5 Textile-Apparel Stocks Worth a Watch Despite Rising Inflation
Players in the Zacks Textile – Apparel industry continue to battle inflationary pressure and supply-chain disruptions. Rising selling, general and administrative (SG&A) expenses, mainly due to higher freight and logistic costs, continue to hurt several companies in the space.
That said, growth initiatives to enhance offline and online businesses coupled with effective brand enhancement techniques keep Lululemon Athletica Inc. LULU, Ralph Lauren Corporation RL, Columbia Sportswear Company COLM, PVH Corp. PVH and Under Armour, Inc. UAA well placed for growth.
About the Industry
The Zacks Textile – Apparel industry includes companies and lifestyle brands that manufacture, design, distribute, source, market and sell apparel, footwear and accessories for men and women. These include fashion apparel like dresses, pants, skirts, shorts, shirts, jackets, blouses and knitwear and intimate apparel like underwear and shapewear. The industry also comprises companies offering apparel for a healthy lifestyle and athletic activities, such as yoga, running, and training, to name a few. Some companies also deal in fitness-related accessories like gloves, bags, headwear and sports masks. The industry participants operate through direct-to-consumer (brick-and-mortar and online), wholesale and licensing distribution channels. Most players operate through stores and digital networks in the United States and internationally.
4 Trends Shaping the Future of the Textile - Apparel Industry
Cost Concerns: A rise in input costs persistently weighs on the profits of several textile-apparel companies. Players in this space continue to battle supply-chain-related issues stemming from prolonged COVID-associated factors, congestion at ports and reduced airfreight capacity. The ongoing supply-chain issues are inducing delays and resulting in increased freight costs. The recent winter storms across the United States are adding to the supply chain woes. Additionally, textile-apparel players continue to witness higher SG&A costs. Elevated marketing expenses and increased investments toward enhancing store and digital operations, especially during the holiday season, are likely to further push SG&A costs upwards. The impact of lower demand due to inflation and reduced discretionary expenses is also a major concern for the payers. In fact, financial constraints are compelling customers to be more selective in their purchases, impacting sales of apparel companies this holiday season. Also, a challenging and competitive labor market is a concern. These factors pose threats to companies’ margins.
International Exposure Poses Risks: Owing to its international presence, Textile-apparel companies are exposed to unfavorable currency fluctuations. Political unrest, like turmoil related to current geopolitical events and the related sanctions, restrictions or other responses, could dent companies’ performance. Several players are facing the impacts of the Ukraine war, including supply-chain and regulatory hurdles.
Improved Store Traffic, Solid Digital Trends: Textile-apparel players are capitalizing on the importance of physical retail and the convenience of online engagement. Companies in the space are witnessing a rebound in brick-and-mortar sales driven by an increase in traffic as consumers return to stores for shopping. Textile-apparel players are focused on investments to enhance the in-store experience. Consumers’ growing inclination toward online shopping has put e-commerce at the forefront for players in the textile-apparel industry. The companies in the space have been investing in improving e-commerce sites, upgrading mobile apps, enhancing payment systems, linking online and store operations, and increasing fulfillment capabilities. Buy online, pickup in-store and curbside delivery options are gaining traction for many industry players. Return to social gatherings and growing wardrobe needs has been prompting shoppers to buy certain styles this holiday season.
Brand-Enhancing Endeavors: Efforts to bolster brands via marketing strategies, licensing deals, buyouts, and alliances are likely to keep supporting Textile-apparel players. New product launches are an important part of Textile-apparel players’ growth. Companies in the space regularly enhance products through innovation to remain competitive and tap evolving consumer preferences. The pandemic pushed the comfortable leisurewear category, which has been working in favor of activewear providers.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Textile – Apparel industry is housed within the broader Zacks Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #183, which places it in the bottom 26% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all member stocks, indicates robust 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 position in the bottom 50% of the Zacks-ranked industries results from a negative aggregate earnings outlook for the constituent companies. Looking at the aggregate earnings estimate revisions, analysts are gradually becoming less confident about this group’s earnings growth potential. Since the beginning of July 2022, the industry’s consensus earnings estimate for the next financial year has fallen 17%.
