Global apparel retailers deliver mixed results in Q2 FY23

Global apparel retailers delivered mixed financial performances in the second quarter (Q2) of fiscal 2023 (FY23), ended in June or July this year. Three of these companies delivered strong performances, reporting growth in both sales and profits, 1 had a moderate performance, while the rest ended up delivering weak results with no growth in either sales or profits.

STRONG: GROWTH IN BOTH SALES AND PROFITS

AMERICAN EAGLE OUTFITTERS (NYSE: AEO)

New York Stock Exchange-listed company American Eagle Outfitters announced its Q2 FY23 results on September 6, 2023. The company’s net revenue rose slightly by 0.2 per cent to $1.2 billion in the second quarter compared to the revenue of $1.198 billion in the second quarter of 2022. While store revenue rose 4 per cent, the digital revenue declined 7 per cent. Among its brands, Aerie rose 2 per cent at $380 million, and American Eagle reduced 1 per cent to $767 million.

The company’s gross profit of $453 million was 22 per cent higher than $370 million in Q2 FY22, reflecting an enhanced margin of 37.7 per cent against 30.9 per cent a year prior. The favourable margin growth was driven by lower markdowns reflecting inventory control, and lower transportation and product costs. The gross profit also benefitted from early profit improvement initiatives, lower delivery, distribution and warehousing costs. The company reported its operating income at $65 million (5.4 per cent margin) and net income grew from loss of $42.46 million in Q2 FY22 to $48.5 million in the reported quarter; diluted EPS remained $0.25. The Pittsburgh-based company is committed to inventory discipline which showed a 7 per cent decline in its ending inventory valued at $637 million compared to $687 million last year, with units being down 11 per cent.  

For the third quarter, the management expects revenue to remain up in low single digits and operating income in the range of $115 million to $125 million.

For the full year, revenue is also expected to increase by a low single-digit percentage compared to last year, outperforming the previous guidance of a range from flat to a low single-digit decrease. Encouraged by better-than-expected business performance in the second quarter, the operating income is expected to be in the range of $325 million to $350 million (previous guidance was $250 million to $270 million). The outlook includes approximately $25 million in benefits from the company’s profit improvement initiatives. With better business trends, the company is accruing incentives and expects SG&A to be up in the low double digits for the year.

ROSS STORES INC. (NASDAQ: ROST)

Announcing its financial performance for the second quarter of 2023, NASDAQ-listed Ross Stores Inc reported sales of $4.9 billion versus $4.6 billion in the prior year period. The comparable store sales were up 5 per cent against 7 per cent decline in the second quarter of 2022. For the reported quarter, the net earnings remained $446 million against $385 million of last year, increasing diluted EPS from $1.1 to $1.32.

Sales for the first six months of 2023 amounted to $9.4 billion, with comparable store sales up 3 per cent. For the six months ended July 29, 2023, diluted EPS was $2.41 (2022: $2.08) on net income of $818 million (2022: $723 million).

The California-based company is now planning comparable store sales for the third and fourth quarters of 2023 to be up 2-3 per cent and 1-2 per cent, respectively. The same store sales for the 52 weeks ending January 27, 2024, are forecast to be in the range of 2-3 per cent.

COLUMBIA SPORTSWEAR (NASDAQ: COLM)

Portland-based Columbia Sportswear is a multi-brand global leading innovator in outdoor, active and lifestyle products including apparel, footwear, accessories and equipment. Reporting its financial results for the second quarter of 2023, the NASDAQ-listed company informed of a 7 per cent (9 per cent in constant-currency) increase in its net sales to $620.9 million from $578.1 million for the comparable period in 2022. The increase in net sales reflects the growth in the Europe, Middle East and Africa (EMEA) and Latin America Asia-Pacific (LAAP) regions, primarily driven by earlier Fall 2023 distributor shipments and increased China sales, partially offset by declines in Canada and the US. The net income of $8.4 million increased by 17 per cent yielding $0.14 per diluted share (2022: $7.2 million and $0.11 per diluted share).

On half-yearly basis, the net sales of $1,441.5 million registered an increase of 8 per cent (10 per cent in constant currency) over sales of $1,339.6 million in 2022. However, the net income decreased by 26 per cent to $54.6 million or $0.88 per diluted share, compared to net income of $74 million or $1.16 per diluted share in 2022.

