The Zacks Textile – Apparel industry consists of owners of lifestyle brands which produce, design, distribute and market basic and fashion apparel, footwear and accessories. The industry also houses providers of athleticwear and related equipment and fitness accessories. Most of the textile apparel players operate through stores and digital channels in the United States and international markets.
Let’s take a look at the industry’s three major themes:
- Focus on enhancing brands through licensing deals, innovation, marketing strategies, and buyouts and alliances is likely to keep driving textile-apparel players. Further, they are set to gain from favorable product mix and efforts to keep pace with changing consumer preferences. To this end, 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.
- Companies in the textile-apparel universe are expected to continue gaining from increased digital investments. Enhanced payment systems, buy online and pick up at store facility, improved e-commerce sites and effective mobile apps are some of the efforts that keep companies on the dot.com bandwagon. While costs associated with such investments and competition may drag margins, textile-apparel players’ robust cost-containment endeavors are likely to offer cushion. Incidentally, players are undertaking cost-saving actions such as streamlining operations, optimizing portfolio and closing down underperforming stores.
- Strong international presence is a major plus for many players in the textile-apparel space. Extended global reach provides them with a sturdy business foundation and enables them to seek opportunities, especially in underpenetrated markets like Asia and Europe. However, this comes with risks related to adverse currency fluctuations and volatile tariff impacts.
Zacks Industry Rank Indicates Solid Prospects
The Zacks Textile – Apparel industry is housed within the broader Zacks Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #100, which places it in the top 39% 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 strong 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 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 gradually becoming more confident about this group’s earnings growth potential. Since the end of July 2018, the industry’s consensus earnings estimate for the current year has increased 14.4%.
Given the promising prospects, we will 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 Outpaces Sector and S&P 500
The Zacks Textile – Apparel industry has outperformed the broader Zacks Consumer Discretionary sector as well as the S&P 500 composite over the past year.
The industry has rallied 16% over this period, comfortably outdoing the S&P 500’s rise of 8.6%. Meanwhile, the broader sector has declined 1.1%.
One-Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month Price-to-earnings (P/E) ratio, which is commonly used for valuing consumer discretionary stocks, the industry is currently trading at 17.11X compared with the S&P 500’s 16.65X and the sector’s 17.74X.
Over the last five years, the industry has traded as high as 27.49X, as low as 17.78X, and at the median of 22.87X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
Bottom Line
Textile-apparel players are likely to keep benefiting from their strong international reach, robust brand management and constant efforts to boost store and digital businesses. Additionally, stringent cost-cutting and restructuring measures should help companies counter margin woes associated with rising operating costs and elevated marketing investments.
That said, we are presenting three stocks from the Textile – Apparel universe, which sport a Zacks Rank #1 (Strong Buy) and are well positioned to capitalize on the opportunities. You can see the complete list of today’s Zacks #1 Rank stocks here.
Columbia Sportswear Company (COLM): For this marketer and distributor of outdoor and active lifestyle apparel, footwear, accessories and equipment, the consensus earnings estimate for the current year has increased over the last 30 days. This Zacks Rank #1 stock has rallied 38.4% over the past year. The company has an estimated long-term earnings growth rate of 10.9% and a robust earnings surprise history.
Price and Consensus: COLM
Ralph Lauren Corporation (NYSE:RL) (RL): The consensus earnings estimate for the current fiscal year for this designer and marketer of premium lifestyle products has gone up over the last seven days. Ralph Lauren has grown 18.2% in a year and has an estimated long-term earnings growth rate of 10.3%. Also, the company has an average positive earnings surprise of 6.9% for the last four quarters.
Price and Consensus: RL
G-III Apparel Group, Ltd. (GIII): The Zacks Consensus Estimate for this New York-based company’s current fiscal year earnings has gone up 4.5% in the past 30 days. The company has an estimated long-term earnings growth rate of 15%. Further, this Zacks Rank #1 stock has gained nearly 5% in a year’s time. It also has a significant positive earnings surprise for the trailing four quarters.
Price and Consensus: GIII
Ralph Lauren Corporation (RL): Free Stock Analysis Report
G-III Apparel Group, LTD. (GIII): Free Stock Analysis Report
Columbia Sportswear Company (COLM): Free Stock Analysis Report
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