5 Shoes & Retail Apparel Stocks Set to Ride on Flourishing E-commerce Trends
Companies in the Zacks Shoes and Retail Apparel industry have been benefiting from the momentum in the demand for fitness apparel and equipment due to the shift in consumer trends and increased awareness of fitness. The closure of gyms has led to a boom in exercising at home. Consequently, industry players’ focus on innovative activewear, footwear and engaging fitness apps is expected to boost revenues. Moreover, increased investments in the expansion of digital and supply-chain capabilities are anticipated 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. The 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 Wolverine World Wide, Inc. (WWW).
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 activewear, sports equipment, bags, balls, and other sports and fashion accessories.
The companies showcase their products through their 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.
Here’s What Shapes Shoes and Retail Apparel Industry’s Future
Home-Fitness Trend Catches Up: Companies in the Shoes and Retail Apparel industry have been benefiting from the shift to home-fitness trends 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 the strong demand for footwear and fitness equipment. Additionally, personal fitness trainers are catching up with the trend by offering e-fitness courses. The increasing home workout trend is boosting the demand for activewear.
E-Commerce Investments Take Center Stage: E-commerce has been playing a great role in making up for sales lost at stores from the onset of the pandemic. 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. 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 renovations and improved checkouts as well as mobile point-of-sale capabilities to make stores attractive. The efforts to enhance the guest experience through multiple channels are likely to contribute significantly to improve traffic and transactions both in stores and online.
Improving Omni-Channel Capabilities: In keeping with the changing trends, companies have been making efforts to enhance omni-channel capabilities. Industry players have enhanced customer shopping experience through facilities like same-day pickup service for online orders; easy access to a broad array of online products when shopping in stores; “Buy Online, Pick-Up in Store”; “Buy Online, Pickup at Curbside”; “Buy Online, Return In Store”; Retail Inventory Online; and Click and Collect. Companies have also been enhancing distribution facilities and supply-chain production capabilities to provide seamless omni-channel facilities to drive sales.
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 as markets started to reopen. Notably, consumer spending in the United States increased 10.7% in the first quarter of 2021, after 2.3% growth in fourth-quarter 2020. Consumer spending in the first quarter benefited from the reopening of stores as well as the increased vaccination drive in the United States, which has increased mobility. Moreover, consumer spending improved 4.2% in March 2021 against a decline of 1% in February. While consumer trends remain positive lately, uncertainty regarding the impacts of the pandemic in some parts of the United States and across the world remains worrisome.
Zacks Industry Rank Indicates Dim Prospects
The Zacks Shoes and Retail Apparel Industry is a 12-stock group within the broader Zacks Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #112, which places it in the top 44% 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 year, the industry’s earnings estimates for the current year have been increased 15.8%.
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 sector over the past year.
While stocks in this industry have collectively rallied 56.5%, the Zacks S&P 500 composite and the Zacks Consumer Discretionary sector have risen 48.4% and 47.5%, 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 31.92X compared with the S&P 500’s 22.39X and the sector’s 32.37X.
Over the last five years, the industry has traded as high as 36.55X, as low as 18.66X and at the median of 24.21X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
5 Shoes & Retail Apparel Stocks to Keep a Close Eye On
None of the stocks in the Zacks Shoes & Retail Apparel universe currently sport a Zacks Rank #1 (Strong Buy) or Zacks Rank #2 (Buy). However, we suggest five stocks with a Zacks Rank #3 (Hold) from the same industry, which investors may retain in their portfolios. You can see the complete list of today’s Zacks #1 Rank stocks here.
Let’s have a look at them.
NIKE: The recent structural tailwinds, including the permanent shifts toward digital, athletic wear, and health and wellness, continue to offer incredible opportunities for the athletic apparel and footwear giant. The company is benefiting from its efficient digital ecosystem, which comprises its online site as well as commercial and activity apps. Its 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 the scale by widening assortments available online and 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 the consumer data to understand online shopping preferences and meet demand more efficiently. The company believes that digital acceleration reflects a strategic shift toward a 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 been unchanged in the past seven days. The company’s shares have gained 52.6% in the past year.
