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Wall Street Journal5 Shoes & Retail Apparel Stocks in Focus Amid Industry Struggles
However, the industry has been promising due to growing consumer interest in healthy lifestyles, driving demand for activewear and athletic footwear. Innovative designs have been key growth drivers for industry players. Companies focusing on product innovation, store expansion, digital investments and omnichannel strategies are expected to succeed. Investments in product development and e-commerce platforms are particularly beneficial for players like Adidas AG ADDYY, Birkenstock Holding plc BIRK, Steven Madden SHOO, Carter's CRI, and Wolverine World Wide WWW.
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 have been facing higher costs due to factors like commodity price inflation and reinvestments. Supply-chain disruptions and increased logistics costs have also been significant challenges. Many companies anticipate that rising logistics expenses will impact margins in the short term. Higher marketing spending, operating overhead, and investments in stores and digital operations have increased SG&A costs. Industry players are also incurring increased expenses to support brand campaigns and digital initiatives. For some, exiting the Russia market due to the Ukraine-Russia conflict is a key concern. A competitive labor market adds another layer of difficulty, threatening profit margins across the industry.
Consumer Demand Trends: Industry players have been benefiting from strong consumer demand for activewear, athleisure and footwear, a trend expected to continue throughout the rest of 2024. Athletic brands offer a wide range of products, from footwear and sweatshirts to leggings, jackets, yoga wear, and running clothes for both men and women. The growing focus on fashion is driving the demand for innovative clothing and footwear in the United States. Companies in the sector are concentrating on product innovation, active marketing, store expansion and enhancing e-commerce capabilities to capture market share. Favorable health and wellness trends are also encouraging footwear manufacturers to broaden their product lines. Brands continue innovating with new styles, materials, colors and functional designs to gain a larger share of the fast-growing market. Multi-functional shoes, suitable for both casual and formal wear, have been particularly popular.
E-Commerce Investments: E-commerce has been a key growth driver in the athleisure market. Companies in this segment are building their customer base through websites, social media and other digital platforms. As consumers continue to shop from home, the demand for athletic-inspired apparel and digital sales is expected to be strong. Brands that expand their athletic apparel lines and strengthen e-commerce capabilities are likely to see long-term growth. Investments in faster delivery through improved supply chains and fulfillment processes will give industry players a competitive edge. Additionally, companies are enhancing stores with renovations, better checkout experiences and mobile point-of-sale options to increase their appeal. These efforts to improve the shopping experience across multiple channels are expected to boost store and online traffic, and drive sales.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Shoes and Retail Apparel Industry is a 12-stock group within the broader Zacks Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #168, which places it in the bottom 33% 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 dull prospects for the near term. 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 positioning in the bottom 50% of the Zacks-ranked industries is the 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.
Before we present a few stocks that you may want to consider for your portfolio, let us look at the industry’s recent stock market performance and valuation picture.
Industry vs. Sector
The Zacks Shoes and Retail Apparel industry has underperformed the sector and the S&P 500 in the past year.
Stocks in the industry have collectively declined 5.9% in the past year. The Zacks Consumer Discretionary sector and the Zacks S&P 500 composite have risen 16.6% and 33.4%, respectively.
One-Year Price Performance
Shoes & 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 26.42X compared with the S&P 500’s 22.24X and the sector’s 18.8X.
Over the last five years, the industry traded as high as 38.08X and as low as 20.97X, with a median of 27.23X, as the chart below shows.
Price-to-Earnings Ratio (Past 5 Years)
5 Shoes & Retail Apparel Stocks to Watch
Adidas: The leading manufacturer and seller of athletic and sports lifestyle products in Europe, the Middle East, Africa, North America, Greater China, the Asia Pacific and Latin America is poised to gain from strong demand, compelling products and robust performance of its online business. Adidas has been benefiting from improved sell-through of all Adidas products in the market. The company has been witnessing improved margins, driven by the recently implemented price increases and an improved channel mix.
The Zacks Consensus Estimate for ADDYY’s 2024 sales indicates growth of 9% from the year-ago quarter’s reported figure. The consensus estimate for ADDYY’s 2024 earnings is pegged at $1.97, whereas it reported a loss of 36 cents in the year-ago quarter. The consensus estimate for ADDYY’s 2024 EPS has moved up 10.7% in the past 30 days. Adidas delivered a negative earnings surprise of 8.4%, on average, in the trailing four quarters. This Zacks Rank #1 (Strong Buy) stock has rallied 37% in the past year.
