Apparel earnings to keep softening

Fabric manufacturers Teejay Lanka PLC (TJL) and Hayleys Fabric PLC (MGT), two of Sri Lanka’s major apparel sector players, have anticipated a softening in earnings from the final quarter of the financial year that ended on 31 March (4QFY26E), through to the beginning of October this year when tariff conditions are projected to reach a state of stability, as stated in First Capital Research’s Listed Fabric Manufacturing Sector Report released recently (28 March).

“Management of TJL and MGT have guided for a temporary earnings softness in 4QFY26E and 1QFY27E, with a subsequent recovery anticipated as order flows strengthen and tariff conditions stabilise from 2HFY27E,” the report said, noting that textile and apparel exports contribute approximately 38.0% of total merchandise exports of Sri Lanka.

According to the research unit, domestically, both manufacturers collectively account for roughly 9.0% of production market share, supplying to global brands such as Nike, PVH, Victoria’s Secret, Marks & Spencer, Uniqlo, Levi’s and Lululemon, and retailers Walmart, Lidl, Decathlon, and Tesco.

Addressing the global volatility in trade over the past year as a consequence of the US administration’s Liberation Day tariff regime, the research unit noted that the administration’s move to impose a new global tariff set at 10% and a “15% tariff floor” for nations with a trade deficit with the US in February offers Sri Lanka a reprieve.

“Recent global trade dynamics, including the implementation of a more uniform 15.0% US reciprocal tariff regime for all countries, have reshaped competitive conditions.” Under the latest tariff regime, Sri Lanka’s effective tariff rate dropped from 31.0% to 21.6%.

The report also highlighted that Teejay stands to gain from reduced tariffs on India. With India’s reciprocal rate falling from 50.0% to 15.0%, the company’s manufacturing presence there becomes an advantage. Although demand remains weak in the near term as global brands work through excess stock, early signals point to the start of a restocking cycle similar to the post-Covid period of 2022-2024.

This sets the stage for a steady rebound in orders from international brands. In the research unit’s baseline forecast, the sector is expected to move from decline to growth, helped by stable economic conditions in the US, EU, and UK, moderating input costs despite temporary oil-related pressures, and better operating leverage from higher factory utilisation.

Source - The Morning