The nation’s footwear and apparel makers could face extended inventory adjustments as their global brand clients reported weak sales and record in-transit inventories in the second quarter of this year, Yuanta Securities Investment Consulting Co (元大投顧) said in a research note on Friday.
The investment consultancy said an inventory adjustment period is expected to last two to three quarters, which would negatively affect Taiwanese footwear and apparel makers’ sales and earnings in the coming quarters.
“Based on current brand inventory levels and their sales guidance, brand client inventories are forecast to recover to a healthy level in about the second or third quarter of 2023,” Yuanta said, referring to Uniqlo operator Fast Retailing Co, Under Armour Inc, Nike Inc, Adidas AG, Gap Inc and Lululemon Athletica Inc.
Photo: Ann Wang, Reuters
Brand clients are expected to resume orders after reaching healthier inventory levels, and local suppliers would in the meantime “see a recurrence of earning declines and share price corrections, as seen in the 2016-2017 inventory adjustments period,” Yuanta said.
The warning came after the footwear and apparel industry in the first half of this year saw abundant supplies on the upstream side and weak sales on the downstream side, the note said.
In addition, shipments from footwear and apparel makers are clogging in-transit inventories, while their US and EU brand clients have limited products on their shelves amid logistics disruptions, it said.
Nike contributes up to 90 percent of sales to Feng Tay Enterprises Co (豐泰企業), Yuanta said.
“Given Nike’s relatively healthy footwear inventory level, we expect Feng Tay’s shipments to resume growth in the second quarter of 2023, prior to its peers,” it said.
As Under Armour contributes less than 10 percent of sales to Eclat Textile Co (儒鴻) and Fast Retailing’s GU brand accounts for about 20 percent of Makalot Industrial Co’s (聚陽) sales, their shipments are unlikely to resume growth until the third quarter of next year, Yuanta said.
The two firms having larger sales exposure to other brands than their peers would contribute to their slower recovery, it added.
Meanwhile, slower operational growth at footwear and apparel makers might also affect their orders from shoelace, elastic band and fastener supplier Taiwan Paiho Ltd (台灣百和), Yuanta said.
However, there is still robust demand for footwear and apparel products, it said, adding that coupled with positive macroeconomic data, such as a peaking US consumer price index and a healthy job market, consumer demand is unlikely to weaken significantly, which should help with inventory digestion.
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