Textile Retail Outlook Amid US Elections

The second-half trading backdrop remains challenging for textile retailers, yet broader consumer sentiment appears more positive than in previous election years, according to analysts at Morgan Stanley.

In a note to clients, the analysts indicated that entering the final weeks before the crucial US presidential election in November, consumers’ optimism seems to be improving despite some quarter-on-quarter demand deterioration.

They referenced a recent AlphaWise US Consumer Pulse Survey showing that Americans have a “significantly more constructive” view of the outlook over the next six months since May. Additionally, a University of Michigan sentiment index increased for the second consecutive month in September.

“Both of which suggest a more upbeat consumer,” the analysts noted.

For textile-focused retailers and brands, the analysts argued that while some headwinds in the final six months of 2024 persist, there seems to be “limited risk” to Wall Street’s second-half income estimates for these groups.

“Softlines stocks are historical election-season winners – perhaps a function of fundamentals holding in better than market fears/intraquarter data points,” the analysts stated.

Historical sluggishness in mall foot traffic from September to December in past election years may not translate to fundamental deterioration for textile retailer returns.

“If past serves as precedent – while high-frequency demand data could soften, we caution it may overstate the impact on fundamentals, which could prove more resilient,” Morgan Stanley analysts expressed.

These observations coincide with Democratic presidential candidate Kamala Harris holding a narrow lead over Republican rival Donald Trump in recent national opinion polls. However, surveys of likely voters in key swing states, which could sway the election’s outcome, remain tight.

From Wall Street’s viewpoint, strategists highlighted that both Harris and Trump’s tax plans could specifically affect corporate returns. Trump promises to lower corporate taxes, while Harris aims to increase them.

Morgan Stanley analysts projected that Trump’s plan could potentially enhance average 2025 company profits by about 5%, while Harris’s proposal could decrease earnings by roughly 3%.

“For textile firms, Burlington Stores Inc (NYSE:BURL), Foot Locker Inc (NYSE:FL), and Nordstrom Inc (NYSE:JWN) appear the most exposed to a potential change in US corporate tax rate, whereas Lululemon Athletica Inc (NASDAQ:LULU), Nike Inc (NYSE:NKE), and Skechers USA Inc (NYSE:SKX) are the least,” the analysts concluded.