Let’s look at the industry’s performance and current valuation.
Industry Versus Broader Market
The Zacks Textile – Apparel industry has outperformed the broader Zacks Consumer Discretionary sector while it underperformed the S&P 500 composite in the past year.
The industry declined 34.9% during this period compared with the broader sector’s plunge of 37.7%. The S&P 500 has declined 21.1% in the same time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), commonly used for valuing consumer discretionary stocks, the industry is currently trading at 11.61X compared with the S&P 500’s 17.12X and the sector’s 21.07X.
Over the last five years, the industry has traded as high as 32.1X, as low as 9.84X and at the median of 18.06X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
5 Textile - Apparel Stocks to Keep a Close Eye on
PVH Corp: The Zacks Rank #2 (Buy) company specializes in designing and marketing branded dress shirts, neckwear, sportswear, footwear and handbags. PVH Corp’s approach to brand management facilitates each of its brands to develop further via effective marketing strategies, financial control and operating leverage. Incidentally, continued momentum in its core brands and effective pricing actions fuel growth. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for PVH Corp’s fiscal 2022 earnings per share (EPS) has climbed 4.3% over the past 30 days to $8.26. Shares of PVH have gained 22% in the past six months. PVH Corp has an expected EPS growth rate of 10.2% for three-five years.
Price and Consensus: PVH
Lululemon: The yoga-inspired athletic apparel company is gaining from robust traffic trends in both stores and e-commerce, driven by a favorable response to its products. Lululemon continues to capture growing online demand and ensures a robust shopping experience through its accelerated e-commerce investments. LULU’s Power of Three ×2 growth strategy based on three key growth drivers, including product innovation, guest experience and market expansion, holds promise.
The Zacks Consensus Estimate for Lululemon’s fiscal 2022 EPS has moved up 0.4% in the past 30 days to $9.93. The Zacks Rank #3 (Hold) company’s stock has moved up 11.3% in the past six months. Lululemon has an expected EPS growth rate of 20% for three-five years.
Price and Consensus: LULU
Ralph Lauren: The company is a major designer, marketer and distributor of premium lifestyle products. The Zacks Rank #3 company is making significant progress in expanding digital and omni-channel capabilities through investments. Ralph Lauren continues to scale and expand its connected retail capabilities, including virtual selling appointments, “buy online, pick up in store”, endless aisle product availability and more. RL is creating a simplified global organizational structure and rolling out improved technological capabilities as part of its Next Great Chapter plan.
The Zacks Consensus Estimate for Ralph Lauren’s fiscal 2023 EPS has moved up by a penny over the past 30 days to $7.75. Shares of RL have gained 13.9% in the past six months. Ralph Lauren has an expected EPS growth rate of 4.3% for three-five years.
Price and Consensus: RL
Columbia Sportswear: The designer, marketer and distributor of outdoor, active and everyday lifestyle apparel, footwear and accessories currently carries a Zacks Rank #3. COLM is focused on accelerating brand awareness, enhancing consumer experience and digital capabilities along with expanding global direct-to-consumer (DTC) operations. Columbia Sportswear undertakes brand-enhancing and unique marketing initiatives that further strengthen its presence in the apparel industry.
The Zacks Consensus Estimate for Columbia Sportswear’s 2022 EPS has remained unchanged over the past 30 days at $5.22. Shares of COLM have gained 19.3% in the past six months. Columbia Sportswear has an expected EPS growth rate of 8.5% for three-five years.
Price and Consensus: COLM
Under Armour: The Zacks Rank #3 company is one of the leading designers, marketers, and distributors of authentic athletic footwear, apparel and accessories. Under Armour’s growth strategy is focused on improving sales through investments in own stores and digitization along with ongoing product innovation. UAA is focused on strengthening its brand through enhanced customer connections. It is focusing on digitization by converting real-time data and analytics to drive brand interest. The Zacks Consensus Estimate for Under Armour’s fiscal 2023 EPS has moved up by a penny over the past 30 days to 46 cents. Shares of UAA have gained 13.6% in the past six months. Under Armour has an expected EPS growth rate of 4.4% for three-five years.
Price and Consensus: UAA
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