Gap Stock Jumps 16% on Solid Q3 Earnings & Raised FY24 View

Matthews International Corporation MATW reported the fourth-quarter 2024 result, wherein both top and bottom lines surpassed the Zacks Consensus Estimate. However, both metrics declined year over year.

The performance was impacted by continued customer delays in MATW’s energy business. Nonetheless, the company’s cost-cutting program did provide some cushion.

MATW’s Quarterly Performance: Key Insights

Matthews International posted adjusted quarterly earnings of 55 cents per share, which beat the Zacks Consensus Estimate of 41 cents. The same decreased 42.7% from earnings of 96 cents per share reported in the prior-year period.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

Matthews International Corporation Price, Consensus and EPS Surprise

Matthews International Corporation price-consensus-eps-surprise-chart | Matthews International Corporation Quote

The company reported consolidated net sales of $446.7 million, which beat the Zacks Consensus Estimate of $439 million. However, the metric decreased 7% from $480.2 million posted in the year-ago period.

Gross profit fell 22.2% year over year to $117.3 million. We note that the gross margin contracted 510 basis points (bps) to 26.3%.

Matthews International reported an adjusted EBITDA of $58.1 million, down 6.1% from the prior-year quarter. However, the adjusted EBITDA margin increased 10 bps to 13%.

MATW’s Segment Wise Performance Details

Revenues for the Memorialization decreased 3.9% year over year to $196.8 million. Despite lower unit volumes, caused by a decline in the number of U.S. deaths compared with the prior year, the segment's adjusted EBITDA grew 9.8% to $40.5 million. Ongoing cost containment initiatives, coupled with improved price realization, aided improved operating margins.

Industrial Technologies revenues decreased 19% to $113.9 million, primarily due to ongoing customer delays in the energy business. The quarter also indicated continued softness in the warehouse automation market. However, improving order rates implies the potential for a strong recovery in the next fiscal year. The segment’s adjusted EBITDA declined 32.4% to $15.9 million.

SGK Brand Solutions revenues inched up 0.9% to $135.9 million, primarily indicating improved pricing to offset inflationary cost increases, elevated sales for the merchandising and private label businesses, and expansion in the Asia-Pacific market. The segment’s adjusted EBITDA fell 1.2% to $17.3 million.

MATW’s Financial Health Snapshot

Matthews International ended the reported quarter with cash and cash equivalents of $40.8 million, long-term debt, current maturities of $6.9 million and stockholders’ equity of $437.2 million. During the fourth quarter of fiscal 2024, MATW reduced outstanding debt by $53.8 million. For the year ended Sept. 30, 2024, net cash provided by operating activities was $79.3 million.

Recently, the company’s board of directors raised the quarterly dividend by one cent to 25 cents per share. This increase marks the 31st consecutive annual dividend increase. The dividend payment is scheduled for Dec. 16, 2024, for its shareholders on record as of Dec. 2.

MATW’s 2025 Outlook

For fiscal 2025, Matthews International faces continued uncertainty regarding project timing in the Industrial Technologies segment, particularly within the energy business. While the company anticipates completing deliveries during the year, it did not provide any quarterly timing. However, it believes that the cost reduction programs should mitigate some of the impacts.

MATW anticipates another strong performance from the Memorialization business in fiscal 2025, as U.S. death rates have largely normalized following the COVID-19 pandemic. The company expects continued growth in sales of cremation-related products.

Management foresees sustained progress in the SGK Brand Solutions segment, indicating improving conditions in the U.S. market, greater stability in Europe and further expansion in the Asia-Pacific region.

In the Industrial Technologies segment, the product identification business is expected to grow next year and the company anticipates reaping benefits from the launch of a new printhead product, scheduled for the latter half of the fiscal year. Additionally, improving order rates for warehouse automation solutions should support the recovery in this business.

Considering aforementioned factors, MATW remains cautious and guided adjusted EBITDA for fiscal 2025 in the range of $205 million to $215 million compared with $205.2 million reported in fiscal 2024.

