A matter of days after it upped its 2018 outlook for US retail from “stable” to “positive”, Moody’s Investors Services has done the same for the country’s apparel and footwear industry, citing higher-than-expected earnings growth in the sector, which the company expects to continue for the next 12 to 18 months.
Moody’s now expects the industry to see operating profit growth in the range of 8% to 9% this year, revised up from a previous outlook of 3%-5%. This growth rate is predicted to decelerate to 6%-7% in 2019.
Sales in the sector are now expected to grow between 6% and 7% this year and between 4% and 5% in 2019. The Moody’s outlook also takes international sales into account and these too are expected to continue to grow steadily, particularly in Asia.
Moody’s named Nike, Inc., PVH Corp., and VF Corp. as examples of large US companies active in the apparel and footwear sector that are seeing concurrent growth after a rocky two years for the industry.
Nike’s progress with direct-to-consumer revenues and international expansion were cited as strong evidence that the company will shortly be posting solid profit growth, while PVH was praised for its product offering and marketing. VF is expected to see continued growth in its Vans and The North Face brands, as well as in its workwear business.
“The positive outlook for the US apparel and footwear industry reflects faster-than-anticipated revenue and profit growth,” said Moody’s Apparel Analyst Michael Zuccaro in a release. “We expect nearly all our rated companies to show some form of profit growth next year as they realize benefits from cost-saving initiatives, acquisition synergies, new product introductions and targeted marketing, as well as improved macroeconomic conditions.”
Moody’s highlighted the renewed focus of many apparel and footwear brands on direct-to-consumer sales channels as a driver of growth, pointing out that it allows companies to more closely control brand messaging and the overall shopping experience.
Moody’s also expects companies to continue to take advantage of international expansion opportunities, particularly in emerging markets such as China.
The possibility of additional tariffs on Chinese imports, however, was highlighted as a potential risk for the sector moving forward, as such measures would result in increased costs for a number of apparel and footwear brands, as well as a possible downturn in consumer spending in the US.
Subscribers to Moody’s research can consult the company’s full report on its increased 2018 outlook for the US apparel and footwear industry on its website.