The Zacks Textile – Apparel industry includes companies and lifestyle brands, which produce, design, distribute and market basic and fashion apparel, footwear and accessories. The industry also comprises providers of athleticwear and related equipment and fitness accessories. Most of the textile apparel players operate through stores and digital networks in the United States and overseas.
Notably, some of the prominent industry players are V.F. Corporation (VFC), Ralph Lauren Corporation (RL), Under Armour, Inc. (UAA), Columbia Sportswear and Guess?, Inc. to name a few.
Let’s take a look at the industry’s three major themes:
Companies in the textile-apparel space have been reeling under the impact of the novel coronavirus outbreak. Temporary store closures have hit their performances hard, while some of the companies have also been grappling with supply-chain disruptions. Although most stores have reopened with curbs being lifted, consumer traffic remains below pre-pandemic levels. Further, the second wave of the virus has kept customers confined to their homes, who prefer to step out only for essentials. Certainly, soft traffic, heightened promotional environment and uncertainty related to consumer shopping dynamics pose near-term challenges for companies in the textile-apparel industry.
Industry players have been benefiting from their efforts to boost online operations, as customers have increasingly resorted to this mode of shopping amid the pandemic. Companies are likely to benefit from digital endeavors like upgraded payment systems, online purchases and pick-up facility at stores, improved e-commerce sites, and effective mobile apps. Apart from this, some apparel players started producing face masks to meet commercial and consumer demand, while some are making medical gowns for the healthcare sector. However, escalated costs associated with such investments, along with the other COVID-19 related expenses may weigh on margins. Apart from this, volatile currency movements due to large overseas exposure is a worry for several textile-apparel companies.
Efforts to enhance brands via marketing strategies, licensing deals, buyouts, innovation and alliances are likely to keep supporting players in the space. Also, focus on keeping pace with changing consumer preferences is a major driver. In this regard, rising inclination toward health and fitness is working in favor of activewear and sporting equipment providers. Also, many companies offer fitness gadgets and adopt other tracking platforms to make the most of consumers’ evolving tastes.
Zacks Industry Rank Indicates Drab Prospects
The Zacks Textile – Apparel industry is housed within the broader Zacks Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #216, which places it in the bottom 14% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, indicates gloomy near-term prospects. 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 position in the bottom 50% of the Zacks-ranked industries is a result of negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are gradually becoming less confident about this group’s earnings growth potential. Since the end of March 2020, the industry’s consensus earnings estimate for the current year has slumped 64.1%.
Despite the dull prospects, here we present a few stocks that have the potential to outperform the market. But before that, it’s worth taking a look at the industry’s shareholder returns and current valuation.
Industry Underperforms Sector and S&P 500
The Zacks Textile – Apparel industry has underperformed the broader Zacks Consumer Discretionary sector as well as the S&P 500 composite over the past year.
The industry has risen 2% over this period, compared with the S&P 500 and the broader sector’s increase of 15.7 and 5.8%, respectively.
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 consumer discretionary stocks, the industry is currently trading at 28.53X compared with the S&P 500’s 22.78X and the sector’s 33.83X.
Over the last five years, the industry has traded as high as 28.7X, as low as 13.28X, and at the median of 18.13X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
The near-term prospects of the Textile-Apparel industry are eclipsed by soft traffic in reopened stores, uncertain consumer behavior and lower demand for discretionary items due to the pandemic. Additionally, escalated costs and increased promotional activity pose threats to margins. Nonetheless, strong online operations and efficient brand management bode well.
That said, we are presenting four stocks from the Textile – Apparel universe, which are well positioned to capitalize on opportunities.
Hanesbrands Inc. (HBI): The consensus earnings estimate for this provider of apparel essentials’ current year has improved 58.1% over the past 30 days. Also, this Zacks Rank #1 (Strong Buy) company delivered a significantly high earnings surprise in the last reported quarter. Notably , the company’s shares have rallied 10.4% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: HBI
Crocs, Inc. (CROX): The Zacks Consensus Estimate for this innovative casual footwear company’s current-year earnings has more than doubled in the past 30 days. This Zacks Rank #1 company has an estimated long-term earnings growth rate of 15%. Further, the company has a significant trailing four-quarter earnings surprise, on average. Markedly, Crocs’ shares have surged 57.7% in a year.
Price and Consensus: CROX
PVH Corp. (PVH): This provider of branded apparel, footwear and other accessories company has an estimated long-term earnings growth rate of 9.6%. Further, this Zacks Rank #3 (Hold) company’s current fiscal year’s consensus mark for loss has narrowed 2.7% over the past 30 days.
Price and Consensus: PVH
Lululemon Athletica Inc. (LULU): This athletic apparel and accessories provider has an estimated long-term earnings growth rate of 18.3%. The consensus mark for current fiscal year earnings has increased by a cent over the past 30 days. Encouragingly, the Zacks Rank #3 stock has almost doubled in the past year.
Price and Consensus: LULU
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V.F. Corporation (VFC) : Free Stock Analysis Report
Under Armour, Inc. (UAA) : Free Stock Analysis Report
Ralph Lauren Corporation (RL) : Free Stock Analysis Report
PVH Corp. (PVH) : Free Stock Analysis Report
lululemon athletica inc. (LULU) : Free Stock Analysis Report
Hanesbrands Inc. (HBI) : Free Stock Analysis Report
Crocs, Inc. (CROX) : Free Stock Analysis Report
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