Luxury Sector Leading Negative Outlook for US Apparel
Moody’s says the outlook for US apparel companies remains negative, with the luxury sector the hardest hit. In contrast, several apparel companies have maintained their franchise strength by consistently expanding their portfolios of brand-name clothing, Moody’s says.
Companies that have a stronger presence in the market for basic apparel, such as socks and intimates, which tend to be more-stable categories, will likely see greater operating and ratings stability.
Wal-Mart (NYSE: WMT) has been increasing its focus on brand-name apparel and promoting brands such as l.e.i. (owned by Jones Apparel NYSE: JNS) and Ocean Pacific (owned by Iconix Brand Group NASDAQ: ICON).
Key points from Moody’s Industry Outlook for the next 12-18 months:
- Retailers are scaling back inventory plans and marking down prices in response to weaker consumer demand amid the recession. This will pressure apparel-maker revenue and profit margins this year.
- Retailers’ more-conservative inventory plans mean that the apparel industry’s gross margins could improve in late 2009 over the prior-year period; however, lower sales and lost operating leverage mean operating margin expansion will be modest at best.
- Luxury retailers are showing the largest sales declines, debunking the theory that higher-end consumers would continue to spend in a troubled economy.
- Consumers are trading down to moderately priced goods and private-label designers, although these brands are still susceptible to inventory reductions by retailers.
- The global recession is hurting sales outside the U.S., and a strengthening U.S. dollar will reduce the value of international earnings.
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