After a challenging two years, the U.S. apparel and footwear sectors are poised for resurgence, according to a new report from Moody’s.
The investor service and research firm analyzed 26 brands that make up a majority of the country’s apparel and footwear industries, including Nike, Ralph Lauren and Under Armour, as well as Wolverine, which represents Keds and Sperry, and PVH, parent to Tommy Hilfiger and Calvin Klein. It predicted a 3 to 5 percent growth in operating profit this year and 4 to 6 percent over the next 12 to 18 months, lower than previous expectations but an improvement from 2016 and 2017’s figures at a respective -3.2 percent and -2.4 percent.
“The lower forecast reflects our expectation that most companies will reinvest for growth, tempering profit improvement, as they continue to direct resources into direct-to-consumer channels such as new stores, websites and mobile applications, as well as marketing,” the report read, adding that Nike Inc., which makes up 44 percent of the industry’s operating profit, and Under Armour Inc. faced earnings pressures that moderated the 2018 outlook.
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Moody’s also noted that it expects the industry’s sales will grow 3 to 5 percent this year, in line with its previous 3.5 to 4.5 percent forecast for the year’s retail sales. In the past couple of years, shopping traffic slowed, brands were forced to post markdowns after unseasonable weather prevented them from clearing their burdened inventories, and a strong U.S. dollar all led to significant retailer bankruptcies.
Now the stable retail environment can be attributed to balanced inventory levels and a weakened U.S. dollar that has made products more affordable overseas, Moody’s reported. It also listed G-III Apparel Group Ltd., PVH Corp., Ralph Lauren Corp. and Wolverine World Wide Inc. as companies that will benefit over the next 12 to 18 months.
As opportunities in the U.S. see a slowdown, international markets will remain a growth driver, with sales outside of the country representing around 44 percent of total sales for the rated apparel and footwear brands, according to Moody’s.
“Emerging markets, and China in particular, will continue to be a source of growth not only because greater economic expansion helps fuel branded apparel purchases, but also U.S. brands remain relatively underpenetrated, leaving significant ‘white space’ for growth,” the report read.
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