For full year 2023, the company revised its outlook. It now expects its net sales to increase 2.0-3.5 per cent (earlier: 3-6 per cent) to $3.53-$3.59 billion (earlier: $3.57-$3.67 billion) from $3.46 billion in 2022. Gross margin is expected to expand approximately 40 basis points (earlier: 60 basis points) to approximately 49.8 per cent of net sales (prior 50 per cent) from 49.4 per cent of net sales in 2022. Net income is expected in the range of $272-$288 million (earlier: $322-$336 million), resulting in diluted EPS of $4.40-$4.65 (earlier: $5.15-$5.40), based on estimated weighted average diluted shares outstanding of 61.9 million (earlier: 62.4 million).

MODERATE: GROWTH IN EITHER SALES OR PROFITS

AREZZO (BVMF: ARZZ3)

Sau-Paulo-based Brazil’s Arezzo is the largest fashion house of brands in the Latin American nation, whose gross revenue of R$1.4 billion in Q2 FY23 registered a growth of 21.6 per cent vs Q2 FY22, as all brands showed sell-out and revenue growth in the quarter following the trend of previous quarters. For the first six-month period also, the company delivered a 22.5 per cent growth from the revenue of R$2.2 billion in 2022 to R$2.7 billion in 2023.

Recurring gross margin for the reported quarter was 54.9 per cent at R$621 million, growing 17.5 per cent from R$528.6 million (56 per cent margin) on comparable basis. However, despite growth in gross profit and EBITDA, the net income in the quarter dropped from R$123.4 million in Q2 FY22 to R$113.9 million in Q2 FY23 due to impact of financial income adjustment. On half-yearly basis nevertheless, the net income increased from R$180.9 million to R$186.9 million on comparable basis.

WEAK: NO GROWTH IN SALES AND PROFITS

MACY’S INC. (NYSE: M)

Headquartered in NY city and the owner of iconic brands such as Macy’s, Bloomindale’s and Bluemercury, Macy’s Inc announced its second quarter FY23 results on August 22, 2023. The group’s net sales of $5.1 billion was down 8 per cent, compared to $5.6 billion in the same quarter of last year. Both store and digital sales also declined by 8 per cent and 10 per cent, respectively. For the quarter ended July 29, 2023, the gross margin was $1.95 billion (38.1 per cent)—down from $2.17 billion (38.9 per cent) in Q2 FY22. The merchandise margin decline of 130 basis points is attributed to heightened levels of clearance markdowns and promotions needed to clear through spring seasonal product. The unfavourable category mix shifts and a shift in the timing of shortage recognition were partially offset by better inbound freight charges from the company’s costs savings efforts. At the same time, net income also dwindled—from $275 million in 2022 to (-) $22 million in 2023.

No change in the full year 2023 guidance, as announced previously on June 1, 2023, was reported: net sales to remain between $22.8 billion and $23.2 billion, and adjusted diluted EPS to stay between $2.70 and $3.20.

ADIDAS AG (ETR: ADS)

German sports giant’s Early-August released second quarter results reported flat currency—neutral revenues versus the prior-year level. The top-line development continued to be impacted by the company’s conservative selling approach in order to reduce high inventory levels, particularly in North America and Greater China, though the revenues of global sports company benefitted from the first sale of some of its Yeezy inventory. During the quarter, €400 million revenue was generated from the initial product drops in June which is largely in line with the Yeezy sales also generated in the second quarter of previous year.

Talking in numbers, the company’s revenues declined 5 per cent to €5.343 billion from €5.596 billion in the same quarter of FY22. The quarter’s gross margin increased 0.6 percentage points to 50.9 per cent (2022: 50.3 per cent), mainly driven by company-implemented price increases as well as by an improved channel mix. At the same time, higher supply chain costs and unfavourable currency movements strongly weighed on the gross margin development. Operating profit of €176 million (2022: €392 million) resulted in an operating margin of 3.3 per cent of sales. The company’s net income after tax amounted to €96 million (2022: €360 million), while basic EPS decreased to €0.48 (2022: €1.88).

For six months (H1 FY23), the revenues decreased 3 per cent to €10.617 billion vs €10.897 billion in 2022. The company’s gross margin also declined 2.3 percentage points to 47.9 per cent (2022: 50.1 per cent) for the same period. Adidas generated an operating profit of €236 million (2022: €828 million) while net income from continuing operations stood at €73 million (2022: €671 million). Basic and diluted earnings per share from continuing operations declined to €0.29 (2022: €3.47).

