Retailers margins under pressure

Friday, 05 November 2010

Thursday was a day marked by cotton's prices rise and holiday season first competitions. As the higher input cost from China and ever-higher prices of row materials were hitting the markets, the FashionUnited Top 100 managed to keep going up,scratching 5.8 points and closing at 1,169.98. Another factor to be taken into account is that retailers margins are increasingly coming under pressure as labor costs in China -- from where most products are sourced -- rise and the exporter powerhouse lets its currency appreciate, noted different experts.

Bebe Stores, Gap or Perry Ellis were just some of the apparel companies mirroring the difficulties of the sector, suffocated with narrowing margins and stretching input and row materials costs. As a matter of fact, every late effort made by Perry Ellis was in vane, as the British retailer lost 2.16% just one week after toasting its 30th anniversary and right after extending its distribution agreement with Nike until 2014.

On other hand, women's apparel retailer Bebe Stores Inc forecast earnings for the key holiday season quarter largely below Wall Street estimates, citing higher input costs in China, sending its shares down as much as 11 percent and making of it the worst trade of the FU Top 100 on Thursday. If it would not have been enough, the company does not currently expect gross margins to expand in the second quarter due to an anticipated increase in product costs on imports from China, Bebe said in a statement. The fashion-forward boutique announced unaudited financial results for the first quarter ended October 2, 2010 yesterday. Net sales from continuing operations for the first quarter of fiscal 2011 were $117.9 million, a decrease of 2.4 percent compared to $120.8 million for the fiscal quarter ended October 3, 2009. As previously reported, comparable store sales for the fiscal quarter ended October 2, 2010 decreased 4.7 percent compared to a decrease of 25.7 percent in the prior year.


American best loved one, Gap, Inc.on Thursday reported an increase in comparable store sales for October and provided earnings outlook for the third quarter above analysts' expectations.

The company noted that merchandise margins for the third quarter are expected to be below last year. Gap also expects earnings for the third quarter of fiscal year 2010 in a range of $0.47-$0.48 per share, up from $0.44 per share in the year-ago period.

One of the best performers of the last trading session was Pacific Brands. The Australian multi-brand group increased its last position by 6.67%. The clothing and bedding retailer said recently that its transformation program is ahead of schedule and has affirmed that it intends to resume paying dividends at the end of the first half this financial year. Coupled with significant executive and board changes, the company had seen some meaningful reductions in its cost of doing business, was generating good levels of cash, and the balance sheet was strong, Pacific Brands chairman James MacKenzie told shareholders at the company's annual general meeting on late October.

Finally and generally speaking, retailers in October set the stage for a fiercely competitive Christmas, with price wars, promotions and competitive positioning spurring most of the sales gains and suggesting that shoppers will be aggressively wooed during the holiday season.
Retailers margins under pressure

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