Coats gives upbeat outlook despite sales slump

By

Barbara Santamaria

Published
May 20, 2020

The temporary closure of 15 manufacturing sites and lower demand from apparel and footwear customers triggered a 50% decline in sales at thread manufacturer Coats in April.

The company is the world’s largest manufacturer and distributor of sewing thread and supplies, and the second-largest manufacturer of zips and fasteners.

In a trading update released on Wednesday, Coats revealed that last month’s numbers led to a 17% reduction in sales for the period 1 January to 30 April compared to the prior year.

Demand from apparel and footwear customers fell significantly during the period, down 23% as fashion companies cut back spending amid widespread coronavirus uncertainty. Many brands and manufacturers cancelled their orders or deferred orders from mid-March, which significantly impacted demand in April.

Coats added that some of its largest apparel and footwear markets were hit by government-mandated lockdowns, forcing factories in India and Bangladesh to remain closed during April. But the majority of its sites have now reopened, with just two locations still closed.

The group’s performance materials division was more resilient, benefiting from the recent acquisition of Pharr HP, a US-based manufacturer of high-performance engineered yarns. While organic sales declined 12% year-on-year, Pharr’s contribution meant a 6% increase in sales on a reported basis. 

Despite the challenges, the company said it is in a strong position to deal with the impact of the coronavirus pandemic. Management reported that operational costs will be 40% lower in the second quarter compared to the same period in 2019, helped by lower activity levels and cash-saving actions. Projected full-year capital expenditure will reduce by 70%, and the group insisted it has a “strong balance sheet with comfortable liquidity and headroom”.

“The board remains confident in the group's ability to successfully manage through the current challenging environment,” it said in a statement.

“We enter this phase of our 250-year history in robust shape and as a market leader with an unrivalled global footprint.  Alongside our enhanced operational agility this leaves us well placed to benefit from the acceleration in demand and emerge as a stronger business once Covid-19 passes.