CARTER’S INC. (NYSE: CRI)

Carter’s Inc was quick to announce its second quarter result (ended July 1, 2023) on July 28, 2023. The Atlanta-headquartered NYSE-listed company is the largest branded marketers in North America of apparel exclusively for babies and young children, whose net sales decreased $100.5 million (down 14.3 per cent) to $600.2 million when compared to $700.7 million in Q2 FY22. The causes for decrease being macroeconomic factors, including inflation, higher interest rates, higher consumer debt levels, and risk of recession, negatively affected demand from consumers and wholesale customers. US Retail and Wholesale, and the International segment net sales declined 15 per cent and 17 per cent, and 8 per cent, respectively. Net income in the quarter was $23.9 million or $0.64 per diluted share, compared to $37.0 million or $0.93 per diluted share in Q2 FY22.

Cumulative net sales for first six months of the year were $1.3 billion—$185.9 million down (12.5 per cent) vs $1.48 billion in H1 FY22. The changes in foreign currency rates compared to last year had an unfavourable effect on consolidated net sales of approximately $3.3 million (0.2 per cent). Net income was $59.9 million or $1.59 per diluted share (2022: $104.9 million or $2.59 per diluted share).

Third quarter is expected to do net sales in the range of $770 million-$790 million (Q3, FY22: 819 million), and adjusted operating income to stay between $80 million-$85 million (Q3, FY22: $92 million).

For full fiscal, the company is expecting $2.95 billion to $3.0 billion of net sales (FY22: $3.21 billion), $325 million-$340 million in adjusted operating income (FY22: $388 million), $5.95-$6.15 in adjusted diluted EPS (FY22: $6.90), and operating cash flow of over $300 million (FY22: $88 million).

DILLARD’S INC. (NYSE: DDS)

Arkansas-based Dillard’s Inc announced Q2 FY23 financial results on August 10, 2023, reporting net sales for the 13 weeks ended July 29, 2023 and July 30, 2022 being $1.567 billion and $1.589 billion, respectively. Net sales include the operations of the company’s construction business, CDI Contractors, LLC (CDI). Comparative total retail sales excluding CDI for the same period were $1.499 billion and $1.553 billion, respectively. With total retail sales decreasing 3 per cent the sales in comparable stores also decreased 3 per cent. Dillard’s reported net income for the period stood at $131.5 million or $7.98 per share, compared to $163.4 million or $9.30 per share for the prior year’s second quarter.

For H1, reported comparative net sales were $3.151 billion (FY23) and $3.200 billion (FY22), whereas net income was $333.0 million or $19.89 per share (FY23) compared to $414.5 million or $23.07 per share (FY22). During this period, the company purchased approximately 7,15,000 shares valued at $217.3 million at an average price of $303.98 per share.

HANESBRANDS INC. (NYSE: HBI)

The global apparel company Hanesbrands Inc is based in North Carolina and is listed on NYSE as HBI. Ending its Q2, FY23 on June 30, 2023, it reported net sales of $1.44 billion (down 5 per cent vs Q2, FY22) inclusive of an $18 million unfavourable impact from foreign currency exchange rates. On a constant currency basis, net sales decreased 4 per cent with growth in US Innerwear and Champion in Asia more than offset by the decline in US Activewear and the continued macro-driven slowdown in consumer spending impacting Australia. Its loss was reported at $22 million or (-) $0.06 per diluted share during the quarter (Q2 FY22: $93 million or $0.26 per diluted share). The adjusted loss stood at $4 million or (-) $0.01 per diluted share (Q2 FY22: $98 million or $0.28 per diluted share).

For Q3 ending on September 30, 2023, the company is eyeing net sales of ~$1.52 billion to $1.57 billion and adjusted operating profit to range between ~$130 million and $150 million.

On full fiscal basis, net sales are expected to be in the range of $5.8 billion to $5.9 billion, inclusive of projected headwind of ~$37 million from changes in foreign currency exchange rates; adjusted EPS to stay between $0.16 and $0.30; and, adjusted operating profit to range from approximately $425 million to $475 million, also inclusive of foreign currency exchange rates impact.

Fibre2Fashion News Desk (WE SB)