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Avery Dennison: apparel RFID sales grow 70 percent

RFID item level tagging in the apparel sector is carrying the torch for the industry and serving as a trail blazer for other industries to adopt the technology. That growth in RFID apparel tagging was magnified today when Avery Dennison released its third quarter earnings report for the period ended Sept. 29, 2012.

Avery, which saw overall organic growth of just under six percent, says that RFID sales to apparel retailers grew by nearly 70 percent over last year. A rebound in its core business of Retail Branding and Information Solutions, including the accelerating adoption of RFID by retailers, resulted in the company raising its guidance for full year earnings per share.

Avery Dennison, RFID, item level, apparel, retail

Avery Dennison CEO Dean A. Scarborough says that the company's run rate for RFID is approaching $100 million

A-D expects a run rate of close to $100 million for RFID item level sales by the end of this year. It is seeing the strongest growth in large department stores and vertical chains in North America.

“Item-level RFID is clearly accelerating,” Avery CEO and president Dean A. Scarborough said during the company’s conference call. “It took about six years to ship our first billion inlays, but we shipped the second billion in less than 18 months. Demand for RFID inlays in the RBIS business translated into a big improvement in profitability in the RFID division, which is reported as part of other specialty converting. I’m very pleased with our progress in RFID.”

Here is a brief excerpt from the report:

 RBIS’ adjusted operating margin improved 90 basis points as the benefit of productivity initiatives and higher volume more than offset higher employee-related expenses and the impact of changes in product mix due to strong RFID sales.

Sales in our other specialty converting businesses declined 1% on an organic basis, due primarily to weak performance and performance pace. Despite the lower sales, adjusted operating margin improved 500 basis points driven by the increased RFID profitability. Note that the negative mix impact of RFID in the RBS — RBIS segment is offset by the profitability generated by RFID in other specialty converting.

RFID 24-7 has digested the full transcript for the earnings call and highlighted some of the key facts surrounding RFID below:

Q: Is there a way to quantify how important the RFID capability is in terms of RBIS’ improvement and outlook?

A: So RFID is increasingly becoming a part of the story. I’d say close to 1/3 of the growth that we had in the quarter was due to RFID adoption. I do want to make the point though that the core business of RBIS came back. And so it’s not just an RFID story. RFID is definitely an add-on, and we do see an acceleration of adoption by major retailers. So we’re feeling, I’d say, bullish about the impact on RFID and we’re clearly well-positioned as the go-to player as companies implement item-level marking using RFID. So I’m happy about that.

Q: Can you talk about margins for the RFID business?

A: Well, if you look at the RBIS segment alone, the actual margin percent for RFID is lower than the average, mainly because we’re selling — instead of instead of selling at a $0.01 to $0.02 tag, we’re selling at a $0.09 to $0.10 tag. So the margins per unit are higher, but the margins on a percent basis are lower. Now that doesn’t include the profit we get from making the inlays at the same time. So overall, I think, from a company perspective, it’s good for us.

It’s profitable. Yes, just a — so what we do is we buy chips and we make antennas and we attach the chips to the antennas and put it on a plastic, basically, a roll plastic. That plastic inlay, once it is delivered to RBIS and inserted into tag or care label, whatever the form factor is for the retailer, the RFID business has been profitable for 3 quarters in a row and I expect that to maintain on a go-forward basis.

(This earnings transcript was provided by Seeking Alpha. Click here to read the entire transcript.

CLICK HERE TO VIEW RFID 24-7′s COVERAGE ON APPAREL RFID TAGGING

 

 

 

 

 

 

 

 

 

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