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Lever Style Chairman Expects ‘Curtailed’ Apparel Demand in 2023

Hong Kong-based apparel manufacturer and supplier Lever Style generated enormous demand for its services last year, with the company seeing revenues vault ahead 51.2 percent in 2022 to a record $217.2 million. Net profits were a robust $14.5 million.

In a Nutshell: As apparel brands still seek to offload the massive inventory glut that piled up last year and consumers rein in spending, executive chairman Stanley Szeto told CNBC’s Squawk Box that he expects buying to be “curtailed” in 2023.

“We’re not immune to that macroeconomic effect unfortunately,” Szeto said, indicating that the company already felt the impacts in the second half. However, the executive chairman highlighted the company’s fast-response, high-mix, low-volume business model as an advantage in today’s climate, in that the process can significantly accelerate production times while eliminating excess inventory for apparel brands.

For 2022, one area Lever Style can look back at fondly is its ability to triple its profits, going to $14.5 million from $4.3 million in the year prior. Helping that push, the company maintained gross margin at a relatively stable level, slightly increasing to 28.3 percent in 2022 from 27.6 percent in 2021. Diluted earnings per share totaled 2.28 cents, up from 2021’s 0.68 cents.

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The manufacturer, which has partnered with brands like Bonobos, Stitch Fix, Spanx, Columbia Sportswear and Hugo Boss among others, saw its largest revenue increase across suits, soft wovens and bottoms in 2022.

Bottoms represented 30.4 percent of Lever Style’s total revenue in 2022, taking over for the former leader, outerwear, which represented 29.4 percent of sales in 2021. Bottoms saw revenue nearly double 93.1 percent year over year to $66 million, while outerwear is now the second largest category at Lever Style, jumping 14 percent to $48.2 million.

Suits saw the largest revenue increase by far with an increase of 177.5 percent to $19.5 million, while the second-largest jump—soft wovens—came in at 105.5 percent to $13.3 million.

Shirts generated $45.1 million in 2022 revenue, marking a 40.6 percent sales boost from 2021. Sweaters had the smallest growth for an individual category at 7 percent to $6.8 million.

The lone sales decline for Lever Style came via knitwear, which had a 4.8 percent dip to $9.3 million.

Lever Style’s “others” category soared 63.2 percent to $9 million in 2022.

In a statement on LinkedIn, Szeto noted that the company’s stock price as of last Thursday was up 128 percent over the prior six months. Despite the rally, Szeto noted that the apparel production firm is trading at only around four times 2022 earnings—an indication that the company’s shares still have runway for growth if even earnings stood still.

Already having made five acquisitions since the start of the Covid-19 pandemic, Szeto believes more M&A activity is on the horizon for Lever Style.

“With a healthy balance sheet and a net cash position, we’re in a strong position to take advantage of the industry downturn when more business owners may wish to bow out,” Szeto said in the post.

Lever Style had a cash position of approximately $12.8 million to close 2022, a swing from the net debt of approximately $4.7 million that was recorded in 2021. Cash and cash equivalents of the group as of Dec. 31, 2022, approximately $23.5 million, up from $19.9 million in the year prior.

As of the same date, Lever Style had available banking facilities of approximately $55.9 million to fulfill working capital requirements and to finance the purchase of raw materials and payments to contract manufacturers.

The Lever Style earnings report also included another interesting nugget. While the company had two businesses representing more than 10 percent of total revenue each in 2021, that number has dwindled to just one. One undisclosed customer more gained significant share, contributing $41.8 million to revenue, 113.3 percent above the prior-year’s $19.6 million contributed.

CEO’s Take: During his Squawk Box appearance, Szeto also touched on Lever Style’s ability to adapt as more businesses are diversifying their sourcing origin. The apparel manufacturer was able to nearly double our Vietnam production volume between 2021 and 2022, the company said in its earnings report.

“China has become a pariah a little bit in the West, and so a lot of our Western customers are asking us to move production out from China, to Southeast Asia, South Asia and so forth,” Szeto said. “Luckily, with an asset-light business model, our company is able to do that. I think because of that agility, we’re able to grow much stronger in the past couple of years than the industry on average.”