The Zacks Rank #5 (Strong Sell) stock has lost 1.2% in the three months against the industry’s growth of 9.5%.

The S&P 500 Index today is up +0.26%, the Dow Jones Industrials Index is up +0.57%, and the Nasdaq 100 Index is up +0.04%.

Stocks today are moderately higher, with the S&P 500 and Dow Jones Industrials posting 1-week highs. Positive corporate news today is boosting stocks. Super Micro Computer is up more than +11% to lead gainers in the S&P 500 and Nasdaq 100 after it said it believes it can file its delayed 10-K and 10-Q reports in the period available under Nasdaq rules. Also, Ross Stores is up more than +2% after reporting stronger-than-expected Q3 EPS and raising its 2025 EPS forecast. However, the weakness today in Nvidia and Alphabet is weighing on technology stocks and limiting gains in the Nasdaq 100 Stock Index.

US economic news today was mixed for stocks after the Nov S&P manufacturing and service PMIs increased, but the University of Michigan US Nov consumer sentiment index unexpectedly declined.

The US Nov S&P manufacturing PMI rose +0.3 to a 4-month high of 48.8, slightly weaker than expectations of 48.9. The Nov S&P services PMI rose +2.0 to a 2-1/2 year high of 57.0, better than expectations of no change at 55.0.

The University of Michigan US Nov consumer sentiment index unexpectedly fell -1.2 to 71.8, weaker than expectations of an increase to 73.9.

Today’s rally in global government bond prices supported equity markets after 10-year German bunds climbed to a 1-month high, providing carryover support to T-note prices. T-notes are also climbing after the Wall Street Journal reported that President-elect Trump supports Kevin Warsh as the next Treasury Secretary, who is seen as a bond-friendly pick as Warsh has previously spoken out against high deficits.

Concern about weakness in the Eurozone economy is limiting gains in stocks after the Eurozone Nov S&P PMI unexpectedly contracted and Germany’s Q3 GDP was revised lower. Also, the recent escalation of the Ukraine-Russia conflict is weighing on stocks.

Of the 90% of companies in the S&P 500 that have released Q3 earnings so far, 75% surpassed the estimates, slightly below the 3-year average. According to Bloomberg Intelligence, companies in the S&P 500 have reported an average +8.5% y/y increase in quarterly earnings in Q3, more than double the preseason forecast.

The markets are discounting the chances at 59% for a -25 bp rate cut at the December 17-18 FOMC meeting.

Overseas stock markets today are mixed. The Euro Stoxx 50 is up +0.57%. China's Shanghai Composite Index fell to a 2-1/2 week low and closed down sharply by -3.06%. Japan's Nikkei Stock 225 closed up +0.68%.

Interest Rates

December 10-year T-notes (ZNZ24) today are up +2 ticks. The 10-year T-note yield is down -0.6 bp to 4.416%. Dec T-notes today are slightly higher on carryover support from a rally in European government bonds. T-notes also gained support from a Wall Street Journal report that said President-elect Trump is seen as supporting Kevin Warsh as the next Treasury Secretary. The appointment of Warsh, a former Fed governor known as a hawk who has warned about surging debt burdens, would be seen as a sign of stability and someone who would push back against some of the most extreme policy scenarios Trump has discussed. However, T-notes fell back from their best levels after the US Nov S&P manufacturing and service PMIs increased, signaling economic strength that is hawkish for Fed policy.

European government bond yields today are moving lower. The 10-year German bund yield fell to a 1-month low of 2.235% and is down -4.3 bp to 2.275%. The 10-year UK gilt yield dropped to a 3-week low of 4.363% and is down -3.1 bp to 4.412%.

The Eurozone Nov S&P manufacturing PMI fell -0.8 to 45.2, weaker than expectations of no change at 46.0. Also, the Eurozone Nov S&P composite PMI fell -1.9 to 48.1, weaker than expectations of no change at 50.0 and the steepest pace of contraction in 10 months.

