4 Textile & Apparel Stocks to Watch Amid Industry Headwinds – Zacks Investment Research | Jewelry Dukan

Rising inflationary pressures and supply chain disruptions have been a concern for several players in the Zacks Textile – Apparel industry. Many businesses are impacted by high selling and administrative expenses, particularly due to increased freight and logistics costs.

Nonetheless, efforts to increase business and digital operations continue along with robust brand enhancement efforts Lululemon Athletica Inc. (LULU free report) Columbia Sportswear Company (COLM free report) Guess?, Inc. (TOTAL Free report) and Gildan Activewear Inc. (Gil Free Report) well positioned to make profits.

About the industry

Zacks Textile and Apparel Industry includes companies and lifestyle brands that manufacture, design, distribute, source, market and sell men’s and women’s apparel, footwear and accessories. This includes fashion apparel such as dresses, trousers, skirts, shorts, shirts, jackets, blouses and knitwear, as well as lingerie such as underwear and shapewear. The industry also includes companies that offer clothing for a healthy lifestyle and sports activities such as yoga, running and training, to name a few. Some companies also deal in fitness accessories such as gloves, bags, hats and sports masks. Industry participants operate through direct-to-consumer (brick-and-mortar and online), wholesale and license distribution channels. Most players operate through stores and digital networks in the United States and internationally.

4 trends shaping the future of the textile and clothing industry

Cost Concerns: Textile apparel companies are facing escalating input cost inflation that is having a severe impact on their profits. Several companies are struggling with supply chain disruptions stemming from ongoing COVID-related factors, port congestion and reduced air cargo capacity. The ongoing problems in the supply chain lead to delays and increased freight costs. Incidentally, textile apparel suppliers continue to face higher SG&A costs. Increased marketing spend and increased investments in improving business and digital operations have driven up SG&A costs. The impact of lower demand due to inflation and reduced discretionary spending is also a major concern for payers. A challenging and competitive labor market is also a concern. These factors are putting company margins at risk.

International exposure poses risks: Because of their international presence, textile apparel companies are exposed to unfavorable currency fluctuations. Political unrest, such as turmoil related to current geopolitical events and the associated sanctions, restrictions or other responses, could adversely affect the performance of companies. Several actors are facing the fallout from the Ukraine war, including supply chain and regulatory hurdles.

Improved store traffic, solid digital trends: Textile apparel suppliers are capitalizing on the importance of physical retail and the convenience of online engagement. Businesses in the region are seeing a rebound in brick-and-mortar sales fueled by an increase in traffic as consumers returned to stores to shop. Textile apparel suppliers focus on investments to improve the shopping experience. The growing propensity of consumers to shop online has brought e-commerce to the forefront for players in the textile and apparel industry. Businesses in this space have invested in improving e-commerce websites, upgrading mobile apps, improving payment systems, linking online and brick-and-mortar stores, and enhancing fulfillment capabilities. Buy online, collect in store and curbside delivery options are gaining traction for many industry players.

Brand Strengthening Efforts: Efforts to strengthen brands through marketing strategies, licensing deals, acquisitions and alliances will likely continue to support textile apparel companies. New product launches are an important part of the growth of textile apparel companies. Companies in this space regularly innovate to improve their products to remain competitive and capitalize on evolving consumer preferences. The pandemic has pushed the comfortable casualwear category, which has worked in favor of activewear suppliers.

Zacks’ industry ranking suggests a bleak outlook

Zacks’ textile and apparel industry is part of the broader Zacks Consumer Discretionary sector. The industry currently holds a Zacks industry rank of #233, placing it in the bottom 7% 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 a robust near-term outlook. Our research shows that the top 50% of industries evaluated by Zacks outperform the bottom 50% by a factor of more than 2 to 1.

The industry’s position in the bottom 50% of industries ranked by Zacks results from a negative overall earnings outlook for each company. Looking at the revisions to aggregate earnings estimates, analysts are becoming less confident about this group’s earnings growth potential. Since the beginning of May 2022, the industry consensus earnings estimate for the current fiscal year has fallen by 9.6%.

Let’s look at the performance of the industry and the current valuation.

Industry versus broader market

The Zacks textiles and apparel industry has outperformed the broader Zacks consumer staples sector while underperforming the S&P 500 composite over the past year.

The industry fell 35.8% over the period, compared to a 40.3% plunge in the broader sector. The S&P 500 is down 14.6% over the same period.

One-year price development

Current rating of the industry

Based on the 12-month price-to-earnings (P/E) multiple, which is commonly used to value consumer discretionary stocks, the industry is currently trading at 11.43X, compared to the S&P 500’s 16.59X and 21.07X of the sector.

Over the past five years, the industry has traded as high as 32.1x, as low as 9.98x and a median of 18.06x, as shown in the chart below.

Price to earnings ratio (last 5 years)

4 textile and apparel stocks to keep a close eye on

Lululemon: The yoga-inspired sportswear company benefits from strong momentum in its business, fueled by positive response to its products. Lululemon strives to capture growing online demand through accelerated e-commerce investments. Zacks Rank #2 (Buy) company leverages its stores to enable omni-channel capabilities, including buy online, in-store pickup, and ship-from-store.

The Zacks Consensus estimate for Lululemon’s fiscal 2022 earnings per share (EPS) is up 4.6% over the past 30 days to $9.87. LULU stock is up 2.4% over the past six months. Lululemon has a projected EPS growth rate of 20% for three to five years. You can see the full list of today’s Zacks #1 Rank (Strong Buy) stocks can be found here.

Price and consensus: LULU

Columbia Sportswear: The designer, marketer and distributor of outdoor, active and everyday lifestyle apparel, footwear and accessories currently has a Zacks Rank #3 (Holding). Columbia Sportswear benefits from its strategic priorities, such as investing in demand generation to increase brand awareness. It remains committed to improving the consumer experience and its digital capabilities across all networks and geographies.

The Zacks Consensus Estimate for Columbia Sportswear’s 2022 EPS has remained unchanged at $5.18 for the last 30 days. COLM shares are down 22.8% over the past six months. Columbia Sportswear has an expected EPS growth rate of 8.1% for three to five years.

Price and Consensus: COLM

Guess?: Zacks Rank #3 Company is engaged in the design, marketing, distribution and licensing of lifestyle collections of apparel and accessories. Guess? benefits from its solid digital business. The company is on track to make progress on its customer-centric initiatives, including omnichannel capabilities, advanced data analytics and customer segmentation.

Guess commitment? also bodes well for six key strategies. These include organization and culture, functional capabilities, brand relevance across three key consumer groups (Heritage, Millennials and Gen Z customers), customer centricity, product brilliance and international presence. The Zacks Consensus estimate for Guess’s fiscal 2023 EPS is up almost 4% over the past 30 days to $2.63. GES stock is down 26.2% over the past six months.

Price and consensus: GES

Gildan Activewear: The manufacturer and seller of various apparel products is benefiting from the strength of its activewear category. Gildan Activewear benefits from the back-to-basic strategy. The focus on supply chain improvements and cost savings bodes well for GIL.

The Zacks Consensus estimate for Gildan Activewear’s EPS for 2022 has remained unchanged at $3.10 for the last 30 days. GIL’s stock is down 19.4% over the past six months. The Zacks Rank #3 company has an expected EPS growth rate of 9% for three to five years.

Price and Consensus: GIL

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