Apparel retailers face inflation pressure as demand stays firm

Softlines stocks are getting a lift from new June survey results that point to steady US apparel and footwear demand even as inflation remains the dominant economic worry. The data adds to the case that earnings expectations for FY26 may have more room to rise than to fall.

Investors have also been weighing whether Middle East-related inflation, including gasoline volatility, will curb discretionary spending. The survey suggests consumers are adjusting how they shop rather than stepping away from categories such as clothing and shoes.

June survey shows demand intact, but shoppers turn cautious

Across the next 90 days, US spending intentions for softgoods were up 3.4% versus June 2025, based on the survey results. That year-over-year gain slowed by about 40 basis points from the prior month’s pace, indicating a modest deceleration.

Against June 2024, spending intentions increased 2.2%, which marked a 270-basis-point acceleration month over month. Taken together, the results point to stable demand with some near-term sensitivity to pricing pressure.

Inflation remained the top factor weighing on how consumers viewed the economy. The share of respondents citing inflation rose to 54.8% in June from 51.3% in May.

Price pressure is also changing behavior at the register. The percentage of consumers saying they are shopping sales more often due to higher prices climbed 170 basis points month over month.

Fuel costs also featured prominently in household decisions. In June, 36.6% said they would drive less because of fluctuating gas prices, compared with 36.2% in May and 29.4% a year earlier.

Only 26.3% said gasoline prices had no major effect on spending, down from 28.2% in May and 39.9% in June 2025. That shift reinforces the idea that consumers are becoming more selective across discretionary purchases.

Gas prices, geopolitics, and back-to-school plans shape outlook

The Iran conflict ranked as the No. 4 factor negatively affecting consumers’ view of the economy in the June survey. However, the survey period ended before President Donald Trump signed a US-Iran agreement, a timing issue that could matter for sentiment readings that follow.

Average US gas prices also moved lower during that window, falling to about $3.95 from roughly $4.20 while the survey was being conducted. If the agreement holds and fuel prices remain contained, that combination could improve July readings relative to June.

Early indicators for seasonal shopping were constructive. About 37% of back-to-school shoppers said they plan to spend more this year than last year, while 11.8% expect to spend less.

The gap between those two groups was roughly 26 percentage points, around 420 basis points wider than a year earlier. The survey also found excitement to shop for clothing and accessories increased by 1,000 basis points year over year, outpacing categories such as school supplies and electronics.

Back-to-college intentions were less upbeat than back-to-school, but still stronger than historical comparisons within the same survey framework. That suggests demand may be broad-based across age cohorts, even if budgets are increasingly managed through promotions.

Valuation gap and AI-driven growth narrative remain in focus

Beyond demand, valuation is a central part of the bullish argument on the group. Softlines companies were described as trading at a 23% price-to-earnings discount to the S&P 500, versus an 8% historical average premium.

Market participants have debated whether geopolitical-driven inflation will compress margins. The survey-based view highlighted instead that consumers appear resilient, aided in part by a “wealth effect” tied to equity market gains, with the S&P 500 up 9% year to date and 26% over the last 12 months.

At the same time, investor attention has been clustering around sectors with direct artificial intelligence exposure, including technology, semiconductors, energy, and industrials. That allocation preference has been framed as a near-term headwind for softlines shares that could persist for a couple of quarters.

Still, the AI buildout could feed into faster US GDP growth over the longer term, which would typically support discretionary categories. If the recent decline in oil prices proves durable, it could provide a second tailwind by easing cost pressure on households and potentially stabilizing freight and input expenses.

What comes next will hinge on whether inflation fears cool, gas prices remain stable, and July sentiment data reflects improved geopolitics. Investors will also be watching whether the sector’s valuation discount narrows as FY26 earnings forecasts and margin expectations adjust.