German Q3 GDP was revised downward to +0.1% q/q and -0.3% y/y from the previously reported +0.2% q/q and -0.2% y/y.

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its December 12 policy meeting and at 43% for a -50 bp rate cut at the same meeting.

US Stock Movers

Super Micro Computer is up more than +11% to lead gainers in the S&P 500 and Nasdaq 100 after it said it believes it can file its delayed 10-K and 10-Q reports in the period available under Nasdaq rules.

Copart is up more than +8% after reporting Q1 revenue of $1.15 billion, stronger than the consensus for $1.10 billion.

The Gap is up more than +6% after reporting a Q3 operating margin of 9.13%, better than the consensus of 8.17%, and raising its 2025 gross margin estimate to about +220 bps from a previous estimate of about +200 bps.

Elastic NV is up more than +17% after reporting Q2 adjusted EPS of 59 cents, well above the consensus of 38 cents, and raising its 2025 adjusted EPS forecast to $1.68-$1.72 from a previous estimate of $152.$1.56, stronger than the consensus of $1.53.

Deckers Outdoor is up more than +4% after Needham & Co. initiated coverage on the stock with a buy recommendation and a price target of $218.

Ross Stores is up more than +2% after reporting Q3 EPS of $1.48, stronger than the consensus of $1.40, and raising its 2025 EPS forecast to $6.10-$6.17 from a previous forecast of $6.00-$6.13, the midpoint above the consensus of $6.13.

Nike is up more than +2% after Needham & Co. initiated coverage on the stock with a buy recommendation and a price target of $84.

Viking Therapeutics is up more than +1% after B Riley Securities initiated coverage of the stock with a recommendation of buy and a price target of $109.

Pala Alto Networks is down more than -4% to lead losers in the Nasdaq 100 after HSBC downgraded the stock to reduce from hold with a price target of $291.

Intuit is down more than -4% after forecasting Q2 adjusted EPS of $2.55-$2.61, well below the consensus of $3.23.

Nvidia is down more than -2% to lead losers in the Dow Jones Industrials after the company’s forecast for Q4 revenue exceeded estimates by only $400 million, the second consecutive quarter that revenue didn’t exceed estimates by $1 billion or more, suggesting the recent hyper-growth of the stock is fading.

Alphabet is down more than -1%, adding to Thursday’s -4% loss after the US Justice Department proposed major changes to Google, including a forced sale of its Chrome web browser, saying the browser “fortified” the company’s dominance.

Reddit is down more than -7% after Downdetector reported that users are having problems connecting to Reddit’s website.

Tenet Healthcare is down more than -3% after Raymond James downgraded the stock to outperform from a strong buy.

HCA Healthcare is down more than -1% after Raymond James downgraded the stock to market perform from outperform.

Earnings Reports (11/22/2024)

AMMO Inc (POWW), B Riley Financial Inc (RILY), Buckle Inc/The (BKE), Destination XL Group Inc (DXLG), Evolv Technologies Holdings Inc (EVLV), IES Holdings Inc (IESC), Spire Global Inc (SPIR).

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policyhere.

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The Retail - Apparel And Shoes industry, once a cornerstone of consumer spending and fashion trends, is currently navigating a challenging landscape. Fluctuating consumer confidence, driven by underlying inflationary pressures, has significantly altered spending patterns. With disposable incomes shrinking, consumers are prioritizing essential items, causing demand for apparel and footwear to weaken. Simultaneously, retailers are grappling with rising operational costs, including increased wages and higher prices for goods and services. Efforts to pass these added costs onto consumers have only intensified the challenges for retailers.

Nonetheless, industry participants are proactively adapting to the shifting consumer landscape by focusing on robust product strategies, advancing omnichannel capabilities, making prudent capital investments and expanding their customer reach. These initiatives enable retailers to stay competitive and effectively meet evolving consumer demands, positioning them for continued success despite market challenges.

