Cotton is trading around $1.12 per pound, higher than the roughly 95 cents it was at about a year ago. But it’s much lower than this spring, when it spiked as high as $2.15.
Hanesbrands Inc. and PVH Corp., the company behind Calvin Klein and Tommy Hilfiger, could be the biggest winners, Citigroup Inc. analysts led by Kate McShane wrote in a note to clients Monday, because cotton is a significant portion of their raw material costs. She also noted that both companies had raised prices this year without too much resistance from customers.
Shoemakers will not benefit quite so much, McShane said, because they typically use less cotton than the clothing makers. Nike Inc., which gets about 44 percent of its revenue from clothing, and Columbia Sportswear Co., which gets about 82 percent, are exceptions, she said.
Cotton was not only material to spike in price this year. So did corn, sugar, coffee, beef, fuel and other materials, thanks to a combination of unrest in the Middle East, bad weather in parts of the world, and rising demand from fast-growing markets like India and China.
The cost increases have been a burden to companies, which want to pass along the higher costs to customers but not scare them away.
McShane noted that the cost of labor also will continue to rise, which would outweigh some of the benefits from lower cotton costs.
Hanesbrands shares rose 31 cents to $26.46. PVH’s stock rose $1.23, or 2 percent, to $62.69. Nike shares increased 93 cents to $83.43. Columbia jumped 37 cents to $49.24.