Strong Clothing Retail Sales in Korea, China, and the US... Rising Interest in Textile and Apparel Stocks

Growth Continues for the First Time in Two Years Since 2023
Apparel Inventories at the Bottom... Expectations for Earnings Improvement

In South Korea, China, and the United States, clothing retail sales have maintained year-on-year growth, driven by each country's economic stimulus measures. As apparel inventories decrease, there is analysis suggesting that the stock prices of textile and apparel-related companies, which have bottomed out, could rebound.

On January 2, Shinhan Investment Corp. maintained its overweight recommendation on the textile and apparel sector, citing these factors. The firm selected Youngone Corporation as its top pick, while also highlighting F&F, Gamsung Corporation, and AU Brands as stocks to watch.

From the second half of last year through November, the clothing retail sales growth rate in South Korea, China, and the United States averaged around 3% year-on-year. Certain segments, such as women's apparel, saw growth rates reaching the low double digits. Notably, apparel inventory levels in both South Korea and the United States are currently at their lowest points in the past three years, fueling expectations for increased shipments.

In South Korean department stores, women's apparel has maintained around 5% year-on-year sales growth since June of last year. Casual wear, men's clothing, and children's and sports apparel also saw department store sales growth throughout the second half of the year, except for September. While the luxury segment continued to post sales growth in the low double digits, deepening consumption polarization, it is noteworthy that department store apparel sales have grown for five consecutive months for the first time in two years since 2023, which is seen as an encouraging sign.

Gamsung Corporation, which outperformed the market in sales growth during the second and third quarters of last year, is estimated to have achieved sales growth exceeding 20% year-on-year from October to early December. Similarly, clothing retail sales in China are estimated to have grown by 3-5% year-on-year in the second half of last year. With the base effect expected to be pronounced through the first half of this year, China's clothing retail sales are anticipated to maintain their growth momentum for the time being. This is why attention is being paid to companies such as F&F, Gamsung Corporation, and AU Brands, which are planning to expand into China this year.

The reduction in inventory is also a positive signal. Recently, apparel inventory levels in the United States have remained at the lower end since 2023. The report emphasized that attention should be paid to the potential for earnings recovery among original equipment manufacturing (OEM) companies this year. However, it remains uncertain whether American consumers will maintain their purchasing power in the face of inflation driven by tariffs. Lagging indicators that could confirm this are expected to emerge after the first quarter of this year, but until then, investment sentiment may be concentrated on OEM companies.

Park Hyunjin, a researcher at Shinhan Investment Corp., stated, "Youngone Corporation's investment appeal may further increase, as its sales are expected to grow significantly due to benefits from certain clients, even though its correlation with consumer sentiment is low." Park added, "This presents an opportunity for its price-earnings ratio (PER) multiple to expand."