After a very challenging 2016, US apparel and footwear industry operating profits are poised to improve over the next 12-18 months, but growth will be more sluggish than originally anticipated, this has been stated in a new report of Moody’s Investors Service.

Most clothing and footwear companies are still feeling the pressure from a strong dollar and weak retail traffic, factors that will result in a soft first-half of 2017, when the majority of growth will be powered by Nike, Inc. Moody’s now forecasts industry operating profit growth to come in at 3-5 per cent this year, rather than 5-7 per cent.

“Our forecast for US apparel and footwear makers’ operating profits this year for the most part reflects easy comparisons with a difficult 2016,” said Moody’s Assistant Vice President, Mike Zuccaro, adding, “Conditions will remain challenging in the first six months of this year, and will only really begin to improve in the second half. Growth will accelerate in the latter half of 2018, assuming the dollar remains near current levels and inventory levels are kept in check.”

US apparel and footwear companies also continue to face higher costs for labour, as well as for inputs such as cotton. Since most companies have raised prices to help partially offset higher dollar-related costs, the ability to implement additional near-term increases will remain a challenge, particularly for moderately- or value-priced apparel and footwear.

Meanwhile, the rating agency expects companies to continue to pursue M&A opportunities as they look for new sources of growth. Hanesbrands was very active in this respect last year, for example, as was G-III Apparel, which expanded its portfolio of brands by acquiring Donna Karan.