US apparel & footwear industry to remain stable

03 May '16

3 min read

The outlook for the US apparel and footwear industry remains stable owing to various growth strategies, and following a prior revision announced in October 2015, Moody's Investors Service has said in a report.

Moody's report is titled "US Apparel and Footwear Industry: Constant Currency Earnings Growth Will Remain Solid Through 2016."

"Larger companies continue to benefit from international and direct-to-consumer growth strategies, which has helped offset cost pressures stemming from the stronger dollar," noted Michael Zuccaro, Moody's AVP - Analyst.

As a result, Moody's has raised its 2016 constant currency operating income forecast to 4 per cent to 6 per cent from a previous forecast of 3 per cent to 5 per cent. If currencies remain unchanged next year, the ratings agency anticipates operating income growth to accelerate to 6 per cent to 8 per cent.

However, the cost of goods for international companies will increase as the favorable foreign exchange rate hedges entered into in 2014, prior to the substantial appreciation of the dollar, are unwound.

The hedges mitigate the effects of sourcing products from foreign manufacturers in US dollars and selling goods in foreign markets in local currency. To offset rising costs, larger international companies like Ralph Lauren Corporation (A2 Stable), V.F. Corporation (A3 Stable) , Levi Strauss & Co. (Ba1 Stable) and PVH Corp. (Ba1 Stable) have implemented price increases in selected international markets.

Other growth drivers for large apparel companies include an emphasis on direct-to-consumer ("DTC") channels via new stores or online. As well, consumer interest has been heightened in athletic apparel, producing opportunities for branded stores and underpinning sales for Nike, Inc. (A1 Stable), Hanesbrands, Inc. (Ba1 Stable), and V.F.

"Nike Brand grew DTC revenues 29 per cent in the 2016 third quarter, driven by 10 per cent comp store growth, 56 per cent growth in online sales and new store expansion. Its DTC revenues now account for 23.5 per cent, or nearly $7.5 billion, of total consolidated sales. VF grew DTC sales by 7 per cent in 2015, accounting for 27 per cent of revenue in the 4Q. In stark contrast, sales for department stores have declined 25 per cent since 2002," said Zuccaro.

Merger and acquisition activity is also likely as sector consolidation continues. Global expansion or moves into lifestyle categories will drive the momentum, the report said. (SH)

Fibre2Fashion News Desk – India

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