Footwear and apparel earnings season begins this week, BTIG previews names

Investing.com -- Footwear and apparel companies begin reporting third-quarter earnings this week, starting with Deckers Outdoor Corp (NYSE: DECK), followed by VF Corp (NYSE: VFC), Boot Barn Holdings Inc (NYSE: BOOT), and Crocs Inc (NASDAQ: CROX) the following week, according to BTIG.

BTIG maintains a neutral rating on Deckers and Crocs, while rating VF Corp and Boot Barn as buys with price targets of $23 and $215, respectively. The firm said sentiment in the sector leans negative, as shown by compressed multiples and rising short interest.

The footwear sector faces promotional pressure, while ongoing inflation raises questions about consumer spending and how companies will manage rising input and freight costs. Uncertainty around tariffs may add volatility to 2027 guidance, BTIG said.

BTIG expressed the most optimism for VF Corp, where sentiment has started to improve but remains cautious as investors wait for signs of recovery at the Vans brand. The firm sees the most risk in Deckers, citing industry challenges that contribute to uneven trends at HOKA and indications of a slower buildup for UGG during the fall and holiday seasons.

Many companies reported softness toward the end of June and July, likely due to elevated fuel prices, World Cup distraction, and the absence of a major shopping event. Back-to-school shopping started slowly but was solid for most companies, with a later peak partly driven by Labor Day timing, reflected in strong traffic during August and September.

For 11 of 18 companies under BTIG coverage, inventory growth at the end of the second quarter tracked below sales, and the industry-wide inventory-to-sales ratio continues to run lower year-over-year and below historical levels. Inventory remains heavy in the casual athletic sector, primarily in legacy styles, creating pressure across the industry and prompting multi-brand retailers to rebalance.

Container costs are roughly double year-over-year, though still well below post-COVID peaks, while domestic freight costs have been rising throughout the year and are approaching post-COVID highs. Most companies indicated in the first and second quarters that cost pressures were largely contained through year-end, but prolonged elevated fuel costs are creating additional risk in the fourth quarter and into 2027.

Companies with faster inventory turns are likely to feel the impact sooner, while companies with higher average unit retail prices and margins should be more protected given fuel represents a lower percentage of total cost of goods sold, BTIG noted. The firm highlighted On Holding AG (NYSE: ONON) and Amer Sports Inc (NYSE: AS) as examples, maintaining buy ratings with price targets of $60 and $42, respectively.

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