OEM Orders Diverged Significantly in July; Profit Warnings Highlight Dual Pressure from Demand and Costs

Overview

The report tracks monthly orders, first-half and second-quarter results, the global consumption environment, international brand sales and inventories, and raw material costs across the Asia-Pacific textiles, apparel and footwear industry chain in July 2026. The core conclusion is that OEM orders continued to diverge: apparel manufacturers Eclat and Makalot grew on improved shipments, a low base and FX factors, while footwear manufacturer Feng Tay improved slightly, but Yue Yuen remained under significant pressure. Profit warnings from Shenzhou and Yue Yuen show that weak end demand, cautious brand procurement, lower production efficiency, rising costs and exchange-rate changes are jointly compressing profits.

Core views

First, apparel OEMs outperformed footwear OEMs in July, but differences across companies were large, so this should not be used to conclude that the industry has entered a broad recovery. Second, in the second half of 2026, the low base caused by tariff disruptions and destocking in the same period of 2025 may improve year-over-year order growth, but brands remain cautious in the face of rising commodity costs. Third, U.S. consumption and some UK indicators are resilient, but sportswear store traffic and German fashion consumption remain weak. Fourth, adidas' read-through to upstream OEMs is relatively positive, Deckers is more mixed, while signals from Puma, VFC and Under Armour are negative. Fifth, valuation and dividend yield provide some downside protection for Shenzhou and Yue Yuen, but earnings recovery still depends on order stability, efficiency improvement and cost easing.

Analysis framework

The report cross-checks monthly revenue of OEMs and retailers, quarterly results and earnings forecast revisions, U.S. and European consumption indicators, global brand sales and inventory changes, management order comments and raw material price trends, and values Eclat and Makalot using a next-12-month P/E methodology.

Methodology notes

• Operating TrackingMonthly Order and Revenue Tracking

  Assess operating momentum by comparing monthly revenue growth, margins, order visibility and quarterly forecasts.

  The report compares July 2026 data with actual second-quarter performance and third-quarter forecasts to identify the extent to which companies are leading or lagging.

• Industry Chain AnalysisGlobal Brand Read-through Analysis

  Infer upstream OEM demand based on downstream brands' sales, categories, inventories and order outlook.

  Operating data from adidas, Puma, Deckers, VFC and Under Armour are mapped respectively to suppliers such as Shenzhou, Yue Yuen, Huali, Eclat and Stella.

• Valuation methodsForward P/E Valuation

  Determine the next-12-month target price by multiplying forecast earnings per share by the target P/E multiple.

  Eclat's target price of NT$382 is based on 16x 2026E P/E; Makalot's target price of NT$206 is based on 14x 2026E P/E.

• Fundamental AnalysisDemand, Cost and Margin Decomposition

  Decompose earnings changes into volume, product mix, capacity efficiency, operating leverage, labor and raw material costs, and FX impact.

  This framework is used to explain margin pressure at Shenzhou, Yue Yuen and Eclat, and to assess the conditions for earnings recovery in the second half.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Shenzhou International Group (2313.HK)

  Core apparel OEM name, maintained at Buy.

  Strengths

  Valuation requirements are not high, dividend yield is attractive, and adidas apparel growth has a relatively positive industry-chain read-through to its orders.

  Weaknesses

  Net profit in the first half of 2026 is expected to decline 38% to 43% year over year, indicating significant demand, efficiency, cost and FX pressures.

  Comparison

  Compared with Eclat and Makalot, which grew faster in July, Shenzhou currently faces more pronounced earnings pressure, but stronger valuation support.

  Risks

  Brands remain cautious in procurement, Nike's China channel restructuring, production efficiency below expectations, rising labor and raw material costs, and exchange-rate volatility.

• Yue Yuen Industrial (0551.HK)

  Core footwear OEM name, maintained at Buy.

  Strengths

  Low valuation and relatively high dividend yield provide support, and the July sales decline narrowed slightly from June.

  Weaknesses

  July OEM sales declined 10% year over year, and second-quarter net profit is expected to decline 56% to 65% year over year, with margins under clear pressure.

  Comparison

  Performance was weaker than Feng Tay and behind the report's expectations for third-quarter OEM sales.

  Risks

  Slowing growth at footwear brands, deterioration in order mix, insufficient capacity utilization, tariff sharing, rising costs and a weaker-than-expected fourth-quarter recovery.

• Eclat Textile Co. (1476.TW)

  Apparel and fabric OEM name, maintained at Neutral.

  Strengths

  July revenue increased 23.2% year over year, with contributions from both new and existing customers; order visibility is around 6 months, and vertical integration helps gross margin.

  Weaknesses

  Second-quarter gross margin and operating margin were below expectations, and the second half is still affected by weak demand and rising input costs.

  Comparison

  July growth led among the tracked companies, but valuation and margin uncertainty limit room for a rating upgrade.

  Risks

  Slower-than-expected customer contribution, insufficient orders from existing customers, poor cost control, industry integration progress and exchange-rate volatility.

• Makalot Industrial Co. (1477.TW)

  Apparel OEM name, maintained at Sell.

