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BFD Expert Voices - Retail Deals

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Discretionary apparel retailers proffered less-than-sunny earnings vistas this week, with Macy's, Nordstrom, T.J. Maxx parent TJX, Victoria's Secret and Abercrombie & Fitch all lowering their outlooks.

Gap completely withdrew its second-half forecast on falling sales, while Urban Outfitters missed estimates.

Why it matters: After a resurgence in 2021 — when the apparel industry saw one of its best financial performances in years — it was always going to be a difficult comparison, says David Swartz, consumer sector equity analyst at Morningstar. 

State of play: Apparel retailers were playing catch up. Late shipment arrivals earlier this year led to over-padded inventories; fashion shifted to back-to-work attire; and inflation spiked causing overall demand to slow.

Yes, but: It's not been all bad news, though you might have to squint to see it — Ulta Beauty, for example, beat estimates and raised its full-year outlook.

Dick's Sporting Goods also beat expectations and raised the lower end of its comparable sales guidance — it still expects a negative number, but that is relative to its excellent performance last year, Swartz says.

Retailers are also getting some relief as shipping costs come down and as extra shipping capacity is expected to come online next year, he says.

"We’re seeing areas of retail that are not as affected," adds Matthew Jacob, an equity analyst at M Science, pointing to purveyors of luxury goods, such as Michael Kors' parent, Capri, and Coach's parent, Tapestry.

Yes, and: Luxury is the crown jewel of apparel's deal market right now, with several big names currently on the auction block. 

Between the lines: Less affluent consumers impacted by inflation are more cautious about their spending and are waiting for promotions before they buy apparel, Jacob tells Richard.

Discounting is coming, with retailers severely over-inventoried, he says. 

It's the reverse problem of last year, when retailers didn't have enough supply to meet the demand, leading them to accept late shipments to avoid inventory gaps, Jacob explains.

To parse further, Nordstrom fared well when it came to selling its higher-end goods, while its discount banner, Nordstrom Rack, continues to struggle, he says.

Be smart: Some of the results from Q2 can also be traced to consumers traveling more, says John Tomlinson, M Science's global director of research.

That excuse won't be there to lean on in Q3  — so we'll get a better idea of the impact of a slowing economy, he says.

By the numbers: Macy's Q2 net sales declined about 0.8% to $5.6 billion, while comparable sales decreased 1.5% and net income fell by 20.3% to $275 million.

Nordstrom's Q2 net sales increased about 11.9% to nearly $4 billion, while net earnings increased 57.5% to $126 million.

TJX's Q2 net sales decreased 2% to $11.8 billion, while U.S. comparable sales declined 5% and net income increased 3% to about $809 million.

Victoria's Secret's Q2 net sales declined 5.7% to about $1.5 billion, while comparable sales decreased by 8% and net income fell by 55.6% to $67 million.

Abercrombie & Fitch's Q2 net sales fell by 7% to $805 million, while the company recorded a net loss of nearly $17 million compared to net income of almost $109 million a year ago.

Gap's Q2 net sales were down 8% to nearly $3.9 billion, while comparable sales fell 10%. While it had a net loss of $49 million, when adjusted, it had net income of $30 million.

Urban Outfitters' Q2 net sales increased about 2.2% to nearly $1.2 billion, while comparable sales increased 1% and net income fell by 53.5% to $59 million.

Dick's Sporting Goods' Q2 net sales declined 5% to about $3.1 billion, while comparable sales fell 5.1% and net income decreased 35.7% to nearly $319 million.

Ulta Beauty's Q2 net sales increased 16.8% to nearly $2.3 billion, while comparable sales increased 14.4% and net income grew 17.8% to almost $296 million.

What we're watching: There are still a few retailers to go (and perhaps some better news on the way) including Lululemon, which is likely to report another quarter of growth and profits. 

Retailers lower outlooks with discretionary spending under pressure

On the bright side, shipping costs are coming down.

Illustration of a retail shopping bag full of market trend arrows. 

Earnings

<p><strong>Discretionary apparel retailers</strong> proffered less-than-sunny earnings vistas this week, with Macy&#x27;s, Nordstrom, T.J. Maxx parent TJX, Victoria&#x27;s Secret and Abercrombie &amp; Fitch all lowering their outlooks.</p><ul><li>Gap completely withdrew its second-half forecast on falling sales, while Urban Outfitters missed estimates.</li></ul>

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Retailers lower outlooks with discretionary spending under pressure

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