Zacks Industry Outlook Highlights NIKE, Deckers Outdoor, Skechers and Wolverine World Wide
For Immediate Release
Chicago, IL – March 14, 2023 – Today, Zacks Equity Research discusses NIKE Inc. NKE, Deckers Outdoor DECK, Skechers SKX and Wolverine World Wide WWW.
Industry: Shoes & Retail Apparel
The Zacks Shoes and Retail Apparel industry has been dealing with hardships related to elevated costs, disrupted supply chains, reduced spending trends on discretionary items, higher freight costs and increased marketing investments. These traits have been the key burdens on the participating companies' profits. Additionally, adverse currency movements threaten the industry players due to their worldwide presence.
However, the industry players are well-poised to benefit from the favorable health and wellness trends, which have been boosting the demand for activewear and athletic shoes. The new and innovative designs, along with increased consumer awareness about leading a healthy lifestyle, will likely continue to aid sales of fitness clothes and footwear. The industry players, focused on product innovation, store expansion, digital investments and omni-channel growth, are expected to gain.
The industry participants have been investing in product innovation to gain market share. Investments in products and e-commerce portals bode well for players like NIKE Inc., Deckers Outdoor, Skechers and Wolverine World Wide.
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. Product offerings of the 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. Some companies distribute products via other retail stores such as national chains, online retailers, sporting goods stores, department stores, mass merchandisers, independent retailers and catalogs.
A Look at What's Shaping Shoes and Retail Apparel Industry's Future
Cost Headwinds: Companies in the industry are witnessing elevated costs due to factors like commodity cost inflation, increased freight costs, reinvestments and other impacts. Supply-chain constraints, and elevated ocean freight and logistic costs have been acting as deterrents. A number of companies expect increased freight and logistic costs to hurt margins in the near term. Elevated marketing expenses, higher operating overhead and demand-creating expenses, and increased investments to enhance store and digital operations have been raising SG&A costs.
Also, the industry participants are witnessing higher costs to support brand campaigns and digital investments. The exit from the Russia business due to the Ukraine-Russia conflict is likely to be the key concern for some players. A tough and competitive labor market remains another concern. These factors pose a threat to the industry players' margins.
Consumer Demand Trends: Players in the industry have been benefiting from strong consumer demand for activewear/athleisure products and footwear and the trend is expected to continue in 2023. Athletic goods and apparel companies offer products from footwear, sweatshirts, leggings, pants, jackets and tops to yoga wear and running clothes for men and women. The increasing fashion sense is boosting the demand for innovative clothes and footwear in the United States.
The industry participants have been focused on product innovations, active promotions, store expansion and enhancing e-commerce capabilities to gain market share. Favorable health & wellness trends have been the key to inspiring footwear manufacturers to expand their product portfolio. The companies continue to innovate styles, materials and colors, and incorporate functional designs to grab a large share of the fast-growing market.
Moreover, multi-functional shoes that cater to casual and formal looks have been gaining popularity. The increased participation of women in sports and outdoor activities in recent years has been a boon for industry players.
E-Commerce Investments: E-commerce has been playing a crucial role in the athleisure market's growth. The companies in the segment are looking to build a customer base through websites, social media and other digital channels. As consumers continue to shop from home, growth of athletic-inspired apparel and digital sales are likely to continue. Companies focused on expanding their athletic-based apparel lines and building on e-commerce capabilities are expected to witness growth in the long run.
Efforts to accelerate deliveries through investments in supply chains and order fulfillment avenues are likely to provide an edge to the industry players. 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 experiences through multiple channels are likely to contribute significantly to improving traffic and transactions both in stores and online.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Shoes and Retail Apparel Industry is an 11-stock group within the broader Zacks Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #194, which places it in the bottom 23% 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 bleak prospects for 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 bottom 50% of the Zacks-ranked industries is a result of a 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. In the past year, the industry's earnings estimates for 2023 have declined 28%.
Before we present a few stocks that you may want to consider for your portfolio, let's look at the industry's recent stock-market performance and the valuation picture.
Industry vs. Sector
The Zacks Shoes and Retail Apparel industry has outperformed the sector and the S&P 500 in the past year.
Stocks in the industry have collectively gained 2%, while the Zacks S&P 500 composite and the Zacks Consumer Discretionary sector have declined 9% and 16.6%, respectively.
Shoes and Retail Apparel Industry's 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 27.37X compared with the S&P 500's 17.36X and the sector's 17.69X.
Over the last five years, the industry has traded as high as 36.79X and as low as 19.85X, with the median of 26.68X.
4 Shoes & Retail Apparel Stocks to Watch
NIKE: The global leader in athletic footwear, apparel, equipment and sports-related accessories is poised to gain from its Consumer Direct Acceleration strategy, along with strong demand, compelling products, and robust performance in its digital and DTC businesses. NKE has been benefiting from its efficient digital ecosystem, which comprises its website, as well as commercial and activity apps.
