The recent reversal in the soaring price of cotton is providing a welcome breather for apparel manufacturers, but it's too early to say if that respite will extend to consumers.
Casual apparel giant Gildan Activewear Inc. is among firms benefiting from the recent dip in the commodity's price. Senior executives point out, however, that the outlook calls for the price to stay near record levels in the short term.
"At the end of the day, the reality is that cotton will remain high into next year," Gildan president and chief executive officer Glenn Chamandy said on a conference call to discuss second-quarter results Wednesday.
The price of cotton has more than doubled since last summer, although it has come off record highs of more than $2 (U.S.) a pound reached in March.
Many clothing companies and retailers have increased prices on items such as jeans and all-cotton sheets by between 10 per cent and 20 per cent in recent months. Although there's no sign that shoppers have cut back purchases because of the increases, clothing manufacturers are reluctant to push through another round of hikes, fearing consumer resistance will start to trim sales.
Montreal-based Gildan posted a record second-quarter profit of $61.4-million, or 50 cents a share, compared with $48.8-million, or 40 cents, in the year-earlier period.
Revenue rose to $383.2-million from $326.8-million a year earlier.
Gildan - maker of T-shirts, sweatshirts, underwear and socks - says higher prices, increased sales and a more favourable income-tax climate helped offset the higher cotton prices.
So far, Gildan and others in the clothing sector, as well as retailers, say they have been coping well with the soaring price of cotton.
Fears that rising cotton prices, as well as higher gasoline prices, would put a dent in consumer buying have been "overstated," Macy's Inc. chief financial officer Karen Hoguet said on a conference call Tuesday.
David Madani, Canadian economist with Capital Economics, says it's too soon to predict longer-term cotton prices but, given the increase in clothing prices that has already been passed on to consumers, it's possible another round of hikes won't be needed.
"The drop in prices we saw last week in commodities might be the start of a much longer pullback and that would include cotton," he said.
Darren Hudson, economist at Texas Tech University's Cotton Economics Research Institute, says cotton prices had reached "unrealistically high levels" because of weather-related shortages and panic buying.
It remains to be seen if there will be more clothing price hikes at the retail level, he said.
Bob Kirke, executive director of the Ottawa-based National Apparel Federation, says clothing manufacturers are keenly aware there's a breaking point of consumer resistance to further price increases.
"Nobody wants to frighten away the consumer," he said.
"Last year was a decent year and everyone wants to see that continue into 2011. The result is that [companies]try to squeeze costs out every which way" to avoid having to pass on price hikes to the consumer, Mr. Kirke said.
Gildan has been astute in playing the cotton futures market so as to better manage price volatility, he added.
Other companies, such as U.S. basic apparel giant Hanesbrands Inc., are seeking out new lower-cost fibres to replace cotton, said Mr. Kirke.
"The recent shortage of cotton and soaring prices have stimulated a sense of innovation," he said.