For Immediate Release
Chicago, IL – December 27, 2022 – Today, Zacks Equity Research discusses NIKE Inc. NKE, Deckers Outdoor DECK, Skechers SKX and Caleres CAL.
Industry: Shoes and Apparel
The Zacks Shoes and Retail Apparel industry has been dealing with hardships related to elevated costs, disrupted supply chains, reduced spending trends on discretionary items, higher freight costs and increased marketing investments. These traits have been the key burdens on the participating companies’ profits. Additionally, adverse currency movements threaten the industry players due to their worldwide presence.
However, the industry players are well-poised to benefit from the favorable health and wellness trends, which have been boosting the demand for activewear and athletic shoes. The new and innovative designs, along with increased consumer awareness about leading a healthy lifestyle, will likely continue aiding sales of fitness clothes and footwear. The industry players, focused on product innovation, store expansion, digital investments and omni-channel growth, are expected to gain.
The industry participants have been investing in product innovation to gain market share. Investments in products and e-commerce portals bode well for players like NIKE Inc., Deckers Outdoor, Skechers and Caleres.
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 are witnessing elevated costs due to factors like commodity cost inflation, increased freight costs, reinvestments and other impacts. Supply-chain constraints, extended transit times, and elevated ocean freight and logistic costs have been acting as deterrents. A number of companies expect increased freight and 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, the industry participants are witnessing higher costs to support brand campaigns and digital investments.
The exit from the Russia business due to the Ukraine-Russia conflict and COVID-related disruptions in some parts of Greater China are likely to be the key concerns for some players. A tough and competitive labor market remains another concern. These factors pose a threat to the industry players’ margins.
Consumer Demand Trends: Players in the industry have been benefiting from strong consumer demand for activewear/athleisure products and footwear, which is expected to persist 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.
The industry participants have been focused on product innovations, active promotions, store expansion and enhancing e-commerce capabilities to gain market share. Favorable health & 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 that cater to casual and formal looks have been gaining popularity. The increased participation of women in sports and outdoor activities in recent years has been a boon for the 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 the industry players.
Simultaneously, companies are investing in renovations and improved checkouts, as well as mobile point-of-sale capabilities, to make stores attractive. The efforts to enhance experiences through multiple channels are likely to contribute significantly to improving traffic and transactions both in stores and online.
Zacks Industry Rank Indicates Bleak Prospects
The Zacks Shoes and Retail Apparel Industry is an 11-stock group within the broader Zacks Consumer Discretionary sector. The industry currently carries a Zacks Industry Rank #214, which places it in the bottom 14% 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 bleak 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 2022 and 2023 have declined 21.7% and 28.8%, respectively.
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.
Industry vs. Sector
The Zacks Shoes and Retail Apparel industry has outperformed its sector but underperformed the S&P 500 in the past year.
While stocks in the industry have collectively declined 28.1%, the Zacks S&P 500 composite has dropped 19.5%. Meanwhile, the Zacks Consumer Discretionary sector has fallen 37.3%.
Shoes and 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 27.91X compared with the S&P 500’s 17.28X and the sector’s 17.3X.
Over the last five years, the industry has traded as high as 36.79X and as low as 19.86X, with the median of 26.18X.
4 Shoes & Retail Apparel Stocks to Watch
NIKE: The global leader in athletic footwear, apparel, equipment and sports-related accessories is poised to gain from its Consumer Direct Acceleration strategy, along with strong demand, compelling products, and robust performance in its digital and DTC businesses. NKE has been benefiting from its efficient digital ecosystem, which comprises its online site, as well as commercial and activity apps.
With consumers’ increasing digital focus, NIKE is on track with its digital revenue growth target for fiscal 2025. NKE expects revenue growth in fiscal 2025 to be led by NIKE Direct, which is anticipated to represent 60% of the total revenues on strong digital growth. The company expects NIKE-owned and partnered Digital to reach a 50% business mix in fiscal 2025, with NIKE-owned Digital accounting for 40% of the business.
As part of the Consumer Direct Acceleration, the company’s immediate priorities include improving personalization and creating a consistent end-to-end technology platform. The company remains confident of its performance in fiscal 2023, driven by brand strength, consumer connections, product pipeline, and the normalization of inventory supply in North America, EMEA and APLA.
