Britain’s move last week to leave the European Union was an unexpected shock to the world, and the long-term effects it will have on the apparel industry remain to be seen.
For now, however, apparel stocks are already reeling.
In a note on Monday, Credit Suisse said “uncertainty abounds” in the North American apparel sector thanks to Brexit, which only adds insult to the already injured—and already highly uncertain—sector.
Shocks across European markets will be the biggest risk to apparel earnings in the months ahead.
“This adds incremental risk to a sector already showing clear signs of top-line deceleration in the North American market, while still suffering from unfavorable currency swings in 2015 as inventory hedges roll off,” Barron’s reported Credit Suisse analyst Christian Buss as saying, adding that there’s risk of further compression if demand uncertainty persists.
He continued, “We also note that 20 percent European currency swings in 2015 negatively impacted earnings for the most exposed companies within the apparel sector by anywhere from 5 percent for Nike to almost 40 percent for PVH Corp over the past 18 months, suggesting that company-specific management of hedges and demand uncertainty is a key determinant of earnings risk for the sector.
Abercrombie and Fitch, Michael Kors, Nike, Urban Outfitters and VF Corp are among the stocks with the greatest direct exposure to the U.K., according to Buss.
At publication time, PVH was down nearly 10 percent, A&F down more than 5 percent, Kors down 3 percent (after soaring as high as 42 percent in February), Nike fell by just over 1 percent, Urban Outfitters by 0.54%, and VF Corp was down almost 5 percent.
On Friday, the Dow Jones Industrial Average, considered a general indicator of U.S. market performance, was down 3.39%.
In separate news Monday, financial reporting firm Stock Callers, put four apparel stocks on its watch list: Abercrombie and Fitch, DSW, Francesca’s Holdings and Tailored Brands.
A&F stock, the company said, is trading 23.55% below its 50-day moving average.
DSW stock was trading nearly 5 percent down in afternoon trading Monday and 4.61% below its 50-day average.
Women’s apparel and accessories retailer Francesca’s stock was also trading down almost 5 percent, and almost 20 percent below its 50-day average.
Tailored Brands, the holding company for Men’s Warehouse and Jos. A. Bank was down nearly 7 percent Monday, with the stock trading more than 17 percent below its 50-day average.