US textile stocks: Analysing market volatility & financial health

Among the many sectors with companies that have gone public and issued shares on the stock market, the US textile sector stands out as a significant employer within the manufacturing industry. Renowned for its technical textiles and innovation, it will be intriguing to examine how some of the textile stocks are performing. This analysis focuses on stocks listed on the New York Stock Exchange (NYSE), which boasts a higher market capitalisation compared to NASDAQ. But before delving into the specifics of these stocks, here is an overview of the textile industry in both the US and textile-producing nations across Asia.

State of the textile industry: US and Asia

Table 1: Economic snapshot of the textile industries of US, India and Bangladesh

Source: Press Information Bureau, Office of Textiles and Apparel (OTEXA)

Originally a manufacturing industry, the textile sector can be highly profitable if managed properly. In the US, textile manufacturing yields a profit margin of 30 per cent, which is a promising start for a business. The country is one of the innovation hubs for various textiles that can measure bodily functions. However, the share of the textile industry in the GDP has drastically reduced from 0.50 per cent in 2020 to 0.12 per cent in 2023. The US primarily exports fibre and textiles, with total textile exports in 2023 amounting to $26.51 billion. The US is also one of the major apparel importing nations, with many apparel manufacturing companies based in Asian countries.

On the other hand, India and Bangladesh are major textile manufacturing countries with a large workforce employed in the industry. India, for instance, employs approximately 45 million people in the industry, yet the textile sector accounts for only 2.3 per cent of the GDP. This is in contrast to Bangladesh, where the textile industry is significant enough to constitute 11 per cent of the GDP. Bangladesh leads in exports with $49.59 billion, the highest among the countries considered. Although the country lacks a fully vertically integrated supply chain, it remains one of the largest exporters of apparel worldwide, hosting modern technology and manufacturing units for brands such as GAP and H&M. Therefore, in terms of capability, Bangladesh has a well-developed textile industry that focuses on value addition, unlike India and China.

Stock market in US NYSE

In the US NYSE, the selection of three textile companies for stock analysis is based on the following criteria:

-They manufacture textiles

-Beta Value (ranking them as volatile or safer stocks)

After selecting based on these criteria, the stocks are compared using metrics such as price, profits, and earnings per share. Although many listed companies are involved in apparel production, they often also engage in retail. The selected companies are purely manufacturing companies, which were particularly significant sectors during Donald Trump’s administration.

The textile sector is highly vulnerable to geopolitical events and changes in policies, as the products are discretionary. This is reflected in the beta value of the textile stocks in the US. Except for one stock, the other two are highly volatile, indicating significant susceptibility to global and domestic events. Given that the current US administration encourages local manufacturing and job creation, along with proposed reductions in reliance on Chinese imports, all US manufacturing companies stand to benefit significantly in the stock market. However, indices and trading volumes suggest that there is not enough confidence in the textile industry’s ability to accelerate its growth.

Table 2: Beta value of textile manufacturing companies

Source: NYSE

The beta value of the stocks is way above one, suggesting higher volatility. Albany Corp, for example, is 29 per cent more volatile than the average market volatility, and Culp Inc is 22 per cent more volatile than the market average. Only Unifi Inc is less volatile compared to the other three stocks considered in the market. The prices of Albany Corp sustained a fall as the company decided on November 15 to close its operations in Switzerland and move its operations to Germany to completely align with the other products. However, the firm has been experiencing higher investments from the insiders, the top management, and the Hedge Funds of the company, thus reflecting greater confidence in the prospects of the company and its performance.

On the other hand, Culp Inc has also shown some bullish trends due to the recent restructuring of the company as it faces challenges from imports from China. The company faced an increase in demand for its mattress business but then experienced downturns due to inflationary pressures in the country. It has received investments from different companies, and therefore, the restructuring plan remains important as the company must recover from the losses incurred in times of higher inflation and a cost-of-living crisis. However, the trend in the stock remains bullish along with a higher beta of the stock, suggesting higher volatility in the stock prices. The stock is 22 per cent more volatile than the market.

On the other hand, Unifi which has its business across Asia and the US faced some challenges due to economic downturns in its major business areas including Asian countries and the US. The company is undergoing cost-cutting and restructuring measures, owing to which the profitability of the company has increased. Owing to its new acquisitions of facilities and new innovative products by the company the sales prospects have a positive outlook owing to which the stock price of the company is stable with a comparatively lower beta value, showing less volatility in the prices.

