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Why Did Apparel Stocks Fall on October 10?

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Oct. 11 2018, Updated 12:04 p.m. ET

Apparel stocks fell on October 10

Most of the apparel sector stocks were deep in the red on October 10. European fashion giant LVMH-Moet Hennessy Louis Vuitton has a cautious view on China.

The S&P 500 Apparel and Accessories Index fell 7%, while the S&P 500 Index fell 3.3%. The SPDR Consumer Discretionary Select Sector ETF (XLY) fell 3.4%.

Tapestry (TPR), Ralph Lauren (RL), PVH (PVH), and Michael Kors (KORS) were among the top losses. They fell 8.4%, 8.4%, 7.3%, and 7.1%, respectively. Nike (NKE), Lululemon Athletica (LULU), and Under Armour (UAA) stocks fell 6.8%, 6.4%, and 5.9%, respectively.

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What bothered investors?

LVMH reported strong quarterly results. While the company met the top-line expectations and reported organic growth of 10%, management said it experienced mild softness in China. The company also talked about Chinese customs officers enforcing stricter laws on the border.

“The Chinese authorities have some laws with regards to importation of goods and luxury goods, these laws are being enforced with more strength at some point in time, which is exactly what we understand is happening,” said Jean-Jacques Guiony, LVMH’s CFO.

Why did US apparel stocks fall?

China has emerged as one of the most important and fastest-growing markets for US fashion companies. Greater China accounted for ~14% of Nike’s first-quarter sales. Nike recorded solid 25% growth year-over-year in China.

Most apparel companies produce their products outside of the US. Asia is one of the key destinations. The trade policies with China are important to these companies. As a result, the ongoing uncertainty is taking a toll on apparel companies’ stock performance.

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