The latest Q4 retail forecast updates underscore that there was some growth to be had in a tougher 2022 holiday season.
The holiday fallout among retailers continued on Monday, as more brands updated their outlooks for Q4 based on the holiday results. While last brought a parade of layoff announcements and even a bankruptcy warning, there was a more mixed result in the early updates this week, and even a bright spot.
Let’s take a look:
Abercrombie & Fitch is now forecasting a better-than-expected fourth quarter based on holiday sales. The retailer lifted its Q4 outlook to project sales increasing 1-2%, compared with a prior forecast of a 2-4% decline in sales. Operating margin is set to be a higher 6-8%, up from 5-7% in the initial outlook.
CEO Fran Horowitz said the Abercrombie and Hollister owner’s “brands performed well during the peak holiday selling period.” Women’s sales are on track to deliver a record, while men’s sales saw an “acceleration” from the third quarter. Hollister is expected to finish the fourth quarter below 2021, but saw an increase from the third quarter as a result of “assortment adjustments and personnel changes.”
“Moving into 2023, we continue to balance playing both offense and defense in this evolving macroeconomic environment,” Horowitz said. “We are managing operating expenses tightly, and we continue to target an inventory level consistent with 2021 by year end, positioning our brands to chase receipts in the spring season. At the same time, we are leveraging the company's strong financial position to drive key, long-term investments in our operations, specifically in technology, stores and supply chain.”
American Eagle Outfitters (AEO) said its sales and profit for the holiday quarter are tracking at the high end of its forecast.
“Following record performance last year, we achieved our second highest holiday sales period in company history. I am pleased to see profit margins tracking at the high end of our expectations, powered by excellent inventory management and promotional discipline,” said CEO Jay Schottenstein, in a statement.
As of Jan. 7, revenue to date would be down 3% from the same quarter of 2022. Gross margins are expected to be 32-33%. While some of the earnings reporting is a matter of expectations, there is the context to consider. When comparing this year's sales with a record-breaking 2021 in a tougher consumer environment, most retailers would likely be pleased with those results.
AEO said that American Eagle is tracking slightly ahead of Aerie, while its Quiet Logistics service is expected to contribute 2 percentage points to fourth quarter brand revenue.
Apparel maker Luluemon Athletica's update for the fourth quarter on Monday spotlighted another concern among retailers: Profit pressure.
The company now expects gross margin for the fourth quarter to fall 90-110 basis points. Previously, it had forecast an increase of 10-20 basis points. It also expects SG&A expenses to contribute 100-120 basis points, compared to a previous expectation of 30-50 basis points of leverage.
There is still sales growth to be had. It now expects revenue to come in at $2.67 billion to $2.7 billion, compared with a prior forecast of 2.605 billion to $2.655 billion. The new forecast would represent growth of 25-27% over the fourth quarter of 2021. Earnings are now expected in the range of $4.22 to $4.27, compared with a previous forecast of $4.20-$4.30.
“We are pleased with our continued revenue growth and momentum in the business, as our teams navigate a dynamic macro-backdrop," said Lululemon CEO Calvin McDonald, in a statement. "In Q4, traffic remains strong across both physical and digital channels, and we anticipate delivering another quarter of solid earnings growth consistent with our updated EPS forecast."
In the third quarter, Luluemon said a record Black Friday helped to propel 28% year-over-year sales growth. Following Macy's description of lulls in the holiday shopping season, Lululemon's update echoes a point we heard from GlobalData Managing Director Neil Saunders in a review of overall holiday sales results: Retailers are holding strong on the top line, but the underlying numbers are proving to be more "problematic."
“The combination of more muted volume demand, lower margins, and higher costs of fulfillment point to an environment where bottom lines have come under increasing pressure,” Saunders said.
Coming off a week that saw layoffs and bankruptcy warnings, these updates present a key point as 2023 gets underway in retail: It won't be all good or all bad. While the difficult consumer environment is the same for everyone, the results are likely to be different for each business. It's true that some may not survive, while some may hit upon new approaches to thrive. Some had issues years ago that are magnified, while others are being hit by new problems now.
When seeking to make change, look for nuance and what's under your control. That's where the solution lies.
Labor disputes on the West Coast could cause further disruption heading into peak season.
When the first half of 2023 is complete, imports are expected to dip 22% below last year.
That’s according to new data from the Global Port Tracker, which is compiled monthly by the National Retail Federation and Hackett Associates.
The decline has been building over the entire year, as imports dipped in the winter. With the spring, volume started to rebound. In April, the major ports handled 1.78 million Twenty-Foot Equivalent Units. That was an increase of 9.6% from March. Still it was a decline of 21.3% year over year – reflecting the record cargo hauled in over the spike in consumer demand of 2021 and the inventory glut 2022.
In 2023, consumer spending is remaining resilient with in a strong job market, despite the collision of inflation and interest rates. The economy remains different from pre-pandemic days, but shipping volumes are beginning to once again resemble the time before COVID-19.
“Economists and shipping lines increasingly wonder why the decline in container import demand is so much at odds with continuous growth in consumer demand,” said Hackett Associates Founder Ben Hackett, in a statement. “Import container shipments have returned the pre-pandemic levels seen in 2019 and appear likely to stay there for a while.”
Retailers and logistics professionals alike are looking to the second half of the year for a potential upswing. Peak shipping season occurs in the summer, which is in preparation for peak shopping season over the holidays.
Yet disruption could occur on the West Coast if labor issues can’t be settled. This week, ports from Los Angeles to Seattle reported closures and slowdowns as ongoing union disputes boil over, CNBC reported. NRF called on the Biden administration to intervene.
“Cargo volume is lower than last year but retailers are entering the busiest shipping season of the year bringing in holiday merchandise. The last thing retailers and other shippers need is ongoing disruption at the ports,” aid NRF Vice President for Supply Chain and Customs Policy Jonathan Gold said. “If labor and management can’t reach agreement and operate smoothly and efficiently, retailers will have no choice but to continue to take their cargo to East Coast and Gulf Coast gateways. We continue to urge the administration to step in and help the parties reach an agreement and end the disruptions so operations can return to normal. We’ve had enough unavoidable supply chain issues the past two years. This is not the time for one that can be avoided.”
