Apparel Retailers ’22 . face high cost risk in

While conditions were challenging, strong demand recovery was expected after normalcy returned to normalcy keeping sentiments high for retail stocks. There was a steady recovery in the revenues of the companies till the September quarter.

While this is a good sign, 2022 will not be an easy year. The rising cases of the Omicron coronavirus variant are an immediate threat to the pace of recovery. “Prima facie, there are three concerns as of the beginning of 2022, the first being intense inflationary pressures,” said Akhil Parekh, an analyst at Centrum Broking Ltd. Here, investors need to see how companies deal with higher input costs and the impact on demand for price hikes. Parekh said, “The second concern is the possible restrictions/lockdown due to Omicron. Third, the estimated GST rate hike on textiles.” For now, the GST hike on textiles has been deferred.

Some analysts say that recent channel checks and interactions with companies indicate that demand in December was slightly slower than in October-November. As such, management’s comments shed more light on the situation when fiscal third quarter results are announced. Despite Omicron’s concerns, the overall demand outlook appears to be reasonably encouraging.

“Apparel retailers may see a gradual recovery in demand in CY22 amid rising concerns over Omicron. Most companies have strengthened their balance sheets in CY20-21 through equity enhancement, managed cost structure and working capital, and to manage current uncertainties, analysts at ICICI Securities Ltd said in a note to clients last month. are in better condition.

Store additions are expected to accelerate this year, and that’s what investors are likely to be monitoring. Also, whether the momentum in the online segment post the easing of the Covid-led restrictions remains to be seen.

To be sure, the sharp rally in retail stocks in 2021 suggests that investors are factoring in a strong rebound in demand. But, this could limit significant upside in the short term. “Strong brands with good balance sheets will continue to benefit from the unorganized to organized shift,” Parekh said. Notably, for V-Mart, the anticipated turnaround of Unlimited Stores is a factor to watch. Trent’s growth plans and strong balance sheet keep it in good shape, although the stock’s valuation is pricey. Overall, the biggest risk to retailers in 2022 may be facing a lower-than-expected demand recovery.