Index soars despite cotton's prices rally

Thursday, 04 November 2010

Despite the ever-higher prices of row materials -mainly cotton, quoted apparel companies are showing their strengh and therefore pulling the FashionUnited Top 100 Index up. After a low key start of the week, the selective closed yesterday at 1,164.18 points, rising by 3.73 points and keeping distance with other indexes, which were headed by Hang Seng (1,155 at Wednesday final position).

As predicted by many analysts, as Sterne Agee & Co., cotton prices have soared more than 70% this year and hit a record price last month, and that goes for synthetics, too: Rising oil prices and demand have boosted the cost of polyester around 25%. These increases may affect the final prices of clothing, as they have to reflect the row material's ever-higher prices.

In fact, and following the Wall Street Journal, Hanesbrands, Jones Group and VF Corp. will boost prices by up to 10% because supplies are short. Apparel is just one of a number of industries caught between sluggish demand and rising costs for raw materials. In this sense, T-shirt and underwear maker Hanesbrand Inc. hasn't been shy about the price hikes, in the face of surging cotton costs. CEO Richard Noll said last week costs are increasing "at an accelerated rate across a broad set of inputs including cotton, wages and most other commodities and raw materials." The underwear label has instituted price increases effective no later than February 1, and if costs stay "anywhere near current levels, we will implement another pricing action which could take effect" in the middle of 2011, aforesaid Mr. Noll.

Nevertheless, Hanesbrands hopes its latest price hike won't hurt demand. Like Hanesbrands, Carter's Inc. is also contending with higher cotton costs. CEO Michael Casey noted on a recent conference call that raising prices presents "a big challenge," and the baby apparel maker is "hoping to get as much back from pricing as we are able to achieve."

In other order of matters, Under Armour, the best performer on Wednesday, with a final increase of 54.78%, published its last three month's figures yesterday. Their net revenues increased $59.1 million, or 21.9%, to $328.6 million for the three months ended September 30, 2010 from $269.5 million for the same period in 2009. In the same vein, license revenues increased $2.4 million, or 23.1%, to $12.7 million for the three months ended September 30, 2010 from $10.3 million during the same period in 2009. This increase in license revenues was a result of increased sales by our licensees due to increased distribution and continued unit volume growth.
Completing the corporate releases chapter for Wednesday, shares of True Religion Apparel Inc. dropped in aftermarket trading after the jeans maker reported a third-quarter profit that fell short of Wall Street expectations, due in part to a decline in its wholesale business. The company also forecast a smaller full-year profit than analysts expect.For the July to September period, True Religion reported net income of $11.8 million, or 48 cents per share, down from a profit of $14.1 million, or 58 cents per share, in the same quarter a year ago. Sales rose 12.5 percent to $92.8 million.

Among the worst values of the day, it was surprising to find the Italian Bulgari, which declined for the first time in five days, dropping 2.3 percent to 7.75 euros. CA Cheuvreux resumed coverage of the world’s third-largest jeweler with an “underperform” rating. “Based on valuation multiples, the market expects earnings before interest and taxes to more than double to 160 million euros rapidly,” the brokerage said in a note. “This seems to be a challenging assumption.”

Finally, Liz Claiborn is trading low, awaiting for its quarterly results, to be published later on today.

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