EU Apparel: CS cautious on pricing power and 2022 gross margins

Hyosung ITX Co

09/12/2021 08:00

** Credit Suisse sees significant inflationary pressure in
2022 for the European Apparel sector with less FX support and
the likelihood that markdowns will normalise after low levels
during 2021
    ** The broker says that the strength of gross margins has
been the biggest surprise in 2021, in the face of weak demand,
and supply chain disruption
    ** The broker assumes H&M  HMb.ST  ("underperform") and
Inditex  ITX.MC  ("underperform") will see underlying gross
margin declines with FX support turning negative, and believes
consensus expectations of significant EBIT margin increases in
2022 and 2023 are very optimistic
    ** CS is more positive about M&S  MKS.L , Next  NXT.L  and
ABF/Primark  ABF.L , which it believes have sufficient support
from hedged FX rates to offset manufacturing cost pressure
    ** For calendar 2022 CS expects Inditex's gross margin to
decrease by 85 basis points (bps) and flat EBIT margins
    ** The broker says Inditex's Q3 results on Dec 15 should be
strong, but believes is hard to see the shares re-rating until
there is greater clarity on the margin outlook for calendar 2022
    ** The broker sees H&M's underlying gross margin for 2022
falling by 65 bps and EBIT margins to be up by 100 bps

    
    

 (Reporting by Joao Manuel Mauricio)
 ((JoaoManuel.VicenteMauricio@thomsonreuters.com))