Unifi, which has its business across Asia and the US, faced some challenges due to economic downturns in its major business areas including Asian countries and the US. The company is implementing cost-cutting and restructuring measures that have increased its profitability. Thanks to new acquisitions and innovative products, the sales prospects appear positive, stabilising the stock price with a comparatively lower beta value, indicating less volatility.

Trade volume

If the volume of all three stocks is traded by the end of the day, Albany Corp stocks are the most highly traded compared to the others. Observing Culp Inc, the prices remain constant, but the trade volume is consistent, with some spikes last week when the company announced a restructuring of its operations to recover losses.

The volume of the shares reflects the demand for the stock and the confidence consumers have in the stock performance and the company's fundamentals. However, the volume traded in Culp Inc and Unifi Inc reflects consumer uncertainty regarding the stock performance. It also implies that the stocks are less liquid, thus posing a significant risk of delays.

Exhibit 1: Volumes of the stocks traded

Source: NYSE

Compared to other companies, the stocks of Albany Inc are more liquid, reflecting higher consumer confidence in the stock performance and greater demand for trading.

Table 3: Main metrics for the companies

Source: Annual reports of companies

Based on the given data, Albany Inc stands out as the most profitable and efficient company among the three. It has a positive diluted EPS of 3.2, indicating solid profitability, the highest revenue at $1,270 million , and a robust gross profit of $413.31 million. This translates to a gross margin of approximately 32.54 per cent, showcasing effective cost management and operational efficiency. On the other hand, Culp and Unifi are both facing financial challenges, reflected in their negative EPS of -1.42 and -2.3, respectively. This shows that the businesses are grossly affected by the fluctuations in the US and Asian markets, which were severely impacted by the pandemic, followed by the domino effect of wars and inflation.

While Culp operates on a smaller scale with revenue of $225.21 million and a gross profit of $25.93 million, it maintains a gross margin of 11.52 per cent, which, though low, is still better than Unifi Inc. Unifi, despite generating $590.74 million in revenue, has a gross profit of just $26.65 million, resulting in a very low gross margin of 4.51 per cent. The metrics of Unifi come at a time when the company is innovating to produce new products and has made new introductions in the circularity of the value chain. The gross margin of the company suggests that there is more scope for better financial management, as the new products will take time to come to fruition.

Albany Inc’s revenue efficiency is evident, with 3.07 dollars in revenue generated per dollar of gross profit. In contrast, Culp and Unifi generated $8.69 and $22.17, respectively, highlighting significant inefficiencies in converting revenue to profit. Albany Inc appears well-positioned to reinvest in growth or shareholder returns, given its financial strength. Meanwhile, both Culp and Unifi must focus on optimising their cost structures and improving operational strategies to enhance their margins and return to profitability.

Road ahead

Considering which companies out of the three might gain higher volumes, Albany Inc may be deemed safe for investment, given its positive diluted EPS, greater business diversification, and better business decisions. However, Unifi and Culp can also be attractive investments on the bourses, provided there are sound financial decisions and continued engagement in innovation, which is a strong suit of Unifi.

In general, the condition of the US textile stocks is similar to that in India—some are less liquid while others are extremely liquid. This suggests that textile industries worldwide require more sophisticated financial management and need to optimally allocate resources between innovation and relocating plants to new areas. All three companies mentioned here are among the most trusted in the US, known for their record of innovation and good operations. However, the industry globally needs proper restructuring in its operations.

The textile industry is highly susceptible to global events, which can affect profits. Therefore, regardless of the innovations and developments undertaken by the companies, being in a discretionary business, it is bound to influence the profitability of new ventures and investments, thereby affecting stock prices. The textile companies in the country have a majority of their stakes held by institutional investors who can significantly influence the company’s decisions.

The condition of the textile stocks in the US is like that of India. The only difference lies in the fact that US companies receive more investments from other companies due to their strong balance sheets and consistent efforts to restructure the firm’s operations in the wake of an economic crisis. Given the country’s expertise in technical textiles and support for the industry with machinery parts, the US textile industry is on the right track. With Donald Trump’s presidency, the US textile industry may receive some support from the administration as local manufacturing will be encouraged, thus driving the stocks higher.

The companies in the US are already involved in a lot of innovation and investments aimed at sustainability and resource-saving in the value chain. With these continued efforts, the companies are moving closer to global trends and aligning with policies. However, Trump’s opinions on sustainability and the environment will shape the decisions of these companies. Any decision by the administration that opposes or discourages sustainability measures will result in stock price fluctuations. The fact that companies are involved in innovation and developing new products is enough to keep the textile stocks trading at higher volumes.

Fibre2Fashion News Desk (KL)