The U.S. economy remains resilient despite the fact that the interest rate is currently at its 22-year high. The Fed is pursuing rigorous rate hikes and extremely tight monetary control for the past one and a half years. Aside from a solid labor market, personal consumption expenditure remains strong. Consequently, the retail sector is flourishing in 2023.
The Zacks-defined Retail – Apparel and Shoes industry is currently in the top 34% of the Zacks Industry Rank. Year to date, the industry has provided 19.9% returns, well above the 16.1% return provided by the market’s benchmark — the S&P 500 Index. Since it is ranked in the top half of Zacks Ranked Industries, we expect the consulting services industry to outperform the market over the next 3 to 6 months.
Industry participants have been focusing on deepening engagements with consumers, creating innovative and compelling products and enhancing digital and data analytics capabilities. The launch of newer styles, customization options and refreshed store environments enable them to woo shoppers.
Industry players are building an omnichannel, coming up with loyalty and marketing programs, enhancing the supply chain and providing faster delivery options, be it doorstep delivery, curbside pickup or buy online and pick up at a store.
Simultaneously, companies are investing in renovation, improved checkouts, and mobile point-of-sale capabilities to keep stores relevant. Keeping in mind the growing inclination toward online shopping, companies have been replenishing shelves with in-demand merchandise and ramping up investments in digitization.
Our Top Picks
We have narrowed our search to five retail – apparel and shoe industry stocks that have strong potential for the rest of 2023. These stocks have seen positive earnings estimate revisions within the last 30 days. Each of our picks sports a Zacks Rank #1 (Strong Buy).
Urban Outfitters Inc.’s URBN strategic growth initiative, FP Movement, and store-related efforts bode well. The FP Movement appears encouraging, generating above 57% comps growth during the second quarter of fiscal 2024.
Brandwise, net sales were up 10.6% for the Anthropologie Group and 22% for Free People. Also, the Retail segment’s comparable net sales grew 4.9% backed by a mid-single-digit increase in retail-store sales and digital channel sales.
URBN has an expected revenue and earnings growth rate of 6.9% and 84.6%, respectively, for the current year (ending January 2024). The Zacks Consensus Estimate for current-year earnings has improved 1.6% over the last seven days.
Abercrombie & Fitch Co. ANF has benefitted from the continued momentum in the Abercrombie brand and a sequential improvement in the Hollister brand. Lower freight costs and robust AUR growth aided margins. Consequently, ANF expects year-over-year sales growth of 10% for fiscal 2023. Store optimization and the Always Forward plan bode well.
ANF has an expected revenue and earnings growth rate of 10.1% and more than 100%, respectively, for the current year (ending January 2024). The Zacks Consensus Estimate for current-year earnings has improved 8.2% over the last seven days.
Skechers U.S.A. Inc. SKX has benefited from its enhanced digital capabilities. Investments made to integrate store and digital ecosystems for developing a seamless omnichannel experience are driving growth. SKX is witnessing solid demand for its comfort technology products.
SKX has an expected revenue and earnings growth rate of 8.7% and 42%, respectively, for the current year (ending January 2024). The Zacks Consensus Estimate for current-year earnings has improved 1.8% over the last 30 days.
American Eagle Outfitters Inc. AEO has gained from brand strength, and solid demand, particularly in June and July driven by exciting new marketing campaigns. AEO stated that Aerie and American Eagle witnessed substantial improvement and maintained strength in their categories. Also, Real Power and Real Growth value-creation bode well. As a result, AEO raised its fiscal 2023 view.
American Eagle Outfitters has an expected revenue and earnings growth rate of 0.4% and 20.6%, respectively, for the current year (ending January 2024). The Zacks Consensus Estimate for current-year earnings has improved 11.4% over the last seven days.
Genesco Inc. GCO operates as a retailer and wholesaler of footwear, apparel, and accessories in the United States, Puerto Rico, Canada, the United Kingdom, and the Republic of Ireland. GCO operates through four segments: Journeys Group, Schuh Group, Johnston & Murphy Group, and Licensed Brands.
GCO has an expected revenue and earnings growth rate of 2% and 88%, respectively, for the next year (ending January 2025). The Zacks Consensus Estimate for next-year earnings has improved 5.6% over the last 30 days.
Abercrombie & Fitch Company (ANF): Free Stock Analysis Report
American Eagle Outfitters, Inc. (AEO): Free Stock Analysis Report
Skechers U.S.A., Inc. (SKX): Free Stock Analysis Report
Urban Outfitters, Inc. (URBN): Free Stock Analysis Report
Genesco Inc. (GCO): Free Stock Analysis Report
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