Guotai Haitong Securities Co., Ltd. released a research report indicating that July saw overall deceleration in China's textile and apparel retail growth with accelerated online performance, while US textile and apparel retail has maintained acceleration for two consecutive months. Revenue growth among multiple Taiwanese manufacturing companies slowed month-over-month in July.

The firm identifies two promising investment themes: First, the textile manufacturing export chain, where tariffs on exports to various countries have been implemented. Manufacturing export companies previously had conservative expectations, but following the interim report period, companies with stabilizing profit expectations may see further valuation recovery, with dividend-yielding stocks expected to perform particularly well. Second, the light luxury segment, as Q2 2025 witnessed leading growth from second-tier brands including Miu Miu, Coach, and Ralph Lauren. As the proportion of entry-level consumers for top luxury brands declines, light luxury companies with strong brand momentum are positioned to capture incremental customer segments.

**Key Market Performance Analysis:**

**China and US Textile & Apparel Retail Trends**

China's textile and apparel retail showed deceleration with accelerated online growth, while US retail maintained two consecutive months of acceleration:

1) China's textile and apparel retail: July retail sales of clothing, footwear, and knitwear increased 1.8% year-over-year, slowing from June's 1.9% growth. Cumulative retail sales for January-July grew 2.9% year-over-year, compared to 0.5% growth in the same period last year. Online retail sales of clothing products grew 1.7% year-over-year for January-July, accelerating from 1.4% in January-June, though below last year's 6.3% growth rate.

2) US textile and apparel retail: July retail sales at clothing and clothing accessories stores increased 5.0% year-over-year, accelerating from June's 4.7% growth. Cumulative retail sales for January-July grew 4.4% year-over-year, compared to 2.0% in the same period last year. US textile and apparel retail growth has accelerated month-over-month for two consecutive months since June.

**Taiwanese Manufacturing Companies Show Mixed Results**

July revenue growth for multiple Taiwanese manufacturing companies slowed month-over-month. Revenue growth rates for July were: Yue Yuen +0.5%, Feng Tay -8.8%, Yu Chi +5.2%, Zhi Qiang +8.1%, Lai Yi -14.9%, and Eclat -2.9%. Compared to June's growth rates of +9.4%, -3.1%, +23.3%, +1.8%, -4.2%, and -3.3% respectively, Yue Yuen, Feng Tay, Yu Chi, and Lai Yi all experienced decelerated revenue growth.

**Strong Brand Momentum Continues for On and Coach**

Latest quarterly results show continued strong brand momentum for On and Coach. On has implemented price increases to offset tariff impacts, while Coach expects tariffs to affect FY26 gross profit by $160 million or 2.3 percentage points in gross margin.

1) Tapestry: FY25 (ended June 28, 2025) revenue reached $7.01 billion, up 5% year-over-year. Gross margin improved 2.1 percentage points to 75.4%. Net income attributable to shareholders was $180 million, with the decline primarily due to an $850 million impairment charge for Kate Spade; excluding this charge, net income grew 25.6% year-over-year.

Coach brand demonstrated exceptional performance with 10% growth for the full year on a constant currency basis. Coach's growth accelerated again in FY25Q4 with 13% constant currency growth, including 16%, 22%, and 12% growth in core markets of North America, China, and Europe respectively. FY26Q1 growth rates further accelerated compared to FY25Q4.

Coach has strengthened emotional connections with younger demographics, adding 4.6 million new customers in North America during the year, with 70% being Gen Z or Millennials. Strong growth was seen across leather goods, handbags, and straps categories, with Q4 handbag average unit retail prices increasing 14-16% year-over-year.

For FY26, the company provides guidance for mid-single digit revenue growth (excluding the impact of divested Stuart Weitzman brand), expecting tariffs to reduce gross profit by $160 million or gross margin by 2.3 percentage points.

2) On: FY25Q2 (ended June 30, 2025) revenue reached CHF 750 million, up 32.0% year-over-year. Gross margin improved 1.6 percentage points to 61.5%. Net loss of CHF 40 million was primarily due to foreign exchange losses from significant Swiss franc appreciation against the US dollar.

The On brand's strong growth momentum is expected to continue in Q3, with the company raising full-year guidance: revenue growth of at least 31% (previously at least 28%) and gross margin of 60.5%-61% (previously 60%-60.5%). The company believes the July 1 price adjustments in the US market are sufficient to offset tariff impacts, with no additional price increases needed and no requirement to share tariff costs with suppliers.

**Risk Factors:** Consumer spending appetite falling short of expectations, raw material price volatility, and intensified competition.