3 Retail-Apparel & Shoes Stocks To Pick This Earnings Season

The Retail – Apparel & Shoes industry is directly correlated to the purchasing power of consumers. Notably, strong job additions and record-low unemployment along with rise in wages are forming a perfect base for higher consumer spending, one of the pivotal factors driving the economy. An uptick in spending is always welcome news for the industry participants.

The industry has certainly undergone a sea change to cope with the altering retail landscape shaped by changing consumer spending habits, lower traffic in brick-and-mortar stores due to rise in online shopping thanks to Amazon (NASDAQ:AMZN) , and stiff competition from off-price retailers.

In line with this, companies have adopted transformation initiatives revolving around products, stores and marketing. Apart from these, they are also focusing on upgrade of core technology platforms and enhancement of supply chain. Not to forget, players in the industry have to keep up with the fast-changing fashion trends and offer a better bargain. These efforts should boost revenues of the industry constituents.

However, with companies trying all means to gain market share, costs associated with promotional activities and an aggressive pricing strategy have been eating into margins. Further, any deleverage in SG&A rate, higher labor and occupancy costs, and increased marketing and other store-related expenses are bottlenecks.

Nonetheless, the Retail – Apparel & Shoes industry currently carries a Zacks Industry Rank #42 that places it in the top 17% of more than 250 Zacks industries. While the stocks in this industry have collectively gained 7.5% in the past one month, the Zacks S&P 500 Composite and the broader Zacks Retail – Wholesale Sector have advanced 5.5% and 8.1%, respectively.

3 Prominent Picks

It is hard to predict what awaits investors but with earnings season underway it would be prudent to invest in stocks that are likely trump earnings estimates. Our research shows that for stocks with the combination of a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP, the chance of a positive earnings surprise is as high as 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Here we have highlighted three Retail – Apparel & Shoes stocks, which are grouped under the Retail – Wholesale sector. Per the latest Earnings Preview report, the sector is expected to record top and bottom-line growth of 5% and 19.3%, respectively, in this reporting cycle.

Foot Locker, Inc. (NYSE:FL) is a solid bet with a long-term earnings growth rate of 7.5%. The Zacks Consensus Estimate for the fourth quarter of fiscal 2018 is pegged at $1.36, reflecting an increase of 7.9% year over year. The company registered average positive earnings surprise of 6.8% in the trailing four quarters. This athletic shoes and apparel retailer has an Earnings ESP of +1.47% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Investors can even count on L Brands, Inc. (NYSE:LB) with a Zacks Rank #2 and an Earnings ESP of +0.91%. The Zacks Consensus Estimate for the fourth quarter of fiscal 2018 is pegged at $2.06. It has a long-term earnings growth rate of 11%. This specialty retailer of women's intimate and other apparel, beauty and personal care products registered average positive earnings surprise of 7.3% in the trailing four quarters.

You may also consider Canada Goose Holdings Inc. (NYSE:GOOS) with a Zacks Rank #3 and an Earnings ESP of +14.04%. The Zacks Consensus Estimate for the third quarter of fiscal 2019 is pegged at 57 cents, and reflects year-over-year growth of 23.9%. The company delivered average positive earnings surprise of 83.2% in the trailing four quarters. This designer, manufacturer, and seller of premium outdoor apparel has a long-term earnings growth rate of 31.3%.

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