With consumers' increasing digital focus, NIKE is on track with its digital revenue growth target for fiscal 2025. NKE expects revenue growth in fiscal 2025 to be led by NIKE Direct, which is anticipated to represent 60% of the total revenues on strong digital growth. The company expects NIKE-owned and partnered Digital to reach a 50% business mix in fiscal 2025, with NIKE-owned Digital accounting for 40% of the business.
As part of the Consumer Direct Acceleration, the company's immediate priorities include improving personalization and creating a consistent end-to-end technology platform. The company remains confident of its performance in fiscal 2023, driven by brand strength, consumer connections, product pipeline, and the normalization of inventory supply in North America, EMEA and APLA.
The Zacks Consensus Estimate for NKE's fiscal 2023 sales indicates growth of 6.9% from the year-ago quarter's reported figure. The consensus estimate for NKE's fiscal 2023 earnings has moved up by a penny in the past seven days. NIKE delivered an earnings surprise of 15.8%, on average, in the trailing four quarters. This Zacks Rank #2 (Buy) stock has declined 0.1% in the past year.
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Deckers: The Goleta, CA-based company is a leading designer, producer and brand manager of innovative, niche footwear and accessories developed for outdoor sports and other lifestyle-related activities. Strength in HOKA ONE ONE and UGG brands, as well as growth in direct-to-consumer and wholesale channels, has been aiding DECK's performance. Deckers is targeting profitable and underpenetrated markets. The company is focused on product innovations, store expansion and enhancing e-commerce capabilities. DECK's focus on expanding its brand assortments, bringing a more innovative product line, targeting consumers digitally and optimizing omni-channel distribution bodes well.
Deckers has been developing its e-commerce portal to capture incremental sales. DECK has made substantial investments to strengthen its online presence and improve the shopping experience for its customers. The company's focus on opening smaller-concept omni-channel outlets and expanding programs, including Retail Inventory Online; Infinite UGG; Buy Online, Return In Store; and Click and Collect, to enhance customers' shopping experiences is likely to boost the top line in the quarters ahead.
DECK has a trailing four-quarter earnings surprise of 31%, on average. Shares of this Zacks Rank #2 company have gained 64.4% in the past year. The Zacks Consensus Estimate for DECK's fiscal 2023 sales and earnings indicates growth of 12.2% and 13.6%, respectively, from the year-ago quarter's reported figures. The consensus estimate for its fiscal 2023 EPS has moved up 0.1% in the past 30 days.
Skechers: This Manhattan Beach, CA-based company designs, develops, markets and distributes footwear for men, women and children in the United States and overseas under the SKECHERS name, as well as several unique brand names. Skechers' emphasis on new lines of products, store remodeling projects, cost-containment efforts, inventory management and global distribution platform bodes well.
SKX is focused on executing its long-term growth strategy, with a diverse assortment of innovative and comfortable products. This is expected to drive its top line in the near and long terms. Going ahead, management plans to introduce more innovative and comfort technology products, build multi-platform marketing campaigns and launch more e-commerce sites around the world.
Skechers is making strategic investments to improve infrastructure worldwide, primarily e-commerce platforms and distribution centers. It has been directing resources to enhance its digital capabilities, which includes augmenting website features, mobile applications and loyalty programs. Investments made to integrate store and digital ecosystems for developing a seamless omnichannel experience are likely to drive greater sales. Skechers' international business is a significant sales growth driver. SKX has a trailing four-quarter earnings surprise of 3.8%, on average.
The Zacks Consensus Estimate for the company's 2023 sales and earnings indicates growth of 6.4% and 24%, respectively, from the year-ago quarter's reported figure. The consensus estimate for SKX's 2023 EPS has been unchanged in the past 30 days. Shares of the Zacks Rank #3 (Hold) footwear company have increased 19.8% in the past year.
Wolverine: Wolverine is engaged in the designing, manufacturing and distribution of a wide variety of casual as well as active apparel and footwear. The company also manufactures children's footwear and specially designed boots and accessories for industrial purposes. Management recently initiated a 100-day action plan. This includes inventory reduction, debt management, Keds sale and the creation of a Profit Improvement Office to grab savings to drive growth. The company's focus on brand structure, increasing efficiency by removing costs, strategic review of its portfolio, and improving working capital and lowering leverage bode well.
Wolverine continues to focus on strengthening its DTC business. Speed-to-market initiatives, deployment of digital product development tools, expansion of e-commerce platforms and frequent introduction of products are steadily contributing to its performance. Management looks forward to generating $150 million of annual cost savings for 2024, which is likely to be invested in growth brands. It is likely to achieve $65 million in 2023. Wolverine remains confident of accomplishing a 12% operating margin in 2024.
The Zacks Consensus Estimate for WWW's 2023 earnings indicates growth of 8.5% and from the year-ago quarter's reported figure. The consensus estimate for WWW's 2023 EPS has moved up 3.4% in the past seven days. The company has a trailing four-quarter negative earnings surprise of 3.7%, on average. Shares of this Zacks Rank #3 company have declined 29.2% in the past year.
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