter earnings surprise of 28.1%, on average. Shares of this Zacks Rank #2 company have advanced 35.5% in the past year.
Price and Consensus: AEO
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4 Retail-Apparel & Shoes Stocks Turning Odds Into Opportunities
The Retail - Apparel And Shoes industry, once a cornerstone of consumer spending and fashion trends, is currently navigating a challenging landscape. Fluctuating consumer confidence, driven by underlying inflationary pressures, has significantly altered spending patterns. As disposable incomes tighten, consumers are prioritizing essential purchases over discretionary spending, leading to a decline in demand for apparel and footwear. Additionally, the ripple effects of inflation have driven up operational costs for retailers, from higher wages to increased prices for goods and services. Attempting to pass these costs on to consumers only compounds the problem.
Nonetheless, the industry participants are proactively addressing the changing consumer environment by 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) , Abercrombie & Fitch Co. (ANF - Free Report) , American Eagle Outfitters, Inc. (AEO - Free Report) and Boot Barn Holdings, Inc. (BOOT - Free Report) are better placed.
About the Industry
The Retail - Apparel & 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 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
Soft Demand May Hit Revenues: Elevated interest rates, underlying inflationary pressures and geopolitical uncertainties are weighing on consumer spending, a critical driver for the retail sector. The industry’s outlook is increasingly tied to consumer purchasing power, which is being strained by rising prices, squeezing family budgets and weakening demand. According to the latest report from the Commerce Department, sales at clothing and accessories stores declined by 0.1% in July on a sequential basis, reflecting the growing pressure on the sector.
Pressure on Margins to Linger: The retail apparel and shoes industry is highly competitive, with companies battling for market share through pricing, product offerings and speed to market. To stay ahead, many players have been heavily investing in digital infrastructure and enhancing delivery capabilities. While these initiatives can drive sales growth, they come with substantial costs. Additionally, increased spending on marketing, advertising and store operations is putting further pressure on margins. The industry is also grappling with rising product costs due to inflation. However, companies are actively working to offset these challenges by streamlining operations, optimizing supply chains and implementing strategic pricing strategies.
Brand Enhancement & Capital Discipline: Industry players are increasingly focused on deepening consumer engagement through innovative products, personalized experiences, and enhanced digital and data analytics capabilities. The introduction of new styles, customization options and revamped store environments is designed to attract and retain shoppers. Efforts to strengthen brand portfolios through targeted marketing, strategic acquisitions, innovation and partnerships are expected to continue supporting growth in the sector. Additionally, companies are taking steps to bolster their financial health, including managing inventory more effectively, closing underperforming stores, optimizing capital expenditures and improving operational efficiency.
Diversification & Digitization Key to Growth: As consumer shopping behaviors evolve, companies are adapting by integrating both in-store and online operations. They are developing omnichannel capabilities, implementing loyalty and marketing programs and enhancing supply chains to offer faster delivery options such as doorstep delivery, curbside pickup and buy online, pick up in-store. At the same time, investments in store renovations, improved checkout processes and mobile point-of-sale systems are helping maintain relevance. To align with consumer preferences and the shift toward online shopping, companies are continually replenishing shelves with popular merchandise and increasing investments in digital technologies.
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 #175, which places it in the bottom 30% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates dim 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 February 2024, the industry’s earnings estimate has declined by 15.6%.
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 outperformed the broader Zacks Retail-Wholesale sector but underperformed the Zacks S&P 500 composite over the past year.
The industry has advanced 24.3% over this period compared with the S&P 500’s growth of 26.2%. Meanwhile, the broader sector has risen 19.5%.
One-Year Price Performance
Industry's Current Valuation
Based on forward 12-month price-to-earnings (P/E), which is commonly used for valuing retail stocks, the industry is currently trading at 16.73X compared with the S&P 500’s 21.46X and the sector’s 22.7X.
Over the last five years, the industry has traded as high as 36.14X and as low as 8.01X, with the median being at 14.59X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
4 Stocks Worth Considering
Boot Barn Holdings: With an expanding store network, a growing and loyal customer base and a focus on high-margin exclusive brands, Boot Barn Holdings stands poised for sustained growth. The company’s strategic investments in new store openings are expected to enhance its market presence and drive incremental revenues. Additionally, its commitment to strengthening e-commerce and omnichannel capabilities is likely to boost online sales and improve customer engagement. Boot Barn's successful execution of supply-chain efficiencies and merchandise margin expansion further supports its revenue growth potential.
The Zacks Consensus Estimate for Boot Barn Holdings’ current fiscal sales and EPS suggests growth of 10.7% and 8.9%, respectively, from the year-ago reported figure. This leading lifestyle retailer of western and work-related footwear, apparel and accessories has an average trailing four-quarter earnings surprise of 7.1%. Shares of this Zacks Rank #1 (Strong Buy) company have surged 48.7% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: BOOT
Deckers: The company has shown robust growth through its strategic focus on expanding its brand presence and strengthening direct-to-consumer channels. This approach, along with a commitment to innovation in product development and a keen focus on international market expansion, has positioned the company for continued success. Deckers' commitment to elevating renowned brands like UGG and HOKA into global lifestyle icons enhances brand equity and market reach.
The Zacks Consensus Estimate for Deckers’ current financial-year sales and earnings suggests growth of 11.5% and 8.3%, respectively, from the year-ago reported numbers. This Zacks Rank #2 (Buy) company has a trailing four-quarter earnings surprise of 47.2%, on average. Shares of Deckers have improved 69.6% in the past year.
Price and Consensus: DECK
Abercrombie & Fitch: By integrating digital and physical retail experiences, Abercrombie & Fitch offers a seamless shopping experience, driving higher customer satisfaction and loyalty. Moreover, strategic marketing initiatives, particularly targeted campaigns in key markets, have been highly effective in boosting brand visibility and customer acquisition. The introduction of innovative product lines meets specific customer needs and broadens the brand's appeal. Abercrombie & Fitch’s regional operating model, with a focus on the Americas, the EMEA and the APAC, provides a solid foundation for global expansion.
This leading, global, omnichannel specialty retailer of apparel and accessories for men, women and kids delivered a trailing four-quarter earnings surprise of 210.3%, on average. The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year sales and earnings suggests growth of 11.5% and 51.1% from the year-ago period. Shares of this Zacks Rank #2 company have surged 295.3% in the past year.
Price and Consensus: ANF
American Eagle Outfitters: The company is poised for sustained growth due to its enhanced digital and in-store experiences, expanded product assortments and effective marketing initiatives. Upgrades to online platforms and store designs are set to draw more customers and drive sales. The robust performance of key brands like American Eagle and Aerie, along with strategic expansions into premium and activewear segments, highlights significant growth potential. Moreover, targeted marketing campaigns and strategic promotions are expected to further boost revenues.
The Zacks Consensus Estimate for American Eagle Outfitters’ current fiscal sales and EPS suggests growth of 3.3% and 17.1%, respectively, from the year-ago reported figure. AEO has a trailing four-quarter earnings surprise of 28.1%, on average. Shares of this Zacks Rank #2 company have advanced 35.5% in the past year.
Price and Consensus: AEO