The fourth-quarter earnings season has kick started, with initial results indicating that the momentum has toned down from the first three quarters of 2018. Earnings announcements are generally an important aspect of any individual’s investment decision. One industry that has been consistently putting up a good earnings show is Zacks Textile – Apparel.
Lately, the Textile – Apparel industry has witnessed immense strength, benefiting from brand enhancement initiatives alongside accelerated investments in digital business and international expansion. Backed by these, the industry has significantly outpaced the broader Zacks Consumer Discretionary sector and the S&P 500 index in the past year. The stocks in the industry have rallied 7.5% in a year compared with 10.1% decline for the broader sector and 5.9% for the S&P 500. Furthermore, the industry is placed among the top 21% (52 out of the 257 Zacks industries).
Industry Vs. S&P 500 & Sector
Factors Likely to Influence Q4 Performance of Industry Players
Players in the Textile - Apparel space are poised for a stellar show, if we go by their upbeat guidance. This confidence comes from the participants’ stringent focus on improving product and brand offerings through an impressive product mix, alliances and buyouts, licensing agreements, constant innovation and marketing initiatives. Further, these companies remain focused on enhancing the omni-channel experience by bringing improvements to its websites as well as stores. Further, strides to expand globally provide a solid business foundation while enabling to seek opportunities, especially in underpenetrated markets.
However, investments in brand extensions and e-commerce growth have lately been hurting margins of these companies. Further, stiff competition, volatile currency and the potential tariff impacts due to the U.S.-China trade war, may deter growth of these companies. Nonetheless, rigorous cost-cutting and restructuring efforts are likely to help battle margin woes stemming from rising operating costs and increased marketing investments.
Moreover, robust expectations for the broader Consumer Discretionary sector, per the latest Earnings Preview, raise our optimism on the industry’s earnings scorecard. Per the report, the Consumer Discretionary sector’s aggregate fourth-quarter EPS is expected to increase 10.6%, with revenues anticipated to witness 9.8% growth.
Picking Stocks With Earnings Beat Potential
We bring to you three stocks from the Zacks Textile - Apparel industry that show promise based on their favorable Zacks Rank and a positive Earnings ESP. Our research shows that stocks with a combination of a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP, have as high as a 70% chance of delivering a positive earnings surprise. It makes sense to add these potential winners to your portfolio, ahead of their releases. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
lululemon athletica inc. (NASDAQ:LULU) , a Vancouver-based yoga-inspired athletic apparel company that creates lifestyle components, is a solid bet. The company delivered average positive earnings surprise of 19.5% in the trailing four quarters. The Zacks Consensus Estimate for earnings in the quarter under review is pegged at $1.72 per share, reflecting year-over-year growth of 29.3%. The company, which is expected to announce fourth-quarter fiscal 2018 results on Mar 26, has an Earnings ESP of +1.21% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Ralph Lauren Corporation (NYSE:RL) is a major designer, marketer and distributor of premium lifestyle products. It currently has a Zacks Rank #3 and an Earnings ESP of +0.86%. The Zacks Consensus Estimate for the upcoming quarter is pegged at $2.14 per share, reflecting year-over-year growth of 5.4%. The company delivered average positive earnings surprise of 7% in the trailing four quarters. This New York-based company is scheduled to report earnings on Feb 5.
PVH Corporation (NYSE:PVH) is an apparel company in North America and internationally that designs and sells lifestyle products through owned and licensed brands. Currently, it has an Earnings ESP of +1.27% and a Zacks Rank #3. The Zacks Consensus Estimate for fourth-quarter fiscal 2018 is pegged at $1.72 per share, reflecting year-over-year growth of 8.9%. This New York-based company registered average positive earnings surprise of 4.3% in the trailing four quarters. It is expected to report results on Mar 27.
Last but not the least is Duluth Holdings Inc. (NASDAQ:DLTH) , with a Zacks Rank #3 and an Earnings ESP of +0.26%. The current Zacks Consensus Estimate for fourth-quarter fiscal 2019 is pegged at 76 cents per share, reflecting growth of 38.2% year over year. This Belleville, WI-based company sells casual wear, workwear, and accessories for men and women under the Duluth Trading brand in the United States. The company registered an average positive earnings surprise of 2.8% in the trailing four quarters. The company is expected to report results on Mar 19.
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