Backed by these initiatives, companies like Deckers Outdoor Corporation DECK, Tapestry, Inc. TPR, Abercrombie & Fitch Co. ANF and Torrid Holdings Inc. CURV are better placed.

About the Industry

The Retail - Apparel & Shoes industry encompasses the manufacturing, distribution and retailing of clothing, footwear and accessories. The industry is influenced by various factors, including fashion trends, consumer spending habits, economic dynamics and seasonal variations. Companies within the industry range from global apparel giants to domestic brands, each targeting specific market segments. The industry presents both opportunities and challenges. On one hand, it demands continuous product innovation, brand distinctiveness and effective marketing to attract customers. On the other hand, fierce competition and price sensitivity pose hurdles. Technological advancements and the rise of online retail have revolutionized the industry, with consumers increasingly seeking convenience and personalized shopping experiences.

4 Key Trends to Watch in the Industry

Soft Demand May Hit Revenues: Underlying inflationary pressures and geopolitical tensions are weighing on consumer spending, a critical driver for the retail sector. The industry’s outlook is increasingly tied to consumer purchasing power, which is being strained by rising prices, squeezing family budgets and weakening demand. According to the latest report from the Commerce Department, sales at clothing and accessories stores declined by 0.2% in October on a sequential basis, reflecting the growing pressure on the sector.

Pressure on Margins to Linger: The retail apparel and shoes industry is highly competitive, with companies battling for market share through pricing, product offerings and speed to market. To stay ahead, many players have been heavily investing in digital infrastructure and enhancing delivery capabilities. While these initiatives drive sales, they come with substantial costs. Increased spending on marketing, advertising and store operations is putting further pressure on margins. However, companies are actively working to offset these challenges by streamlining operations, optimizing supply chains and implementing strategic pricing strategies.

Brand Enhancement & Capital Discipline: Industry players are increasingly focused on deepening consumer engagement through innovative products, personalized experiences, and enhanced digital and data analytics capabilities. The introduction of new styles, customization options and revamped store environments is designed to attract and retain shoppers. Efforts to strengthen brand portfolios through targeted marketing, strategic acquisitions, innovation and partnerships are expected to continue supporting growth in the sector. Additionally, companies are taking steps to bolster their financial health, including managing inventory more effectively, closing underperforming stores, optimizing capital expenditures and improving operational efficiency.

Diversification & Digitization Key to Growth: As consumer shopping behaviors evolve, companies are adapting by integrating both in-store and online operations. They are developing omnichannel capabilities, implementing loyalty and marketing programs, and enhancing supply chains to offer faster delivery options such as doorstep delivery, curbside pickup, and buy online, pick up in-store. At the same time, investments in store renovations, improved checkout processes and mobile point-of-sale systems are helping to maintain relevance. To align with consumer preferences and the shift toward online shopping, companies are continually replenishing shelves with popular merchandise and increasing investments in digital technologies.

Zacks Industry Rank Indicates Bleak Prospects

The Zacks Retail - Apparel And Shoes industry is a group within the broader Zacks Retail – Wholesale sector. The industry currently carries a Zacks Industry Rank #135, which places it in the bottom 46% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates drab near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

The industry’s positioning in the bottom 50% of the Zacks-ranked industries is a result of the negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are losing confidence in this group’s earnings growth potential. Since the beginning of February 2024, the industry’s earnings estimate has declined by 16.1%.

Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry vs. Broader Market

The Zacks Retail - Apparel And Shoes industry has underperformed both the broader Zacks Retail-Wholesale sector and the Zacks S&P 500 composite over the past year.

The industry has advanced 16.3% over this period compared with the S&P 500’s growth of 30%. Meanwhile, the broader sector has risen 30.6%.

