US footwear, apparel sectors to see sales rebound, says Moody’s

The US apparel and footwear sectors are poised for resurgence post two challenging years, says a report by Moody’s that analyzed 26 brands. It predicts a 3-5 per cent growth in operating profit this year and 4-6 per cent over the next 12-18 months, lower than previous expectations but better than -3.2 per cent and -2.4 per cent in 2016 and 2017 respectively.

The brands include Nike, Ralph Lauren, Under Armour, Wolverine’s Keds and Sperry, and PVH’s Tommy Hilfiger and Calvin Klein, according to a press release from the investor service and research firm.

“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 says.

Nike Inc., which makes up 44 per cent of the industry’s operating profit, and Under Armour Inc. faced earnings pressures that moderated the 2018 outlook.

In the past few 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 US 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 12-18 months.

As domestic opportunities witness a slowdown, international markets will remain a growth driver, with sales abroad representing around 44 per cent of total sales for the rated apparel and footwear brands, says the report.