Inventory woes for Taiwan’s apparel, footwear firms: Yuanta Securities

Taiwan’s apparel and footwear firms could face extended inventory adjustments due to weak sales and record in-transit inventories reported by their global clients in the second quarter (Q2) this year, according to Yuanta Securities Investment Consulting Co, which recently said in a research note that clients are expected to resume orders after reaching healthier inventory levels.

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.

Taiwan’s apparel and footwear firms could face extended inventory adjustments due to weak sales and record in-transit inventories reported by their global clients in the second quarter, according to Yuanta Securities Investment Consulting Co, which said in a research note that clients are expected to resume orders after reaching healthier inventory levels.

An inventory adjustment period is expected to last two to three quarters, which would negatively affect Taiwanese domestic manufacturers’ sales and earnings in the coming quarters, the investment consultancy said.

“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.

The cautionary statement follows abundant supplies on the upstream side and weak sales on the downstream side in the first half of this year by the footwear and apparel industry, the note by the consultancy said.

Shipments are clogging in transit inventories, while their US and European Union clients have limited products on their shelves amid logistics disruptions, it said.

As Nike contributes up to 90 per cent of sales to Feng Tay Enterprises Co, Yuanta expects the latter’s shipments to resume growth in Q2 2023, prior to its peers.

As Under Armour contributes less than 10 per cent of sales to Eclat Textile Co. and Fast Retailing’s GU brand accounts for about a fifth of Makalot Industrial Co.’s sales, their shipments are unlikely to resume growth until the third quarter of next year, Yuanta noted.

Slower operational growth of footwear and apparel companies may also affect their orders from shoelace, elastic band and fastener supplier Taiwan Paiho Ltd, Yuanta was quoted as saying by a leading Taiwanese English-language daily.

But due to robust demand for footwear and apparel products coupled with positive macroeconomic data, consumer demand is unlikely to weaken significantly, which should help with inventory digestion, the consultancy added.

Fibre2Fashion News Desk (DS)