Coats Group (COA) shares jumped 9% on Tuesday after the manufacturer reassured investors that it remains on track to meet full-year expectations, with stronger profits, a higher dividend and confidence that improving market conditions will support earnings during the second half of the year.
Despite continued weakness across the global apparel and footwear sectors, the company said it expects only modest market declines over the coming months.
Supply-chain inventories are now lean, which could prompt customers to rebuild stock faster than current assumptions suggest, while around $15 million of additional cost savings, including synergies from the OrthoLite acquisition, are expected to benefit the second half.
Revenue increased 19% to $836.9 million during the first six months of the year, while organic revenue edged 1% higher. Adjusted operating profit climbed 19% to $166 million and the operating margin remained strong at 19.8% as procurement savings and disciplined cost management offset higher investment in technology and growth initiatives.
Coats continued to outperform its core apparel and footwear markets, gaining market share despite both sectors contracting by mid-single digits during the first half. Apparel delivered modest organic growth, while footwear returned to growth in the second quarter.
OrthoLite revenue fell due to strong comparatives and temporary production constraints, although growth is expected to return in the second half. Pretax profit declined to $104.3 million as higher finance costs and investment spending weighed on earnings.
Investors instead appeared to focus on the company’s outlook, with Coats increasing its interim dividend by 5% to 1.05 US cents per share and reaffirming its ambition to generate around $1 billion of cumulative free cash flow over five years. Net debt stood at $842 million, with leverage expected to reduce to around 2.0 times by the end of the year.
Chief executive David Paja said the group’s focus on innovation, operational improvements and expanding into adjacent markets continued to deliver market share gains despite difficult trading conditions.