The Zacks Consensus Estimate for NKE’s fiscal 2023 sales indicates growth of 5.1% from the year-ago quarter’s reported figure. The consensus estimate for NKE’s fiscal 2023 earnings has moved down 1.7% in the past seven days.
NIKE has reported an earnings surprise of 15.8%, on average, in the trailing four quarters. The Zacks Rank #3 (Hold) stock has declined 29.5% in the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Deckers: The Goleta, CA-based company is a leading designer, producer and brand manager of innovative, niche footwear and accessories developed for outdoor sports and other lifestyle-related activities. Strength in HOKA ONE ONE and UGG brands, as well as growth in direct-to-consumer and wholesale channels, has been aiding DECK’s performance. Deckers is targeting profitable and underpenetrated markets.
The company is focused on product innovations, store expansion and enhancing e-commerce capabilities. DECK’s focus on expanding its brand assortments, bringing a more innovative product line, targeting consumers digitally and optimizing omni-channel distribution bodes well.
Deckers has been developing its e-commerce portal to capture incremental sales. DECK has made substantial investments to strengthen its online presence and improve the shopping experience for its customers. The company’s focus on opening smaller-concept omni-channel outlets and expanding programs, including Retail Inventory Online; Infinite UGG; Buy Online, Return In Store; and Click and Collect, to enhance customers’ shopping experiences is likely to boost the top line in the quarters ahead. DECK has a trailing four-quarter earnings surprise of 27.8%, on average.
Shares of the Zacks Rank #3 company have gained 9% in the past year. The Zacks Consensus Estimate for DECK’s fiscal 2023 sales and earnings indicate growth of 11.3% and 11.4%, respectively, from the year-ago quarter’s reported figures. The consensus estimate for its fiscal 2023 EPS has moved up 0.1% in the past 30 days. DECK has a trailing four-quarter earnings surprise of 28.9%, on average.
Skechers: The 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. Skechers’ emphasis on new lines of products, 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. Going ahead, management plans to introduce more innovative and comfort technology products, build multi-platform marketing campaigns, and launch more e-commerce sites around the world.
Skechers is making strategic investments to improve infrastructure worldwide, primarily e-commerce platforms and distribution centers. It has been directing resources to enhance its digital capabilities, which includes augmenting website features, mobile applications and loyalty programs. Investments made to integrate store and digital ecosystems for developing a seamless omnichannel experience are likely to drive greater sales.
Skechers’ international business is a significant sales growth driver. SKX has a trailing four-quarter earnings surprise of 4.7%, on average. The Zacks Consensus Estimate for the company’s 2022 sales indicates growth of 16.8% from the year-ago quarter’s reported figure. The consensus estimate for SKX’s 2022 EPS has moved up by a penny in the past seven days. Shares of the Zacks Rank #3 footwear company have declined 0.2% in the past year.
Caleres: Caleres is a leading footwear retailer and wholesaler in the United States, China, Canada, and Guam. The company operates through Famous Footwear and Brand Portfolio segments. The Saint Louis, MO-based company has been benefiting from the positive consumer demand trends and accelerated recovery in the footwear marketplace, aiding its sales.
The momentum in the Famous Footwear brand is expected to contribute meaningfully to sales growth. Strong performances of CAL’s emerging brands, including Vionic, Sam Edelman, Allen Edmonds and Blowfish Malibu, are expected to be growth drivers.
Management anticipates the strong performance at the Famous Footwear brand and gains in the Brand Portfolio segments, leveraging a diversified brand model, and the continued execution of strategic priorities to aid CAL’s performance. Caleres’s focus on consumers’ evolving preferences and efforts to drive growth across its omni-channel ecosystem bodes well.
The Zacks Consensus Estimate for CAL’s fiscal 2022 sales and earnings indicate growth of 5.7% and 1.6%, respectively, from the year-ago quarter’s reported figures. The consensus estimate for CAL’s fiscal 2022 EPS has moved up 1.9% in the past 30 days. The company has a trailing four-quarter earnings surprise of 26%, on average. Shares of this Zacks Rank #3 company have declined 1.7% in the past year.
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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 assumed that 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 and is 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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