Coats Group trading as expected as apparel segment improves

Industrial thread specialist Coats Group said in an update on Wednesday that its trading in the four months through October was in line with expectations.

The FTSE 250 company noted a positive trend in organic revenue, which was 12% lower year-on-year, improving from the 19% decline in the first half of 2023.

It said the apparel segment showed signs of gradual recovery, with organic revenue down 5%, while the footwear segment’s organic revenue lagged, experiencing an 18% year-on-year decline due to the timing of destocking.

Performance materials, however, faced ongoing challenges, including customer insourcing of production and customer phasing issues in specific US end markets.

As a result, organic revenue for the segment was down by 20%.

Despite the challenges, Coats said it benefited from strategic projects, effective pricing strategies, and synergies stemming from footwear acquisitions made last year.

Those factors contributed to an improvement in adjusted operating margins during the period.

Coats Group said it was now confident in achieving its 2024 goal of adjusted operating margins of around 17%.

Regarding foreign exchange, the company noted modest translational headwinds against the US dollar for most significant currencies year-to-date, which were expected to be accommodated within existing guidance.

However, Coats anticipated a specific incremental translation impact on full-year adjusted operating profit due to significant rate fluctuations involving the Turkish lira.

At current exchange rates, the impact was estimated to be about $5m.

Coats said it maintained strong cash generation throughout the period, supporting a robust balance sheet.

As of 31 October, its leverage stood at 1.5x, comfortably within the target range of 1x to 2x.

“With early signs of a gradual recovery in apparel, and our adjusted operating margin continuing to strengthen, we expect our full-year performance to be in line with the board’s expectations,” Coats said of its outlook.

“This is before any specific impact from Turkish lira translation.

“We remain focused on delivering the significant operational and financial benefits of our strategic projects, acquisition synergies and delivering our other ongoing self-help actions.”

As a result, Coats said it was confident of achieving its 2024 operating profit margin goal of around 17%.

“Over the medium term, our scale and global footprint, strong digital platform and technical support capabilities, alongside continued investment in innovation, sustainability and operational efficiency, will enable us to grow ahead of our market with strong profitability and cash generation.”

Coats Group said it would release its full-year results for 2023 on 7 March next year.

At 0957 GMT, shares in Coats Group were down 0.57% at 69.7p.

Reporting by Josh White for Sharecast.com.