Home Adidas product Footwear and apparel companies face inventory issues: Yuanta

Footwear and apparel companies face inventory issues: Yuanta

  • By Chen Cheng-hui / Staff Reporter

The country’s shoe and apparel makers could face prolonged inventory adjustments as their global brand customers reported weak sales and record inventory in transit in the second quarter of this year, Yuanta Securities Investment Consulting Co said. (元大投顧) in a research note on Friday.

The investment consultancy said a period of inventory adjustment is expected to last two to three quarters, which will negatively affect the sales and profits of Taiwanese shoe and apparel makers in the coming quarters.

“Based on current brand inventory levels and their sales forecast, brand customer inventory is expected to recover to a healthy level around the second or third quarter of 2023,” Yuanta said, referring to operator Uniqlo Fast Retailing Co, Under Armor Inc, Nike. Inc, Adidas AG, Gap Inc and Lululemon Athletica Inc.

Photo: Ann Wang, Reuters

The brand’s customers are expected to resume orders after reaching healthier inventory levels, and local suppliers meanwhile would see “a recurrence of profit declines and share price corrections, as seen in the 2016-2017 inventory adjustment period,” Yuanta said.

The warning came after the footwear and apparel industry in the first half of this year saw ample upstream supplies and weak downstream sales, the note said.

In addition, shipments from shoe and apparel makers are clogging inventory in transit, while their U.S. and European brand customers have limited products on their shelves due to logistical disruptions, he said.

Nike contributes up to 90% of sales to Feng Tay Enterprises Co (豐泰企業), Yuanta said.

“Given the relatively healthy level of Nike footwear inventory, we expect Feng Tay’s shipments to resume growth in the second quarter of 2023, ahead of its peers,” he said.

As Under Armor contributes less than 10% of Eclat Textile Co (儒鴻) sales and Fast Retailing’s GU brand accounts for approximately 20% of Makalot Industrial Co (聚陽) sales, it is unlikely that their shipments resume growth before the third quarter of next year, Yuanta said.

Both companies having greater sales exposure to other brands than their peers would contribute to their slower recovery, he added.

Meanwhile, slower operational growth for shoe and apparel makers could also affect their orders from Taiwan laces, elastics and bindings supplier Paiho Ltd (台灣百和), Yuanta said.

However, there is still robust demand for footwear and apparel, he said, adding that coupled with positive macro data, such as a spike in the US consumer price index and a healthy labor, consumer demand is not expected to weaken significantly, which should help inventory digestion.

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