International Reach to Boost Apparel Companies’ Profits in 2018

Moody’s said international operations for America’s biggest apparel companies will have profits ticking up next year.

International expansion coupled with cost-cutting efforts in the U.S. is expected to start paying off in the next year for a range of apparel companies.

The likes of Levi Strauss & Co., PVH Corp., VF Corp., Ralph Lauren Corp. and Under Armour Inc., among several others, are expected to see profits tick up in the latter half of this year, and grow more significantly during 2018, thanks in large part to the growth of sales abroad, according to new research from Moody’s Investor Service.

The sale of athletic apparel is expected to increase mainly in China, not least due to the country’s formal five-year plan to grow its sports industry, but other branded apparel is expected to grow in a number of emerging markets that are benefitting from economic expansion, Moody’s said.

Profits in 2018 are expected to grow in the apparel and footwear sector by 4 percent to 6 percent during 2018, according to the report.

Moody’s noted that international growth will “vary by company,” but said overall, international sales have grown 7 percent in aggregate over the last year, compared to a 1 percent decline in the U.S. The outsized growth for athletic apparel driven by the ath-leisure trend in also expected to begin dropping off considerably in the U.S.

But PVH is already seeing the fruits of an international push with sales of Calvin Klein up by 20 percent abroad, and Ralph Lauren’s new president Patrice Louvet recently said the company is looking to become “more global” in an effort to bolster revenue, as restructuring efforts continue.

G-III Apparel Group Ltd. is another company on its way to a good year, according to Moody’s, considering its plans for international expansion of recent acquisition Donna Karen, a brand that is already well-known abroad.

VF on the other hand is less focused on international, but Moody’s pointed to the company’s recent acquisition of workwear-focused Williamson-Dickie as a growth driver, along with its move away from contemporary apparel.

Although Moody’s previously expected 2018 growth of up to 8 percent, the apparel market in the U.S. is still lagging with “soft traffic trends and high promotional activity.” But the credit monitor said an outlook of 6 percent growth is still “a marked improvement” from 2016, when overall profits in the sector fell more than 5 percent.

Growth is also being tempered by Nike, which Moody’s says is headed for a “sizable” negative impact on its revenues and profits stemming from currency shifts, on top of revenue growth that’s already slowed to about 6 percent for fiscal 2017 from 14 percent two years before. Growth in operating profit also fell to 6.8 percent from just over 18 percent during the same period.

“Nike’s slower growth is one of the main drivers behind our revised 2018 view,” Moody’s said.

Nike is set to reveal financial results from its first fiscal quarter on Tuesday.