The inventory correction by global sportswear brands is now exacting a real financial toll on their contract manufacturers. Yue Yuen Group, headquartered in Hong Kong, issued a profit warning on July 24, forecasting a 55% to 60% year-on-year drop in net profit for the first half of 2026. This figure, far exceeding market expectations, starkly exposes the vulnerability of the upstream textile and apparel supply chain.
Order Contraction Meets Cost Rigidity
The profit crash is driven by two forces. On one hand, major international sportswear brands are still pursuing strict inventory destocking, directly squeezing the order volumes of OEMs. On the other hand, Yue Yuen's new production capacity in Southeast Asia and other regions is in a ramp-up phase, with low capacity utilization while fixed costs like factory depreciation and labor keep rising. This mismatch of falling demand and expanding supply has significantly pushed up manufacturing and depreciation costs.
Industry data shows that inventory turnover days for major global sportswear brands in 2025 remain above pre-pandemic levels. The destocking cycle has now transmitted from the brand side to the manufacturing side. For OEMs, order cuts mean higher fixed costs per unit, making margin compression almost inevitable.
Shockwaves Ripple Upstream
Yue Yuen's profit warning is not just an issue for one OEM. As one of the world's largest footwear contract manufacturers, its order fluctuations directly impact upstream segments including chemical fibers, fabrics, and accessories. When OEMs reduce procurement, suppliers of polyester filaments, functional textiles, and shoe materials face both declining orders and extended payment terms.
Particularly vulnerable are small and medium supporting enterprises that rely heavily on OEMs. With weak bargaining power and high customer concentration, they are often forced to accept price cuts or longer payment cycles when OEMs' margins shrink. This cyclical pain is cascading down the chain: brands → OEMs → chemical fiber/textile suppliers → small supporting firms.
H2 Sequential Improvement, But High Margins Unlikely
Seasonally, the second half of the year typically sees concentrated orders for autumn/winter stocking. Yue Yuen's warning statement also noted that orders are expected to improve sequentially as brand clients prepare for the fall-winter season. However, this improvement is more seasonal repair than a signal of industry reversal.
From a macro perspective, the global sportswear consumption growth rate has returned to a single-digit normal from the post-pandemic revenge spending spike. Brands are no longer willing to pay for high inventory, and OEMs need to recalibrate their capacity expansion pace. For upstream suppliers, this means the 'volume and price both up' era is over. The future demands more refined cost control and customer portfolio optimization.