One-Year Price Performance

Industry's Current Valuation

Based on forward 12-month price-to-earnings (P/E), which is commonly used for valuing retail stocks, the industry is currently trading at 15.92X compared with the S&P 500’s 22.28X and the sector’s 23.94X.

Over the last five years, the industry has traded as high as 36.25X and as low as 8.03X, with the median being at 15.28X, as the chart below shows.

Price-to-Earnings Ratio (Past 5 Years)

4 Stocks Worth Considering

Deckers: The company’s diverse brand portfolio, financial strength and strategic growth initiatives make it a promising investment. Driven by HOKA and UGG’s impressive growth, balanced channel performance and successful global expansion, Deckers shows a well-executed strategy. The company’s focus on innovation, expanding its consumer reach and leveraging strong market trends positions it favorably for sustained success.

The Zacks Consensus Estimate for Deckers’ current fiscal sales and earnings per share (EPS) suggests growth of 13.6% and 12.6%, respectively, from the year-ago reported figure. This global leader in designing, marketing and distributing innovative footwear, apparel and accessories has an average trailing four-quarter earnings surprise of 41.1%. Shares of this Zacks Rank #1 (Strong Buy) company have surged 72.5% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Price and Consensus: DECK

Tapestry: The company’s strategic focus on geographic expansion, operational efficiency and digital innovation lays a strong foundation for sustained growth. The company’s ability to navigate diverse global markets reflects its resilience and adaptability in leveraging regional opportunities. Its disciplined cost management, combined with efficiency-driven margin improvements, supports sustainable profitability without compromising innovation or investments. By seamlessly integrating physical and digital channels, Tapestry enhances the customer experience, catering to a younger, tech-savvy demographic while broadening its reach. With innovative products and strong brand momentum, the company continues to build customer loyalty.

The house of iconic accessories and lifestyle brands consisting of Coach, Kate Spade and Stuart Weitzman has an average trailing four-quarter earnings surprise of 11.3%. The Zacks Consensus Estimate for Tapestry’s current financial-year sales and earnings suggests growth of 1.4% and 6.3% from the year-ago period. Shares of this Zacks Rank #2 (Buy) company have zoomed 94.4% in the past year.

Price and Consensus: TPR

Abercrombie & Fitch: By integrating digital and physical retail experiences, Abercrombie & Fitch offers a seamless shopping experience, driving higher customer satisfaction and loyalty. Strategic marketing initiatives, particularly targeted campaigns in key markets, have been effective in boosting brand visibility and customer acquisition. The introduction of innovative product lines meets specific customer needs and broadens the brand's appeal. Abercrombie & Fitch’s regional operating model, with a focus on the Americas, the EMEA (Europe, the Middle East and Africa) and the APAC (Asia-Pacific), provides a solid foundation for global expansion.

This omnichannel specialty retailer of apparel and accessories delivered a trailing four-quarter earnings surprise of 28%, on average. The Zacks Consensus Estimate for Abercrombie & Fitch’s current financial-year sales and earnings suggests growth of 13.4% and 64.8% from the year-ago period. Shares of this Zacks Rank #2 company have rallied 85.6% in the past year.

Price and Consensus: ANF

Torrid Holdings: The company has established itself as a leader in the plus-size fashion market through a strategic focus on supply chain enhancements and digital innovation, enabling it to meet evolving consumer preferences effectively. By combining high-quality products with a seamless omnichannel strategy, the company strengthens customer engagement and loyalty. Its emphasis on product innovation, particularly in denim and intimates, allows Torrid to appeal to a broader demographic and stay ahead of shifting market trends.

Torrid, a direct-to-consumer brand in North America dedicated to offering a diverse assortment of stylish apparel, intimates and accessories, has an average trailing four-quarter earnings surprise of 43.9%. The Zacks Consensus Estimate for Torrid’s current financial-year earnings suggests growth of 81.8% from the year-ago period. Shares of this Zacks Rank #2 company have advanced 2.1% in the past year.

Price and Consensus: CURV

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