Apparel stocks had a sneaky good week with big gains being churned up after sector earnings reports arrived strong. Notable gainers for the week included Under Armour (NYSE:UAA) +22.2%, FIGS (NYSE:FIGS) +8.7%, Hanesbrands (NYSE:HBI) +8.7%, Ralph Lauren (NYSE:RL) +8.5% and PVH (NYSE:PVH) +5.5%.
The read in the footwear sector was equally promising for the week, with Wolverine World Wide (NYSE:WWW) +6.8%, Deckers Outdoors (NYSE:DECK) +5.8%, Crox (NASDAQ:CROX) +3.8% and Nike (NYSE:NKE) +3.2% all solidly higher for the five-day period. Many of the concerns over the impact of inflation on input costs for manufacturers are being tamped down a bit after the early Q2 reads.
What could go right in the oft-overlooked apparel manufacturing sector? JPMorgan thinks secular health/wellness and casualization tailwinds set up well for companies like Under Armour, while there are also strong indications that back-to-school and back-to-work spending trends are positive even as Delta COVID-19 headlines dominate. Meanwhile, Cowen thinks strong apparel brands like Nike (NKE), Lululemon (NASDAQ:LULU)and FIGS (FIGS) stand out. "Shifts to more direct models are enabling category-leading brands to scale with increasing growth rates and higher returns on capital than we have ever calculated in the sector," notes John Kernan.
Valuations are low for many apparel names. Some of the apparel stocks trading with a forward price-to-earnings ratio below 15X include Hanesbrands, Capri Holdings (NYSE:CPRI), Lakeland Industries (NASDAQ:LAKE), Jerash Holdings (NASDAQ:JRSH), (NASDAQ:CRWS), Superior Group of Companies (NASDAQ:SGC), Kontoor Brands (NYSE:KTB) and Delta Apparel (NYSE:DLA). Even high-flier Lululemon (LULU) isn't at peak valuation by most metrics.