Chicago, IL – September 13, 2023 – Today, Zacks Equity Research discusses Adidas AG ADDYY, Skechers SKX, Steven Madden SHOO and Carter’s Inc. CRI.
Industry: Shoes & Apparel
Link: https://www.zacks.com/commentary/2147684/4-shoes-retail-apparel-stocks-to-watch-amid-soft-industry-trends
The Zacks Shoes and Retail Apparel industry has been dealing with hardships from elevated costs, disrupted supply chains, reduced spending trends on discretionary items and increased marketing investments. These traits have been the key burdens on the participating companies’ profits. Additionally, adverse currency movements threaten industry players due to their worldwide presence.
However, players stand to benefit from robust demand for activewear and athletic shoes. 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. Industry players focused on product innovation, store expansion, digital investments and omni-channel growth are expected to gain. Investments in products and e-commerce portals bode well for players like Adidas AG, Skechers, Steven Madden and Carter’s Inc.
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.
Cost Headwinds: Companies in the industry are witnessing elevated costs due to factors like commodity cost inflation and reinvestments. Supply-chain constraints and elevated logistic costs have been acting as deterrents. Many companies expect increased 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, industry participants are witnessing rising 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 is another concern. These factors pose a threat to 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.
Industry participants have been focused on product innovations, active promotions, store expansion and enhancing e-commerce capabilities to gain market share. Favorable health and 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, which cater to casual and formal looks, have been gaining popularity. 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 industry players. Simultaneously, companies are investing in renovations and improved checkouts, as well as mobile point-of-sale capabilities, to make stores attractive. Efforts to enhance experiences through multiple channels are likely to contribute significantly to improving traffic and transactions in stores and online.
The Zacks Shoes and Retail Apparel Industry is a nine-stock group within the broader Zacks Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #210, which places it in the bottom 17% 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 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 7.1%.
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.
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 6.6%. However, the Zacks Consumer Discretionary sector and the Zacks S&P 500 composite have rallied 5.5% and 13.6%, respectively.
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 22.36X compared with the S&P 500’s 19.18X and the sector’s 16.7X.
Over the last five years, the industry has traded as high as 37.75X and as low as 20.15X, with the median of 27.1X.
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. The company’s emphasis on new product lines, 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.
Skechers is making strategic investments to improve infrastructure worldwide, primarily e-commerce platforms and distribution centers. The company’s international business is a significant sales growth driver. SKX has a trailing four-quarter earnings surprise of 39.1%, on average. The Zacks Consensus Estimate for the company’s 2023 sales and earnings indicates growth of 8.7% and 42%, respectively, from the year-ago quarter’s reported figure. The consensus estimate for SKX’s 2023 EPS has moved up 1.8% in the past 30 days. Shares of the Zacks Rank #1 (Strong Buy) footwear company have gained 34.9% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
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 in its online business. Adidas has been benefiting from improved sell-through of all Adidas products in the market. Moreover, 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 2023 top and bottom line indicates declines of 1.1% and 197%, respectively, from the year-ago quarter’s reported figures. The consensus estimate for ADDYY’s 2023 loss has narrowed 5.9% in the past seven days. Adidas delivered an earnings surprise of 44.4%, on average, in the trailing four quarters. This Zacks Rank #3 (Hold) stock has rallied 35% in the past year.
Steve Madden: The company designs, sources, markets and sells fashion-forward name-brand and private-label footwear for women, men and children, and private-label fashion handbags and accessories across the world. Its focus on boosting its direct-to-consumer business, expanding categories, enhancing its presence in the international markets and reinforcing its core U.S. wholesale footwear bodes well. It is also focused on creating a trend-right merchandise assortment, deepening relations with customers via marketing, enhancing the digital commerce agenda and efficiently controlling expenses, which is expected to boost the top and bottom lines.
A proven business model, robust brands and various growth opportunities position the company well to drive overall growth and boost stakeholders’ value in the long run. The Zacks Consensus Estimate for SHOO’s 2023 sales and earnings indicates declines of 7.5% and 11.8%, respectively, from the year-ago quarter’s reported figures. The consensus estimate for SHOO’s 2023 EPS has been unchanged in the past 30 days. The company has a negative trailing four-quarter earnings surprise of 1.5%, on average. Shares of this Zacks Rank #3 company have risen 15.7% in the past year.
Carter’s: The company is the largest marketer of branded apparel and related products for babies and young children in North America. It has been gaining from a solid e-commerce business, driven by expanded omni-channel facilities like curbside pickup, same-day pickup, buy online and pickup at store, and ship from store. This, along with easy access to a broad array of online products when shopping in stores, bodes well. Carter’s has been benefiting from improved price realization and gains from share repurchases.
The Zacks Consensus Estimate for CRI’s 2023 sales and earnings indicates declines of 7.1% and 15.8%, respectively, from the year-ago quarter’s reported figure. The consensus estimate for CRI’s 2023 EPS has moved down 1% in the past 30 days. It has a trailing four-quarter earnings surprise of 36.7%, on average. Shares of this Zacks Rank #3 company have declined 12.9% in the past year.
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Skechers U.S.A., Inc. (SKX) : Free Stock Analysis Report
Adidas AG (ADDYY) : Free Stock Analysis Report
Carter's, Inc. (CRI) : Free Stock Analysis Report
Steven Madden, Ltd. (SHOO) : Free Stock Analysis Report
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