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ROE – ROC Spreads Looking Peaky

Spreads between ROE and ROC in the apparel and footwear industries are widening. Not a complete shocker given the slowdown in business trends and the fact that the industry is always at least 3-4 quarters behind a change in the cycle in altering its capital investment plans. So ROC is coming down, but ROE is hanging in there as debt levels build. Spreads in the 6% range are not sustainable, as evidenced by the ’01 bottom. When ROE reverts toward the rate of ROC – it does so fast.

This analysis is for 42 core US apparel and footwear companies. But when we go global, and screen all 440 companies that we screen through regularly, things are looking to be well above anything we have seen historically.