Performance of major apparel companies in Q3 2023

STRONG: GROWTH IN BOTH SALES AND PROFITS

Adidas AG (ETR: ADS)

In Q3 2023, the revenue of Adidas AG increased by 1 per cent in constant currency terms and decreased by 6 per cent to €5.999 billion (€6.408 billion in Q3 2022) in euro terms. The 1 per cent growth reflected the company’s conservative sell-in approach, aimed at reducing high inventory levels, improving sell-through, and focusing on full-price sales across channels. The remaining Yeezy inventory continued to impact the quarter’s sales. Revenue of around €350 million was generated in the quarter from the second product drop, which remained below last year's numbers. As a result, currency-neutral revenues, excluding Yeezy, increased by 2 per cent on a quarter-on-quarter (QoQ) basis. At the same time, the company's inventory levels were down by 23 per cent—a little more than planned. However, the company expects inventory levels in the US market to continue impacting the business for a while.

In the quarterly performance report on November 8, an operating profit of €409 million (6.8 per cent margin), inclusive of an incremental €150 million from sales of Yeezy products, marked a decrease from €564 million (8.8 per cent margin) in 2022. However, the gross margin rose by 0.2 percentage points to 49.3 per cent (from 49.1 per cent in 2022), primarily due to reduced freight costs, a more favourable business mix, and lower inventory allowances. Net income after taxes also saw an increase, from €66 million last year to €270 million in 2023, and the basic earnings per share (EPS) improved to €1.40, up from €0.34 in 2022.

For the cumulative nine-month period, currency-neutral revenues remained flat compared to the prior-year period. In euro terms, revenues saw a decline of 4 per cent, falling to €16.61 billion (compared to €17.306 billion in 2022). Additionally, the gross margin declined by 1.4 percentage points to 48.4 per cent (down from 49.7 per cent in 2022), primarily due to negative currency developments.

Although Adidas began 2023 with a negative outlook, projecting an operating loss of €700 million, the company has consistently improved its outlook every quarter. It now anticipates that currency-neutral revenues will only see a low single-digit decline, culminating in a reduced operating loss of €100 million. This revised loss projection includes a potential €300 million write-off of the remaining Yeezy inventory, as well as one-off costs of €200 million related to the strategic review.

MODERATE: GROWTH IN EITHER SALES OR PROFITS

Carter’s Inc (NYSE: CRI)

Carter's Inc, North America's largest marketer of apparel exclusively for babies and young children, concluded its third quarter on October 1, 2023. During this quarter, its net sales decreased by 3.3 per cent to $791.7 million, compared to $818.6 million in 2022. The company attributed this decline in sales to several macroeconomic factors, including inflation, higher interest rates, elevated consumer debt levels, the risk of a recession negatively impacting consumer demand, and unseasonably warm weather, which affected the uptake of Carter's fall and holiday product offerings in September.

While the company's US retail and international segment net sales dropped by 8.2 per cent and 4.5 per cent, respectively, net sales in the US wholesale segment grew by 4.1 per cent. Simultaneously, the company's operating income increased by 2 per cent to $93.4 million, up from $91.6 million in Q3 of 2022. This resulted in a margin change from 11.2 per cent to 11.8 per cent, primarily driven by favourable ocean freight rates, lower inventory provisions, and decreased distribution and freight costs. These were partially offset by fixed cost deleverage on lower sales, higher performance-based compensation provisions, and increased professional fees. Net income rose to $66.1 million ($1.78 per diluted share) from $65 million ($1.67 per diluted share) in Q3 of 2022.

For the year-to-date (YTD) nine-month period, net sales decreased by 9.3 per cent to $2.09 billion. Operating income saw a 30.5 per cent decline to $187.3 million, and the operating margin shifted from 11.7 per cent to 9 per cent. Net income also fell to $126 million ($3.36 per diluted share), down from $169.9 million ($4.26 per diluted share) in the same period last year.

