We’re at the tail end of 1Q22 Retail earnings season. Incremental data points from public companies as well as the OTEXA April data update last week are supportive of our bearish view on apparel as we head into 2H 2022. Imports have completely caught up, as April unit imports were up 30% YY and up 31% vs 2019. Inventories at retail are building with public apparel retailers seeing a sales/inventory spread of -25% vs -8% last Q. Brands are seeing more inventory as well with their spread worsening to -8% from +9% last Q. The inventory is building while at the same time consumer discretionary income is likely to pressure demand. That means promotions are returning, and we have already heard several retailers talking about rising promotional levels, which we expect to get worse in the coming quarters. Finally, cost pressure in the supply chain remains, high materials and input costs are still flowing through the chain and into retail P&Ls. In April the average import cost was up 10.4% YY, ahead of our expected +10%. These cost pressures will be very difficult to pass along when the consumer is getting more cost conscious and the promotional environment sees a big ramp.
Punchline is we remain bearish on apparel in aggregate as we think EPS estimates and multiples do no fully reflect the downside risk, which could be high and rapid.
We detailed out the global apparel landscape and set up into 2H in our Apparel Deep Dive in April. Replay Link: Click Here
Top Apparel Short Ideas Include: GOOS, RVLV, JWN, DDS, OXM, M, RL