Price and Consensus: ADDYY
Birkenstock: This London-based company manufactures and sells footwear, including sandals, shoes, closed-toe styles, skincare products and accessories. While renowned for its cork-based sandals, Birkenstock has expanded into higher-priced designs. It benefits from strategic pricing, a focus on high-quality products and growth in direct-to-consumer (DTC) channels. A balanced distribution strategy across B2B (wholesale) and DTC has further driven its success. There is significant growth potential in Asia, the Middle East and Africa.
Despite inflation and cautious consumer spending, Birkenstock has sustained strong demand, with its premium lines, such as closed-toe styles and the Big Buckle sandal, performing well. BIRK has a trailing four-quarter earnings surprise of 1.1%, on average. The Zacks Consensus Estimate for the company’s 2024 sales and earnings indicates growth of 21.3% and 208.9%, respectively, from the year-ago quarter’s reported figures. The consensus estimate for BIRK’s 2024 EPS has been unchanged in the past 30 days. Shares of this Zacks Rank #2 (Buy) company have rallied 28.4% in the past year.
Price and Consensus: BIRK
Steven Madden: The company designs, sources, markets, and sells fashion-forward footwear for women, men, and children, as well as private-label handbags and accessories globally. It focuses on growing its direct-to-consumer business through digital innovation, expanding non-footwear categories like handbags and apparel, increasing its international market presence, and strengthening its core U.S. wholesale footwear business. Key priorities include curating trend-driven products, deepening customer relationships through marketing, advancing its digital commerce strategy and managing expenses efficiently.
Steven Madden’s strong performance across wholesale, direct-to-consumer and licensing segments highlights the success of its strategies and positions the company for continued growth, particularly in international markets, which it sees as a major long-term growth opportunity. The Zacks Consensus Estimate for SHOO’s 2024 sales and earnings indicates growth of 12.7% and 6.9%, respectively, from the year-ago quarter’s reported figures. The consensus estimate for SHOO’s 2024 EPS has been unchanged in the past 30 days. The company has a trailing four-quarter earnings surprise of 9.5%, on average. Shares of this Zacks Rank #2 company have rallied 43.6% in the past year.
Price and Consensus: SHOO
Wolverine: The company is engaged in the designing, manufacturing and distributing a wide variety of casual and active apparel and footwear. It also manufactures children’s footwear and specially designed boots and accessories for industrial purposes. Its focus on brand structure, increasing efficiency by removing costs, strategic review of its portfolio, 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. The Zacks Consensus Estimate for WWW’s 2024 earnings is pegged at 85 cents per share, which indicates significant growth from the 5 cents reported in the year-ago quarter. The consensus estimate for WWW’s 2024 EPS has been unchanged in the past 30 days. The company has a trailing four-quarter negative earnings surprise of 7.5%, on average. Shares of this Zacks Rank #2 company have rallied 99.8% in the past year.
Price and Consensus: WWW
Carter’s: This is the leading marketer of branded apparel and products for babies and young children in North America. The company has taken significant steps in pricing to adapt to market conditions and boost profitability. Its emphasis on essential core products and strong value offerings, particularly in inflationary markets, appeals to budget-conscious shoppers. Carter’s has also seen a notable increase in margin rates due to reduced inbound freight costs, which is a key factor in margin growth. This reflects the company's focus on efficient cost management and operational improvements.
The Zacks Consensus Estimate for CRI’s 2024 sales and earnings indicates declines of 4.6% and 21.3%, respectively, from the year-ago quarter’s reported figures. The consensus estimate for CRI’s 2024 EPS has moved down 0.6% in the past 30 days. The company has a trailing four-quarter earnings surprise of 37.4%, on average. Shares of this Zacks Rank #3 (Hold) company have declined 4.8% in the past year.
Price and Consensus: CRI
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Adidas AG (ADDYY): Free Stock Analysis Report
Wolverine World Wide, Inc. (WWW): Free Stock Analysis Report
Carter's, Inc. (CRI): Free Stock Analysis Report
Steven Madden, Ltd. (SHOO): Free Stock Analysis Report
Birkenstock Holding PLC (BIRK): Free Stock Analysis Report