By Jacob Sonenshine
For all the concerns around geopolitics and oil prices, demand for retail goods continues to hold up well. Apparel stocks look particularly appealing against that backdrop.
Even with rising oil prices and concerns that central banks could even raise interest rates, "consumer spending remains resilient," writes EY-Parthenon chief economist Gregory Daco.
While data showing consumers' sentiment readings have looked bleak in both widely-cited public data and UBS' data, actual consumer spending figures point to healthy enough growth. Retail sales for March rose 4% year over year, a touch better than in February. That was the fastest growth since November.
A UBS survey shows U.S. consumers plan to spend 4.4% more on apparel and footwear in the next 90 days versus the same period last year.
"U.S. consumers' view of the economy has been somewhat impacted month over month by the Middle East conflict and rising gas prices," writes UBS analyst Jay Sole. "Yet, the data show potential for a strong pop in U.S. consumer spending."
That makes retail stocks look attractive. The market is under appreciating solid fundamentals for the industry, Sole writes, after years of underperformance versus the S&P 500. Stocks in his coverage universe trade at an average of just over 16 times expected earnings for the coming 12 months, a discount to the S&P 500's just over 21 times. Historically, his group averages a 9% premium to the index.
This means satisfactory or better sales and earnings results versus expectations could bring the stocks higher, especially if the earnings continue to grow for a few more years. Sole likes On Holding, Gildan Activewear, Burlington Stores, TJX Cos., Levi Strauss, and Signet Jewelers.
Deckers Outdoor, which owns catchy brands such as Uggs and Hoka, also looks attractive, trading at just over 15 times earnings, versus a 21 times average the past five years.
It's got plenty of growth potential. While the double-digit annual sales growth it recorded from 2018 to 2025 will almost certainly slow, the company has demonstrated it can meet consumers' wants and take market share from competitors. Analysts expect 6% annual sales growth for the next three years, according to FactSet, a strong figure in this environment. Hoka, which has taken share from Nike, is expected to drive much of the growth.
Deckers said in its January first-quarter earnings call that while it's facing higher costs, it's also lifting prices on some products. It spoke about recently strong "full-priced" selling of Hoka. This can help it protect profit margins. Analysts forecast operating margins will remain roughly constant over the next few years.
These are results investors can believe in, given that Deckers could command strong pricing power -- and that it usually beats expectations. In the past 20 quarters, it has missed revenue estimates only once, and has missed bottom-line forecasts only once.
Take a chance on some of these names.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
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(END) Dow Jones Newswires
April 24, 2026 21:31 ET (01:31 GMT)
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