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U.S. retail slowdown rips apparel, textile makers
By Jean Scheidnes
NEW YORK,  (Reuters) - Earnings for U.S. apparel manufacturers are expected reflect the latest quarter's frigid weather and cooling retail orders, shrinking distribution channels and price cutting aimed at moving inventories.

``What concerns me about prospects for earnings is price,'' said analyst Richard Hastings of Global Credit Services, a retail industry credit rating firm. As purchase orders slow, Hastings said, inventories build up. This results in price cuts, which drag down margins and earnings.

``For the next two to three quarters we'll see some downward pressure on earnings due to the need to move inventory with lower pricing,'' he said.

Apparel sales in the first quarter of the calendar year are typically driven by margin holiday clearance, followed by new spring merchandise. The clearance period this year was such a discount bonanza that consumers were not as inclined to follow up with spring merchandise, analysts said, especially since the weather remained chilly and thebfashion uncompelling.

``You're not heading to the stores to buy ... new shorts and a tank top when its 38 degrees and a cold rain is slapping you in the face. For most of the country, nearly the entire month was cold and wet,'' retail analyst Steve Paspal of John Hancock funds said in a statement.

On top of that, analysts have called spring fashions -- which many saw as a key factor for a rebound -- ``skewed too young'' and lacking a must-have item.

There are clearly broader forces at work than the fickle nature of weather and fashion. Retailers are slowing purchase orders as consumer spending declines amid broader economic strains -- high energy prices, jobs cuts and financial market volatility, according to analysts.

As department store closings and growing competition from private-label brands and specialty apparel retailers have shrunken apparel vendors' distribution channels, analysts said the companies in the best positions to deliver consistent profit are those with the most diversity of brands and channels, namely Liz Claiborne Inc.(NYSE:LIZ - news), Polo Ralph Lauren Corp.(NYSE:RL - news), and Jones Apparel Group Inc.(NYSE:JNY - news)

But on the other hand, large consolidated companies face the challenge of maturity, and need acquisitions for significant growth, analysts said.

Apparel Deflation Led by Textile Deflation

Textile mills have even more exposure to the risks of supply and demand and irregular pricing, analysts said. The textile industry in the United States has been hammered as cotton prices fell to record lows. Companies that bought cotton at the lower price placed competitive pressure on those that bought at higher levels,
which then boosted volume to offset declining margins, creating an oversupply for all.

High energy prices have also hurt, making producing synthetic materials more costly.

As garment makers have come to outsource almost entirely to manufacturers overseas, where labor costs are lower, the few remaining U.S. fabric makers have had to aggressively curtail production and close factories.

Earlier this month, chemical giant DuPont Co. (NYSE:DD - news) cut 4,000 jobs in response to weak U.S. apparel and textile markets.

Textile maker WestPoint Stevens Inc.(NYSE:WXS - news) announced in March it was closing a yarn plant, marking the company's fourth plant closure of the past year. Another textile maker, Dan River Inc.(NYSE:DRF - news), expects to incur losses for the first half of the year.

Galey & Lord Inc. (NYSE:GNL - news) posted lower-than-expected earnings On Wednesday, and Springs Industries Inc.(NYSE:SMI - news), a linens maker that has been considering an offer to be taken private, reported a 28 percent earnings drop, citing slower consumer spending on home furnishings.