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Outlook remains positive for US apparel retail

Analysts continue to expect operating profit in the US apparel and footwear sector will increase by 6-7% in 2019, with sales growth in the range of 4-5%.

This follows a very strong performance in 2018, when profits grew over 9.5% and sales rose 6.5%, and two very challenging years in 2016 and 2017, when profits declined -2.5% and -1.0% respectively.

The outlook is included in the latest 'US Retail & Apparel Quarterly Insights Q2' from Moody's Investors Service, and notes that US sportswear, athletic apparel and jeanswear sales growth will continue to outpace the global market.

"Sportswear and athletic apparel makers are benefiting from increased casualisation and consumers' more active lifestyles, while the international business will continue to play an increasing role in the sales growth of our rated issuers," the report says.

Its research focuses on apparel companies that sell through third parties, rather than self-branded apparel retailers that primarily sell through their own retail channels.

The analysts also note that the US retail and apparel industry overall is continuing to emerge from a period of protracted pain, following a spike in downgrades and defaults in 2017.

"Following two volatile years of bankruptcies and defaults, the US retail industry has finally paused to catch its breath – although gains continue to be hard won," says Moody's vice president Mickey Chadha.

"Highly leveraged smaller retailers remain prone to more downgrades in months to come, while larger, healthier retailers will continue to grab incremental market share and improve credit profiles.

"This will mean more pressure rippling down the food chain. But even those at the top are working a lot harder for incremental dollars, evidenced by the ongoing discount wars that Amazon and Walmart continue to wage.

"All of this means any shift in the currently solid US economy, or geopolitical or other unforeseen disruptions, could make it more challenging for our rated US retail universe to maintain its overall upward momentum."

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