  Strengths

  July revenue increased 7.9% year over year, order visibility exceeds 6 months, and a higher sportswear mix in the third quarter may support gross margin.

  Weaknesses

  Although second-quarter net profit was slightly above expectations, full-year earnings forecasts were largely unchanged, and the target price is below the disclosed price.

  Comparison

  Recent revenue trends are better than Yue Yuen and Feng Tay, but valuation appeal is weaker than Buy-rated names.

  Risks

  Stronger-than-expected apparel consumption, lower tariffs, exchange-rate changes or improved cost control could constitute upside risks to the Sell rating.

• Pou Sheng International Holdings

  A monitored name for sportswear retail demand in China.

  Strengths

  Subsequent earnings releases and management communication may provide further information on China sports consumption and channel inventories.

  Weaknesses

  July sales declined 13.9% year over year, significantly behind the previous view that third-quarter sales would be roughly flat.

  Comparison

  Its retail weakness contrasts with improvements in some U.S. and UK consumption data.

  Risks

  Weak consumer confidence, adverse weather, changes in promotion timing, off-season effects and adjustments to Nike's online sales arrangements.

Key data

• Eclat July revenueUp 23.2% year over yearSignificantly accelerated from 14% in June and 3.8% in the second quarter, and above the third-quarter forecast of 7.6%.
• Makalot July revenueUp 7.9% year over yearAbove 6.2% in the second quarter and the third-quarter forecast of 6.5%, with order visibility exceeding 6 months.
• Yue Yuen July OEM salesDown 10.0% year over yearSlightly improved from a 12% decline in June, but still weaker than the third-quarter forecast of a decline of approximately 3.8% to 5%.
• Pou Sheng July salesDown 13.9% year over yearWeaker than the 9% decline in June, reflecting consumer sentiment, weather and the post-'618' off-season impact.
• Shenzhou profit warningNet profit in the first half of 2026 down 38% to 43% year over yearMain pressures include weak demand, order volatility, lower production efficiency, rising costs and FX impact.
• Yue Yuen profit warningNet profit in the second quarter of 2026 down 56% to 65% year over yearWeaker-than-expected OEM margin was the main drag.
• Feng Tay July operating performanceRevenue up 1.0% year over year; net margin 6.9%Revenue was slightly improved from flat in the second quarter; net margin increased by 1.9 percentage points from the second quarter.
• Eclat earnings forecast revisionNet profit forecasts for 2026 to 2028 lowered by less than 1%The 2026 net profit forecast was lowered by 0.6%, and the target price was slightly lowered to NT$382.
• U.S. consumer confidenceUniversity of Michigan Consumer Sentiment Index at 55.2 in JulyAbove 49.5 in June, but July nonfarm payrolls data were weaker than expected.
• UK offline salesComparable high-street sales up 2.7% year over year in JulyAccelerated from 0.6% in June, while the UK Consumer Confidence Index improved from -23 to -17.

Impact & implications

In the short term, apparel OEMs with faster order growth and effective customer expansion are relatively advantaged, but industry margins still face pressure from labor, raw materials, FX and low capacity utilization. Footwear OEMs are more clearly affected by slowing brand footwear growth and channel adjustments. If back-to-school and year-end holiday sales are solid, brands may increase restocking from the fourth quarter of 2026 to 2027, thereby improving OEM orders; conversely, if brands continue to suppress procurement and inventories, earnings recovery will be delayed. For investors, the current environment is better suited to differentiating companies by order quality, customer mix, cost control and valuation, rather than trading a broad industry recovery.

Risks

• Global end demand falls short of expectations, causing brands to continue adopting conservative procurement strategies.
• Rising labor, raw material and commodity costs further compress OEM margins.
• Order volatility and insufficient capacity utilization lead to lower production efficiency and operating deleveraging.
• Tariff-sharing arrangements and changes in trade policy affect supply-chain profit allocation.
• Exchange-rate volatility may affect revenue translation, costs and FX gains/losses at the same time.
• Channel adjustments by brands such as Nike in China extend the order recovery cycle.
• Weak back-to-school and year-end holiday sales lead to delayed restocking in the fourth quarter and 2027.
• The second-half improvement claimed by brands fails to materialize, especially for orders related to Deckers, VFC and Under Armour.

What to watch

• Yue Yuen and Pou Sheng's second-quarter 2026 results and management conference calls.
• The extent to which back-to-school and year-end holiday sales drive restocking in the fourth quarter of 2026 and 2027.
• Order stability, capacity efficiency and margin recovery progress at Shenzhou and Yue Yuen.
• Improvement in adidas footwear orders from the fourth quarter of 2026 to the first quarter of 2027.
• Whether brand restructuring at Puma, VFC and Under Armour can translate into sustained revenue improvement.
• The impact of Nike's China channel restructuring on orders for related OEMs and retailers.
• The sustainability of raw material price declines from high levels and the timing of their pass-through to OEM gross margins.
• Whether Eclat's new customer contribution, Makalot's peak-season orders and both companies' order visibility of more than 6 months are realized.