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Thursday, October 8, 2015

The Financial Mood of the Apparel Industry 2015

If you are looking to predict the emotional mood of members of the fashion industry it is fair to say that it our emotions are partially tied to the financial well-being of the company we are employed by or own.  Below can possibly be a financial attributed mood predictor of our industry from Moody’s Investor Service.  Using the financial forecast may even be more accurate than using a mood ring.

October 05, 2015 - The outlook for the US apparel and footwear industry has changed to stable from positive as sales and earnings take a hit from the stronger dollar, says Moody's Investors Service.

"While the hedges taken this year will partially protect margins, the strong US dollar will continue to have negative foreign currency translation effects on the industry's gross profits for the rest of this year," said Scott Tuhy, a Moody's Vice President - Senior Credit Officer. "The strong dollar has discouraged spending by tourists to the United States, impacting sales at brands such as Ralph Lauren and Calvin Klein, dragging on apparel sales."

The industry's performance in the first half of 2015 was slightly weaker than expected due to high negative foreign exchange translation, weak tourist sales in the US, delays in shipment from West Coast port disputes and bad weather, according to the report, "US Apparel and Footwear Industry: Cutting Outlook to Stable As Stronger Dollar Takes a Toll on Earnings."

Moody's expects constant currency operating income growth to weaken to 3%-5% in 2016 from 5%-7% in 2015 as hedges at favorable rates roll off. The rating agency thinks the industry will be challenged to fully raise prices to offset higher costs at current exchange rates, which will result in overall industry margins falling around 40 basis points in the next year.

However, the industry's overall revenue growth will remain at a moderate 4%-6% through 2016 as companies see returns on their investments in direct-to-consumer and international markets.

"Apparel companies will also continue to benefit from low cotton and oil prices this year, which could help the industry's operating margins," added Tuhy. "However, these benefits have so far been offset by the negative foreign exchange effects."

Moody's subscribers can access this report at https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1008377.

Below is a previous report from earlier in the year.  Back in April, Moody’s reported that the financial outlook was positive.  Unfortunately, as you have read above, their forecast has changed over the past few months.

April 30, 2015 - The outlook for the US apparel and footwear industry remains positive, Moody's Investors Service says in a new report. Over the next 12 to 18 months, apparel makers will continue to benefit from lower input costs and the expansion of their direct-to-consumer businesses. And for the most part the stronger US dollar won't affect constant-currency income growth this year, though if foreign-exchange rates remain near current levels, it will significantly pressure earnings in 2016.

"We are maintaining our positive outlook for the US apparel and footwear industry, as we believe companies have hedged a meaningful portion of their 2015 inventory purchases against foreign-currency translation risk, alleviating margin pressure in the near term," says Vice President -- Senior Credit Officer, Scott Tuhy. "Pressures are likely to emerge next year, however, as the currency hedges companies took out at more favorable foreign-exchange rates expire."

Moody's is maintaining its forecast for industry operating income growth of 7% to 9% in 2015 on a constant-currency basis, but now expects that it will to drop to 4% to 6% in 2016, Tuhy says. If the dollar maintains its current strength, Moody's could lower its outlook for the US apparel and footwear industry to stable in the second half of this year, but if it continues to strengthen rapidly, the outlook could be revised downward sooner. Conversely, if the dollar weakens, the outlook likely would remain positive for some time yet.

Mergers and acquisition are likely to remain part of the US apparel and footwear industry landscape over the next 12 to 18 months as large, global clothing manufacturers continue their push into lifestyle brands, Moody's says in "Earnings Growth in Constant Currency Will Remain Strong in 2015, But FX Pressures Loom." Aside from the lucrative active wear category, expansion into footwear and accessories presents a good growth opportunity.

"Apparel firms' expansion into footwear and accessories is strategically positive, since it allows companies to present consumers with a more compelling offering," Tuhy says. "And at the same time they're able to leverage their core competencies and global platforms to accelerate growth."

So far this year, Adidas has announced the sale of its Rockport brand, while Coach, Inc. has agreed to purchase luxury footwear retailer Stuart Weitzman.

Moody's research subscribers can access this report at http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_1004131.

Moody's Investors Service is a leading provider of credit ratings, research, and risk analysis. Moody's commitment and expertise contributes to transparent and integrated financial markets, protecting the integrity of credit. You can learn more about Moody’s Investors Service at their website.  Credit ratings and research help investors analyze the credit risks associated with fixed-income securities. Such independent credit ratings and research also contribute to efficiencies in fixed-income markets and other obligations, such as insurance policies and derivative transactions, by providing credible and independent assessments of credit risk.

Learn more about apparel industry financial issues here on Apparel Search.

You may also want to read the following news here on our blog that illustrates some of the downward trends in the garment industry this year.





Thank you for taking your time to read this news on the state of the financial well-being of our industry.

You may want to also visit our retail sales forecast section.

If you have any relevant thoughts regarding above, you are welcome to add your knowledgeable incite in the comment section of this post.

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