Price and Consensus: NKE
Deckers: The stock of this Goleta, CA-based sportswear company has risen 141.3% in the past year. The company’s focus on expanding brand assortments, introducing more innovative lines of products, targeting consumers digitally and optimizing omni-channel distribution have been contributing to its upbeat performance. Strength in its 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. It remains focused on product innovations, store expansion and the enhancement of e-commerce capabilities. Its focus on expanding its brand assortments, bringing more innovative lines of products, targeting consumers digitally and optimizing omni-channel distribution bode well.
Deckers has been constantly developing its e-commerce portal to capture incremental sales. It 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 experiences. The actions are likely to boost the company’s profitability and shareholder returns, and enhance brand and store performance. Deckers has reported an earnings beat of 485.1%, on average, in the trailing four quarters. The company’s consensus estimate for fiscal 2022 EPS has been unchanged in the past 30 days.
Price and Consensus: DECK
Skechers: The leading manufacturer and seller of footwear for men, women and children in the United States and overseas has been gaining from the continued demand for comfort products as well as momentum in the direct-to-consumer business. The company remains committed to directing resources to enhance its digital capabilities, which include augmenting website features, mobile applications and loyalty programs. Management believes that investments made to integrate store and digital ecosystems for developing a seamless omni-channel experience will 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 products. We believe that greater emphasis on new lines 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 surged 82.2% in the past year. The company has reported an earnings beat of 25.8%, on average, in the trailing four quarters. The company’s consensus estimate for 2021 EPS has moved up 3% in the past seven days.
Price and Consensus: SKX
Carter’s: The stock of this Atlanta, GA-based marketer of branded apparel and related products for babies and young children in North America has been benefiting from a robust product portfolio, better promotions, productivity and enhanced pricing. Carter’s is seeking opportunities to strengthen e-commerce capabilities through investments to speed up deliveries. Moreover, its revamped website, with improved and expanded products, ease of checkout, site navigation, faster delivery and search capabilities, has been aiding online sales.
Strength in babywear acted as a key growth driver. Moreover, omni-channel efforts like same-day pickup service for online orders, easy access to a broad array of online products when shopping in stores and a new credit card program bode well. The consensus estimate for 2021 EPS has moved up by a penny in the past seven days. The company has reported an earnings beat of 219.3%, on average, in the trailing four quarters. Shares of the company rallied 50.8% in the past year.
Price and Consensus: CRI
Wolverine: The consensus estimate for 2021 EPS for this Rockford, MI-based company, which designs, manufactures and distributes a wide variety of casual and active apparel and footwear, has been unchanged in the past 30 days. Wolverine has been progressing well on its strategic efforts, including a focus on brand empowerment, e-commerce enhancement and international expansion. Amongst Wolverine’s sales channels, e-commerce has been the fastest-growing and key growth driver. The company has been utilizing its digital capabilities to enhance the speed of information and product flow. It also focuses on boosting social presence, digital content and flow of information as well as better management of consumer database. In order to support growth in the digital platform, the company is investing to strengthen distribution centers.
Management expects positive business trends to continue in 2021, with strength in brands, including with Saucony and Merrell, and especially in performance, athletic, outdoor and work categories. The company has reported an earnings beat of 65.3%, on average, in the trailing four quarters. Shares of the company have advanced 126.2% in the past year.
Price and Consensus: WWW
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Wolverine World Wide, Inc. (WWW) : Free Stock Analysis Report
Skechers U.S.A., Inc. (SKX) : Free Stock Analysis Report
NIKE, Inc. (NKE) : Free Stock Analysis Report
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Carters, Inc. (CRI) : Free Stock Analysis Report
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