After a banner year in 2022, Hong Kong-based apparel manufacturer Lever Style has seen demand for its services soften. The supplier, which counts brands like Vuori, Rag & Bone and Spanx as clients, saw year-over year sales grow 3.6 percent, hitting $100.2 million during the first half of 2023, up from $96.74 million a year ago.
In a Nutshell: After seeing revenues surge by 51.2 percent in 2022 to a record $217.2 million, “Things are not looking so great,” executive chairman Stanley Szeto said in an interview with CNBC’s Squawk Box earlier this month. Brands bought in early in 2022, leaving a “glut of inventory” on store shelves this spring and summer, he explained following an earnings report released for the period ending June 30. “Even though retail sales are not plummeting yet, buying on the supply chain has been drastically reduced,” Szeto said, noting that he feels the company’s modest year-on-year increase is “a win” compared with what competitors are experiencing. “We’re hearing about a lot of 30-percent drops,” he added. “It’s a bloodbath out there.”
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With production hubs spread across Asia, Szeto said Lever Style is well-positioned to weather shifts in sourcing strategy that have brands steadily moving production out of China. The evidence is in the company’s own sourcing spread: with about 20 percent of its manufacturing taking place in China (down from more than 50 percent just two years ago), Vietnam, India, Indonesia and Cambodia have taken on the lion’s share of the group’s business. “I think that’s indicative of what’s happening in the general market, not just in apparel, but in other consumer products as well,” Szeto said.
Lever Style’s gross profit increased 4.8 percent ($1.3 million) from the year-ago period to $27.9 million, with its gross profit margin holding steady at 27.9 percent. In a statement, Szeto attributed the company’s growth in the face of an industry downturn to an increase in active customers buying into multiple category offerings, as well as Lever Style’s cross-selling ability. The apparel group’s net profit grew 15.1 percent to $5.8 million, and Szeto said asset-light production has helped Lever Style to outperform its contemporaries in recent years.
Bottoms ($30.5 million), shirts ($20.2 million) and outerwear ($19.4 million) make up the company’s largest categories, accounting for about 70 percent of sales during the first six months of the year. Suits, soft wovens, knits, sweaters and other garments made up the rest.
Despite the economic headwinds, the company continues to bring on new talent. Lever Style reported administrative expenses totaling $9.4 million, up from $8.3 million during the first half of 2022, much of which it attributed to hiring. The company is also investing in digitizing its platform by building a data warehouse for data management and analysis, which it believes will drive future growth.
The company’s cash and cash equivalents as of June 30 were $7 million, with current assets of about $40.7 million. Lever Style obtained bank facilities to fulfill its working capital requirements, used to fund the purchase of raw materials and to pay out contract manufacturers. Out of about $65 million available from the banks, the company has $62.4 million remaining.
CEO’s Take: Szeto said he expects “depressed purchasing to continue through the next 12 months as brands and retailers continue to digest their bloated inventories,” but Lever Style will turn to mergers and acquisitions as a key source of growth during this time. “As a difficult economy makes our versatile production platform’s advantages more apparent,” Szeto said he believes more companies will see the benefits of joining. During his appearance on CNBC, the executive chairman said he believes “it’s a great time for acquisitions” given the industry’s sluggish sales.
Geographic diversification will be a key part of that strategy moving forward. Vietnam has become Lever Style’s primary production base, and the group is looking to help its clients strengthen their sourcing portfolios by branching out into other locales. “We’re looking at and talking to several companies… with strong products and strong clients that will be complementary to our business,” Szeto said. “The more customers you have, the more suppliers you have, the stronger the platform gets.”
