The apparel category takes up a large share of the retailing cart. The Zacks Retail – Apparel and Shoes industry mostly includes specialty retailers offering apparel, activewear, footwear, accessories, electronics, fitness and lifestyle products, both in-stores and on websites. The industry’s prospects, which are closely tied to the purchasing power of consumers, have been robust of late owing to strong U.S. economic fundamentals.

The U.S. GDP grew 3.3% on average in the first nine months of 2018, a notch higher than Trump administration’s targeted growth rate of 3%. The increase in GDP, which reflects higher personal income and robust job picture, is resulting in higher consumer spending that has benefited the retail sector. The fourth-quarter is likely to show maintained momentum on a strong labor market and solid consumer and business confidence.

Strongest Holiday Season for Retailers in 6 Years

Clear signs of this optimism on the retail sector were seen as Mastercard SpendingPulse released blockbuster initial numbers of retail holiday sales. The early data reveals that U.S. retailers had the best holiday season in six years as retail sales between Nov 1 and Dec 24 increased 5.1%. It shows that shoppers spent more than $850 million this holiday season.

The success is mostly attributed to robust consumer spending, with e-commerce being a major contributor. Online sales grew 26.4% from a year ago between the Wednesday before Thanksgiving through Black Friday, per Adobe Analytics. Per Mastercard SpendingPulse, U.S. e-commerce sales grew 19.1% from Nov 1 through Dec 24 from 2017 level.

Mastercard’s initial holiday numbers undoubtedly outpaced the National Retail Federation’s (NRF) earlier projections that called for retail sales of about $721 billion during the holiday season. This data was somewhat within Deloitte’s earlier forecast of 5-5.6% retail holiday sales growth, with about 17-22% increase coming from online sales.

Apparel’s Contribution to Holiday Sales Growth

Among the retail wings, the apparel and home improvement industries held the spotlight, delivering the strongest growth numbers this holiday season. According to Mastercard, apparel sales rose 7.9% from Nov 1 through Dec 24, the best growth in eight years. This category gained from the strong momentum built during the back-to-school season and followed through the fall season and up to Christmas. Meanwhile, the home improvement industry recorded sales growth of 9% this holiday season.

Apparel Retailers Poised for More Growth

It is worth mentioning here that the apparel retailers have put up a good show throughout 2018 driven by their efforts to showcase innovative merchandise, boost digital presence, enhance supply-chain to provide fast delivery options and manage inventory both in-stores and online. In addition to launching varied omnichannel capabilities, these companies are re-inventing their loyalty and marketing programs to attract customers. Additionally, a buoyant consumer environment, courtesy of a robust job market and higher disposable income, is working in favor of the industry participants. This places the industry well for growth.

Some apparel retailers that have been on the winning side this year, gaining from the aforementioned strategies, are Abercrombie & Fitch and Gap’s (GPS  - Free Report) Old Navy. Additionally, we believe there are many more on the list that are adapting well to evolving times and gearing up for growth.

Our Choices

On that note, we bring to you five apparel retailers that are capable of putting up a glitzy show in 2019. These companies currently carry a Zacks Rank of #1 (Strong Buy) or 2 (Buy) and have comfortably outpaced the market (S&P 500), which has declined 6.9% year to date. These stocks, with a market capitalization of more than $100 million, flaunt a VGM Score of A or B as well.

The chart below shows the year-to-date price performance of the companies versus the S&P 500 index.

(Click on image to enlarge)

Abercrombie & Fitch Co. (ANF - Free Report), with a market cap of nearly $1.28 billion, operates as a specialty retailer of premium, high-quality casual apparel for men, women, and kids. The company operates in two segments, Hollister and Abercrombie. The company has expected earnings growth of 41.5% for fiscal 2018 and 2.8% for fiscal 2019. The Zacks Consensus Estimate for fiscal 2019 has improved 18.8% in the last 60 days. Moreover, the stock has risen nearly 11.2% year to date. The company presently has a VGM Score of A and carries a Zacks Rank #1.

Foot Locker Inc. (FL - Free Report) is a retailer of athletic shoes and apparel. The company operates through the Athletic Stores and Direct-to-Customers segments. With a market cap of nearly $5.9 billion, the company presently carries a Zacks Rank #2 and has a VGM Score of B. In the last 60 days, the Zacks Consensus Estimate for earnings moved up nearly 1.5% for fiscal 2019. Notably, the projected year-over-year earnings growth rate is 9.5% for fiscal 2018 and 8.2% for fiscal 2019. Moreover, the stock has improved 11.5% year to date.

Shoe Carnival, Inc. (SCVL  - Free Report) offers a broad assortment of moderately priced dress, casual and athletic footwear for men, women, and children with emphasis on national and regional name brands. Shoe Carnival sports a Zacks Rank #1 and a VGM Score of B. The company has a market cap of nearly $547.9 million. It has expected earnings growth of 59.7% for fiscal 2018 and 10.5% for fiscal 2019. The Zacks Consensus Estimate for fiscal 2019 has improved 11.9% over the last 60 days. The stock has soared 32.8% year to date.

Canada Goose Holdings Inc. (GOOS  - Free Report) is a designer, manufacturer, distributor and retailer of premium outerwear for men, women, and children. The company has a market cap of $4.6 billion and a Zacks Rank #2. The company has expected earnings growth of 43.9% for fiscal 2018 and 28.3% for fiscal 2019. The Zacks Consensus Estimate for fiscal 2019 has improved 9.9% over the last 60 days. Moreover, the stock has surged 32.4% year to date and flaunts a VGM Score of B.

DSW Inc. (DSW - Free Report), with a market cap of $2 billion, offers dresses, casual and athletic footwear, and accessories under various brands for women, men, and kids. The company sports a Zacks Rank #2 and a VGM Score of A. It has expected earnings growth of 17.8% for fiscal 2018 and 11.4% for fiscal 2019. The Zacks Consensus Estimate for fiscal 2019 has improved 5.3% over the last 30 days. The stock has moved up 16.4% year to date.