In a reversal of the 2011 trend, U.S.-based apparel marketers are likely to have an easier time generating strong profit increases during the back-to-school season than they are producing robust sales growth.
According to a report by Moody’s Investors Service published Thursday, apparel brands and retailers can expect third-quarter sales increases of 2 to 3 percent while operating profits, boosted by lower cotton input costs, should grow 8 to 10 percent over levels from the comparable quarter of 2011. In last year’s period, sales were up about 10 percent while operating earnings were “essentially flat as operators were unable to pass through higher input costs, most notably cotton.”
“The benefits of lower cotton costs will be evident in the second half of 2012, and this should enable apparel companies to recapture a meaningful portion of the gross margin lost last year when input costs were higher,” said Scott Tuhy, vice president and senior credit officer of Moody’s and author of the report. “We expect to see positive operating earnings trends starting in the back-to-school season, with those companies with meaningful sales in the children and young adult categories benefiting most, along with companies that sell cotton-intensive products.”