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US apparel and footwear industry outlook drops to stable
06 Oct '15
2 min read
The dollar's strength has meant bad news for America's apparel and footwear industry. According to Moody's Investors Service, the outlook for the US apparel and footwear industry has changed to stable from positive as sales and earnings took a hit from the stronger dollar.
"While the hedges taken this year will partially protect margins, the strong US dollar will continue to have negative foreign currency translation effects on the industry's gross profits for the rest of this year," said Scott Tuhy, a Moody's Vice President - Senior Credit Officer.
"The strong dollar has discouraged spending by tourists to the US, impacting sales at brands such as Ralph Lauren and Calvin Klein, dragging on apparel sales."
The industry's performance in the first half of 2015 was slightly weaker than expected due to high negative foreign exchange translation, weak tourist sales in the US, delays in shipment from West Coast port disputes and bad weather, according to the report, "US Apparel and Footwear Industry: Cutting Outlook to Stable As Stronger Dollar Takes a Toll on Earnings."
Moody's expects constant currency operating income growth to weaken to 3-5 per cent in 2016 from 5-7 per cent in 2015 as hedges at favorable rates roll off. The rating agency thinks the industry will be challenged to fully raise prices to offset higher costs at current exchange rates, which will result in overall industry margins falling around 40 basis points in the next year.
However, the industry's overall revenue growth will remain at a moderate 4-6 per cent through 2016 as companies see returns on their investments in direct-to-consumer and international markets.
"Apparel companies will also continue to benefit from low cotton and oil prices this year, which could help the industry's operating margins," added Tuhy. "However, these benefits have so far been offset by the negative foreign exchange effects." (SH)
"While the hedges taken this year will partially protect margins, the strong US dollar will continue to have negative foreign currency translation effects on the industry's gross profits for the rest of this year," said Scott Tuhy, a Moody's Vice President - Senior Credit Officer.
"The strong dollar has discouraged spending by tourists to the US, impacting sales at brands such as Ralph Lauren and Calvin Klein, dragging on apparel sales."
The industry's performance in the first half of 2015 was slightly weaker than expected due to high negative foreign exchange translation, weak tourist sales in the US, delays in shipment from West Coast port disputes and bad weather, according to the report, "US Apparel and Footwear Industry: Cutting Outlook to Stable As Stronger Dollar Takes a Toll on Earnings."
Moody's expects constant currency operating income growth to weaken to 3-5 per cent in 2016 from 5-7 per cent in 2015 as hedges at favorable rates roll off. The rating agency thinks the industry will be challenged to fully raise prices to offset higher costs at current exchange rates, which will result in overall industry margins falling around 40 basis points in the next year.
However, the industry's overall revenue growth will remain at a moderate 4-6 per cent through 2016 as companies see returns on their investments in direct-to-consumer and international markets.
"Apparel companies will also continue to benefit from low cotton and oil prices this year, which could help the industry's operating margins," added Tuhy. "However, these benefits have so far been offset by the negative foreign exchange effects." (SH)
Fibre2Fashion News Desk – India
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