The Zacks Retail – Apparel and Shoes industry was not in its best shape this year. Plagued by various headwinds like mounting competition, shifting consumer patterns and thin margins, the industry crashed as much as 18.6% in 2019 against the S&P 500’s growth of 30.8%.
Competition from online retailers, particularly Amazon AMZN, is one of the biggest factors that has made things rough for players in the Retail – Apparel and Shoes industry. The growing popularity of online shopping has drastically weighed on brick-and-mortar traffic, thereby hurting sales and market share of traditional retailers. Even though retailers have undertaken e-commerce initiatives and are seeing sales growth in the channel, online sales usually generate lower margins compared with in-store sales owing to factors like shipping charges, and costs related to deliveries and returns, among others.
Apart from this, players in this space are battling competition from private-label brands and fashion-fast names like H&M and Zara on grounds of pricing and speed to keep pace with the changing consumer fashion trends. In fact, they are also losing market share to department store biggies like Target TGT and Walmart WMT, who offer similar products at discounted prices. Though apparel and shoe retailers have been undertaking increased promotional activities and a compelling pricing strategy to stay afloat, these again have been weighing on the margins.
Notably, such hurdles prompted many retailers to file for bankruptcy this year, making investors wary about this space. Furthermore, companies in this space are bearing the brunt of higher marketing, advertising and other store-related expenses, along with adverse currency fluctuations. To top it, potential tariff impacts stemming from the trade war have been concerning.
Together, these factors painted a dark picture for the Retail — Apparel and Shoes industry in 2019. Notably, sales in the retail clothing & clothing accessories stores saw a 0.6% drop in the first eleven months of this year, per the U.S. Census Bureau.
Every Cloud Has a Silver Lining
Nevertheless, there are companies in the Retail – Apparel and Shoes space, which defied the industry trend and managed to stage impressive performances on the back of their robust growth-oriented efforts. These firms have been benefiting from their concerted endeavors like product innovation, introduction of new styles, merchandise replenishment and store refurbishments and expansion to fuel sales. Moreover, initiatives such as building omnichannel, coming up with loyalty and marketing programs, enhancing the supply chain and providing faster delivery options are aiding growth. Simultaneously, companies are investing in renovation and improved checkouts, and mobile point-of-sale capabilities to keep stores relevant.
Companies in this space have also been benefiting from their saving efforts in the wake of rising costs as discussed above. Apart from this, a strong labor market and consumer spending have also been working well for these companies, whose prospects are closely tied to consumers’ purchasing power.
That said, we picked four stocks from the Retail – Apparel & Shoes industry, which returned at least 30% this year and possess a Zacks Rank #1 (Strong Buy) or 2 (Buy).
4 Retail – Apparel Stocks That Rocked in 2019
We suggest investing in Zumiez Inc. ZUMZ, which has a long-term earnings growth rate of 12%. This specialty retailer of a range of apparel, footwear and accessories has a trailing four-quarter positive earnings surprise of 64.1%, on average. The Zacks Consensus Estimate for top and bottom lines for the next financial year indicates a year-over-year improvement of roughly 3.4% and 4.6%, respectively. The stock sports a Zacks Rank #1 and has soared 77.2% in 2019. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Buckle, Inc. BKE, a leading retailer of medium to better-priced casual apparel, footwear and accessories, is also a solid bet with a Zacks Rank #1. The company, with a trailing four-quarter positive earnings surprise of 2.5%, on average, has seen its shares surge 55.5% in 2019.
Investors can also count on Boot Barn Holdings, Inc. BOOT, which operates as a lifestyle retail chain of western and work-related footwear, apparel and accessories. This Zacks Rank #2 company has a long-term earnings growth rate of 17%. It has a trailing four-quarter positive earnings surprise of 22.7%, on average. The Zacks Consensus Estimate for top and bottom lines for the next financial year indicates a year-over-year improvement of roughly 11.3% and 18.9%, respectively. Notably, shares of the company have more than doubled in 2019.
You can also add Vera Bradley, Inc. VRA to your portfolio. This designer, producer, marketer and retailer of accessories for women has a Zacks Rank #2. Moreover, the stock has appreciated 37.1% in 2019. The Zacks Consensus Estimate for top and bottom lines for the next financial year suggests a year-over-year increase of 13.8% and 14.1%, respectively.
Zacks Top 10 Stocks for 2020
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