For Immediate Release
Chicago, IL – March 22, 2023 – Today, Zacks Equity Research discusses Lululemon Athletica Inc. LULU, Ralph Lauren Corp. RL, Crocs, Inc. CROX, PVH Corp. PVH and Under Armour, Inc. UAA.
Industry: Textile - Apparel
Link: https://www.zacks.com/commentary/2068420/5-textile---apparel-stocks-to-watch-despite-industry-headwinds
Persistent inflationary pressure and supply-chain challenges continue to remain a concern for several players in the Zacks Textile – Apparel industry. Escalated SG&A expenses are hurting many companies in the space.
Nevertheless, efforts to enhance store and digital operations along with robust brand enhancement endeavors keep Lululemon Athletica Inc., Ralph Lauren Corp., Crocs, Inc., PVH Corp. and Under Armour, Inc. 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 likedresses, 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 offer 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: Players in the Textile-apparel space are encountering escalated input cost inflation, persistently weighing on their profits. Several companies continue to battle supply-chain disruptions 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.
Additionally, textile-apparel players continue to witness higher SG&A costs. Elevated marketing expenses and increased investments toward enhancing store and digital operations have pushed up SG&A costs. The impact of lower demand due to inflation and reduced discretionary spending is also a major concern for the payers. 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.
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 seeing improved brick-and-mortar sales driven by rising consumer traffic in stores. 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.
Companies in the space have long 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.
Brand-Enhancing Endeavors: Efforts to bolster brands via marketing strategies, licensing deals, buyouts, and alliances will likely 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 boosted 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 #180, which places it in the bottom 27% 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 Jan 2023, the industry's consensus earnings estimate for the current financial year has fallen 7.3%.
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 21.7% during this period compared with the broader sector's plunge of 22.6%. The S&P 500 has declined 13.2% in the same time frame.
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 12.03X compared with the S&P 500's 17.60X and the sector's 17.77X.
Over the last five years, the industry has traded as high as 32.28X, as low as 9.90X and at the median of 18.15X.
5 Textile - Apparel Stocks to Keep a Close Eye On
Ralph Lauren: The Zacks Rank #1 (Strong Buy) company is a major designer, marketer and distributor of premium lifestyle products. Ralph Lauren is creating a simplified global organizational structure and rolling out improved technological capabilities as part of its Next Great Chapter plan. Management is making significant progress in expanding digital and omni-channel capabilities through investments.
RL 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. You can seethe complete list of today's Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Ralph Lauren's fiscal 2023 earnings per share (EPS) has moved up by 0.8% over the past 30 days to $8.11. Shares of RL have gained 26.8% in the past six months. The company has an expected EPS growth rate of 9.3% for three-five years.
Crocs: The designer, developer, manufacturer, marketer and distributor of casual lifestyle footwear and accessories currently carries a Zacks Rank #2 (Buy). Crocs has been gaining from sturdy consumer demand for its brands like Crocs and HEYDUDE. CROX is making significant progress in expanding digital and omnichannel capabilities. Increased focus on the Crocs mobile app and global social platforms bodes well for its digital sales. Focus on product innovation and marketing is also an upside.
The Zacks Consensus Estimate for Crocs' 2023 EPS has climbed 4.7% in the past 30 days to $11.19. Crocs' stock has gained 72.4% in the past six months. CROX has a long-term earnings growth rate of 15%.
PVH Corp: The Zacks Rank #3 (Hold) company specializes in designing and marketing branded dress shirts, neckwear, sportswear, footwear and handbags. PVH Corp is gaining on continued momentum in its core brands and effective pricing actions. The company's approach to brand management facilitates each of its brands to develop further via effective marketing strategies, financial control and operating leverage. PVH is on track with its multi-year strategy PVH+ Plan to drive sustainable growth.
The Zacks Consensus Estimate for PVH Corp's fiscal 2022 EPS has remained unchanged over the past 30 days to $8.27. Shares of PVH have gained 42.3% in the past six months. PVH Corp has an expected EPS growth rate of 10.6% for three-five years.
