5 wholesalers to buy despite poor sales in April

On May 15, the Commerce Department reported that retail sales remained steady month-over-month in April. However, the consensus predicted an increase of 0.4%. March data was revised down to an increase of 0.6% from 0.7% previously reported.

On a year-over-year basis, retail sales increased by 2.7% in April. However, these data are adjusted for seasonality, but not for inflation. Meanwhile, the Consumer Price Index – a key indicator of inflation – rose 3.4% year-on-year in April. This clearly shows that consumers have not kept up with the pace of price increases.

However, within this sector, the Zacks-defined Retail – Apparel & Footwear industry currently sits in the top 34% of the Zacks Industry Rank. Last year, the industry delivered a return of 45.6%, while the year-to-date return is 14.2%. Being ranked in the top half of the Zacks Industries Rank, we expect the Consulting industry to outperform the market over the next 3 to 6 months.

Positive catalysts

Industry players are benefiting from strong consumer demand for sportswear and footwear, and this trend is expected to continue in 2024. Sportswear and apparel companies offer products ranging from footwear, sweatshirts, leggings, pants, jackets and tops to yoga and running clothing for men and women. An increasing focus on fashion is driving demand for innovative clothing and footwear in the United States.

Industry participants focused on product innovation, active promotions, store expansion and increasing e-commerce capabilities to gain market share. Favorable health and wellness trends have become key to inspiring footwear manufacturers to expand their product portfolios.

Companies are constantly innovating in styles, materials and colors and implementing functional designs to capture a large share of the rapidly growing market. Multifunctional shoes that fit both everyday and formal styles are becoming more and more popular.

E-commerce plays a key role in the development of the sports and recreation market. Companies in this segment strive to build a customer base through websites, social media and other digital channels.

As consumers continue to shop from home, growth in sports-inspired clothing and digital sales is likely to continue. Companies focused on expanding their sportswear lines and developing e-commerce capabilities are expected to see growth in the long term.

Efforts to speed up deliveries by investing in supply chains and order fulfillment will likely provide an advantage to industry players. At the same time, companies are investing in checkout renovations and improvements, as well as mobile point of sale capabilities to make stores more attractive. Efforts to improve experiences across multiple channels are likely to significantly improve traffic and transactions in stores and online.

Our top picks

We’ve narrowed our search to five retail apparel and footwear stocks that have strong potential for 2024. These stocks have seen positive earnings estimate revisions over the last 60 days. Each of our picks is rated a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see complete list of today’s Zacks #1 ranked stocks here.

The chart below shows the price situation of our five picks in a given year.

Image Source: Zacks Investment Research

Canada Goose Holdings Inc. GOOS designs, manufactures and sells luxury apparel for men, women, youth, children and babies in Canada, the United States, Greater China, the rest of Asia-Pacific, Europe, the Middle East and Africa. GOOS operates in three segments: direct sales, wholesale and others.

Canada Goose offers parkas, lightweight down jackets, rainwear, windbreakers, clothing, fleeces, footwear and accessories for the fall, winter and spring seasons. GOOS operates through national e-commerce marketplaces and directly operated retail stores.

Zacks Rank #1 Canada Goose has expected revenue and earnings growth rates of 4% and 13.7%, respectively, for the current year (ending March 2025). The Zacks Consensus Estimate for current-year earnings has improved 6.4% over the past seven days.

Levi Strauss & Co. LEVI designs, promotes and sells clothing and related accessories for men, women and children worldwide. LEVI offers jeans, casual and dress pants, activewear, tops, shorts, skirts, dresses, jumpsuits, shirts, sweaters, jackets, footwear and related accessories under the Levi’s, Dockers, Signature by Levi Strauss & Co., Denizen and Beyond brands yoga.

LEVI also licenses the Levi’s and Dockers trademarks for various product categories, including footwear, belts, wallets, bags, outerwear, sweaters, shirts, children’s clothing, sleepwear and hosiery.

Zacks Rank #1 Levi Strauss has expected revenue and earnings growth rates of 2.9% and 15.5%, respectively, for the current year (ending November 2025). The Zacks Consensus Estimate for current-year earnings has improved 4.1% over the past 60 days.

Gap sp. GPS gained popularity thanks to lower air freight and better promotions that improved its margins. GPS is implementing its Power Plan for 2023. Lower advertising expenses and technological investments resulting from cost-saving measures also bode well for GPS. Gross margin increased due to gains from higher merchandise margins, lower merchandise costs and improved promotional activity.

Zacks Rank #1 GAP expects revenue and earnings growth rates of 1.7% and 11.1%, respectively, next year (through January 2026). The Zacks Consensus Estimate for next year earnings has improved 1.3% over the past seven days.

Abercrombie & Fitch Co. ANF benefited from continued sales momentum for both brands, which boosted holiday sales. ANF is seeing strong sales growth for each of its brands. The company experienced favorable margin trends, driven primarily by reduced transportation costs and improved average retail unit sales. Net sales are projected to grow by double digits in the first quarter of fiscal 2024 from the $836 million recorded in the same period last year.

Zacks Rank #2 Abercrombie & Fitch expects revenue and earnings growth rates of 5.9% and 22.5%, respectively, for the current year (ended January 2025). The Zacks Consensus Estimate for current-year earnings has improved 1.3% over the past seven days.

J. Jill Inc. JILL operates as a multi-channel women’s apparel retailer under the J.Jill brand in the United States. JILL offers clothing, footwear and accessories, including scarves and jewelry. The company sells its products through retail stores, websites and catalogs.

Zacks Rank #2 J.Jill has expected revenue and earnings growth rates of 1.7% and 8%, respectively, for the current year (ending January 2025). The Zacks Consensus Estimate for current-year earnings has moved 4% higher over the past seven days.

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