The strong US dollar is expected to hurt margins in the apparel industry

The strong US dollar is expected to hurt margins in the apparel industry

The outlook for the US apparel and footwear industry has remained stable, according to a new forecast, but clothing operating profit growth is set to slow next year.

Moody's Investors Service expects currency operating income growth to slow to 3-5% in 2016 for the apparel industry, from the high single-digit constant-currency range in 2015. The strong US dollar is expected to hurt margins as favourable foreign exchange hedges executed for fiscal 2015 roll off.

Despite this, the rating agency believes the apparel and footwear industry will still benefit from organic growth opportunities overseas, particularly given the rising middle class in emerging markets. In addition, rising direct-to-consumer businesses strengthen brand positioning with the consumer.

Referring to the overall US retail market, Mickey Chadha, Moody's VP and lead retail analyst, said: "We expect operating efficiencies and the leveraging of fixed costs in the US retail industry will lead to improved operating income growth. Furthermore, large mergers, such as Home Depot's purchase of Interline and Albertson's purchase of Safeway, are generating significant synergies.

"Retail sales growth will be toward the lower end of our 3% to 4% forecast range in 2015, which reflects much lower first-half gasoline prices at the pump relative to 2014 and severe weather in the first quarter that forced consumers to stay at home. We expect that 2016 retail sales growth will improve to between 4% to 5%."