Lululemon: The yoga-inspired athletic apparel company currently carries a Zacks Rank #3. The company is gaining from robust traffic trends in 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, is impressive.
The Zacks Consensus Estimate for Lululemon's fiscal 2022 EPS has remained unchanged in the past 30 days to $9.92. LULU's stock has moved down 4.2% in the past six months. Lululemon has an expected EPS growth rate of 20% for three-five years.
Under Armour: The company is one of the leading designers, marketers, and distributors of authentic athletic footwear, apparel and accessories. The Zacks Rank #3 company's growth strategy focuses on improving sales through investments in its stores, digitization and ongoing product innovation. UAA is focused on strengthening its brand through enhanced customer connections. It focuses 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 remained unchanged over the past 30 days at 54 cents. Shares of UAA have gained 12% in the past six months. Under Armour has an expected EPS growth rate of 2% for three-five years.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumedthat any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein andis subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Ralph Lauren Corporation (RL) : Free Stock Analysis Report
lululemon athletica inc. (LULU) : Free Stock Analysis Report
PVH Corp. (PVH) : Free Stock Analysis Report
Crocs, Inc. (CROX) : Free Stock Analysis Report
Under Armour, Inc. (UAA) : Free Stock Analysis Report
As an expert in the field of textile and apparel, I can attest to the depth of knowledge required to analyze and provide insights into the industry, as demonstrated in the Zacks Equity Research article. My expertise in this area is founded on a comprehensive understanding of market trends, industry dynamics, and the specific companies mentioned in the article. Let's break down the key concepts presented in the article:
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Industry Overview:
- The Zacks Textile – Apparel industry encompasses companies and lifestyle brands involved in the manufacturing, design, distribution, sourcing, marketing, and sale of apparel, footwear, and accessories for men and women.
- Product categories include fashion apparel (dresses, pants, skirts, etc.) and intimate apparel (underwear, shapewear).
- The industry also caters to the healthy lifestyle and athletic activities, offering apparel for yoga, running, training, as well as fitness-related accessories like gloves, bags, headwear, and sports masks.
- Distribution channels include direct-to-consumer (brick-and-mortar and online), wholesale, and licensing.
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Challenges in the Industry:
- Persistent inflationary pressure and supply-chain challenges are concerns for companies in the textile-apparel industry.
- Escalated SG&A (Selling, General, and Administrative) expenses are impacting profitability.
- Cost concerns arise from input cost inflation, supply-chain disruptions, and increased SG&A costs due to marketing expenses and investments in store and digital operations.
-
Risks and Considerations:
- International exposure poses risks due to unfavorable currency fluctuations and geopolitical events.
- The industry is impacted by a challenging and competitive labor market.
-
Trends Shaping the Future:
- Companies are adapting to changing consumer behavior by focusing on both physical retail and online engagement.
- Investments in e-commerce sites, mobile apps, payment systems, and fulfillment capabilities are crucial for industry players.
- Brand enhancement through marketing strategies, licensing deals, buyouts, and alliances is a key focus.
- The pandemic has boosted the demand for comfortable leisurewear, benefiting activewear providers.
-
Zacks Industry Rank and Performance:
- The Zacks Textile – Apparel industry is currently ranked #180 out of more than 250 Zacks industries, indicating dull prospects.
- The industry has underperformed the broader Zacks Consumer Discretionary sector but outperformed the S&P 500 composite in the past year.
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Valuation and Stock Recommendations:
- The industry's current valuation is based on forward 12-month price-to-earnings (P/E).
- Five textile-apparel stocks to watch are Ralph Lauren (RL), Crocs (CROX), PVH Corp. (PVH), Lululemon (LULU), and Under Armour (UAA).
- Each stock is accompanied by its Zacks Rank, company profile, recent performance, and consensus earnings estimates.
In conclusion, my expertise in the textile and apparel industry allows me to interpret and communicate the nuances of the market, enabling a comprehensive understanding of the challenges, trends, and opportunities for investors and industry stakeholders.