The company now anticipates ending 2023 with net sales between $2.95 and $2.965 billion, compared to $3.21 billion in 2022. Adjusted operating income is expected to be between $325 and $335 million (down from $388 million in 2022) and adjusted diluted earnings per share (EPS) are projected to be between $5.95 and $6.15 (compared to $6.9 in 2022). Additionally, the company forecasts an operating cash flow of over $350 million, a significant increase from $88 million in 2022.

Columbia Sportswear (NASDAQ: COLM)

The NASDAQ-listed sportswear company's financial report, released on October 26, revealed a 3 per cent constant-currency increase in net sales during Q3 2023, reaching $985.7 million, up from $955 million in the same quarter of the previous year. This sales growth was evenly distributed across direct-to-consumer (DTC) and wholesale business segments. The growth was primarily driven by earlier shipments of Fall 2023 orders, which compensated for lower distributor sales. The company's gross margin expanded by 70 basis points to 48.7 per cent (compared to 48 per cent in the same period last year), reflecting lower inbound freight costs and a favourable channel mix. However, the company's net income decreased by 7 per cent to $103.5 million ($1.7 per diluted share), down from $111.8 million ($1.8 per diluted share).

For the cumulative nine-month period, the company's net sales amounted to $2,427.2 million, representing a 6 per cent increase (7 per cent in constant currency) from $2,294.6 million in the previous year. The gross margin also saw an improvement, increasing by 30 basis points to 49.2 per cent, compared to 48.9 per cent in the same period last year. However, operating income declined by 17 per cent to $197.2 million, which represents 8.1 per cent of sales, down from 10.4 per cent in the previous year. Net income also decreased by 15 per cent to $158.1 million, or $2.56 per diluted share. In comparison, the respective figures last year were $185.8 million and $2.94 per diluted share.

In its full year outlook for 2023, the Portland-based company expects net sales to increase 0.5 to 2 per cent (earlier forecast: 2 to 3.5 per cent) and reach $3.48 to $3.53 billion against earlier expectation of $3.53 to $3.59 billion. With gross margin remaining unchanged to 49.8 per cent of sales, the operating income is expected to be in the range of $343 (unchanged 9.8 per cent) and $363 million (unchanged 10.3 per cent) (prior estimate being $348 to $368 million). These expectations are to result in net income to stay between $275 and $290 million, or diluted EPS of $4.45 to $4.70. The outlook anticipated foreign currency impact to reduce 2023 net sales growth by approximately 60 basis points (30 basis points estimated earlier). There will be a ~$0.07 negative impact on diluted EPS which was earlier expected to be at $0.03.

WEAK: NO GROWTH IN SALES AND PROFITS

Hanesbrands Inc (NYSE: HBI)

On November 9, Hanesbrands reported its financial results for Q3 2023, with net sales totaling $1.51 billion. This figure represents a 9.5 per cent decrease (9.3 per cent in constant currency) compared to the same period last year. The company attributed this decline in sales to the challenging global macroeconomic environment.

Gross profit for the quarter was $470 million, a 16 per cent decrease from the previous year, leading to a 260 basis point reduction in the gross margin to 31.1 per cent compared to Q3 2022. However, the adjusted gross margin stood at 35.5 per cent, which is a 100 basis point improvement from the company's outlook.

Operating profit for Q3 2023 was significantly lower at $66 million (4.4 per cent margin), compared to $141 million (8.5 per cent margin) in Q3 2022. The company's net loss from continuing operations was (-)$39 million (compared to a profit of $80 million in the prior year), translating to (-)$0.11 per diluted share (prior year: $0.23). In contrast, adjusted income from continuing operations was $34 million (down from $102 million in the prior year), or $0.10 per diluted share (down from $0.29 in the prior year).

In its full year 2023 outlook ending on December 30, 2023, the NYSE-listed company expects net sales to be approximately $5.70 billion, including a projected headwind of $65 million from changes in foreign currency exchange rates. Adjusted operating profit be $425 million, EPS to be around $0.12 and cash flow to reach $500 million.

Fibre2Fashion News Desk (WE - SB)