Trade War: These Apparel and Footwear Companies Might Not Get Crushed

A trade war with China could be rough on apparel and footwear companies—but less so for athletic gear makers like Nike and Under Armour.

In a Friday note, Wedbush analysts examined the possible effects on a range of companies, concluding that “athletic brands will likely be the least impacted of our covered companies” based on the possible effect on sales and cost of goods sold:

Sourcing moving away from China (toward Vietnam but also with exposure to Indonesia, Cambodia, and more), product mix, and international businesses (higher penetration of sales outside the U.S. reduces risk) contribute to mitigating potential tariffs, with Adidas AG (ADS) and Under Armour (UAA) (~8%) likely the least impacted and Nike (NKE) close behind at ~10% (in addition to Columbia Sportswear (COLM) with ~10%).

• “The industry’s move to lower cost countries like Vietnam (also a signatory of the Trans-Pacific Partnership, which the U.S. abandoned) has helped mitigate risk across many companies, though China continues to dominate footwear and apparel imports into the U.S.,” the analysts wrote.

• Among Barron’s Next 50 companies, Nike and Under Armour were seen as having comparably lower risk.

The former “has reduced its exposure to China over the last several years toward Vietnam and Thailand, among others,” they wrote, while the latter has shifted toward Jordan and Vietnam.

• Companies with more exposure to the brown-shoe business have more at risk, according to Wedbush—with Steven Madden (SHOO) atop their list.

The company “is the most at risk in our coverage (at ~67%) due to its U.S. sales concentration and overexposure to Chinese goods,” they wrote. 93% of the company’s purchases are from China and it is one of the only players that has not diversified away from the country, increasing Chinese purchases from ~85% in FY13.”
https://www.barrons.com/articles/trade-war-these-apparel-and-footwear-companies-might-not-get-crushed-1521815567

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