just-styles round-up of Q1 apparel and footwear industry results

just-style's round-up of Q1 apparel and footwear industry results

In the latest first-quarter filings from US apparel and footwear brands and retailers, the impact of the global coronavirus pandemic and widespread store closures can be clearly seen. Ross Stores reported its first quarterly operating loss in more than 30 years, Macy's saw a "precipitous decline" in sales, and TJX Companies sales more than halved.

Foot Locker

Foot Locker's total first quarter sales plunged 43.4% to $1,176m, compared to $2,078m in the prior-year period, with comparable-store sales dropping 42.8%. The company swung to a net loss of $98m, from a net income of $172m a year ago. The significant decline in sales due to the Covid-19 related store closures meant gross margin rate fell to 23.0% from 33.2%. The company also said that as of 2 May, its merchandise inventories were $1,458m – 20.4% higher than at the end of the first quarter last year.

Ross Stores

Discount department store retailer Ross Stores swung to a net loss of $306m for the quarter to 2 May, from a profit of $421m last year. Total first quarter sales were $1.8bn, a drop of 53% from last year's $3.8bn. Its Ross Dress for Less and DD's Discounts stores were open for less than seven weeks of the 13-week period. The results also include a one-time inventory valuation charge of $313m resulting from the extended store closures.

Macy's Inc

Macy's Inc has estimated net sales for the quarter ranged between US$3bn and $3.03bn, compared to $5.5bn last year. Operating loss is forecast between $1.11bn and $905m, versus an operating income of $203m a year ago. "Our performance in February was solid and in line with our expectations, but we saw a precipitous decline in sales with the stores closure in March," CEO Jeff Gennette said. "As a developed omnichannel retailer, we experienced a steady uptick in our digital business in April, which was encouraging, but only partially offset the loss of sales from the stores."

TJX Companies

Off-price apparel and home fashions retailer The TJX Companies said its first-quarter results were hit by the temporary closure of its stores for half of the quarter due to the Covid-19 pandemic. For the three months to 2 May, the company posted a net loss of US$887m, compared to net income of $700.2m in the prior-year period. Net sales more than halved to $4.4bn from $9.3bn. The firm wrote down inventory by $500m as a result of the store closures, noting this was primarily transitional or out of season merchandise, and products already in markdown that are expected to be reduced further. The inventory is expected to be sold in the second quarter when stores reopen.

L Brands

L Brands reported a 37% decline in total company sales to US$1.65bn for the first quarter ended 2 May, compared to sales of $2.63bn in the same period a year ago. Almost all of the company's stores have been closed since 17 March due to the Covid-19 pandemic. First-quarter comparable group store sales were down 5%. Total Bath & Body Works first-quarter sales in the United States and Canada were $712.7m, compared to $870.7m last year. Sales at the Bath & Body Works direct business, which remained open throughout the quarter, increased by 85% to $288.9m from $156.4m a year ago. Bath & Body Works' first-quarter store comparable sales increased 20% during the period in which stores were open. For the Victoria's Secret segment, total first-quarter sales in the United States and Canada decreased 46% to $821.5m. Store comps declined 15% and sales in the direct business also declined 15% to $307.6m, partially driven by the six-day closure of the direct business. During April, when the online business was operational and stores were closed, direct sales increased by 30%. Net loss in the quarter, meanwhile, amounted to $296.9m, compared to net income of $40.3m last year. Adjusted net loss was $275.2m.

In addition, L Brands has outlined plans to shutter about 250 Victoria's Secret across the US and Canada in 2020 as part of its go-forward plan for the business, which also includes an increased focus on inventory management and sourcing cost reductions.

Shoe Carnival 

Shoe Carnival net sales amounted to US$147.5m for the quarter ended 2 May, a 41.9% decrease compared to net sales of $253.8m for the first quarter of fiscal 2019. The decrease resulted from substantially all stores being closed for approximately 50% of the quarter, offset by increased e-commerce sales. Comparable store sales increased 3.9% through 12 March, prior to when the company began experiencing the effects of Covid-19, but decreased 42.3% for the entirety of the quarter. E-commerce sales surged over 160% for the quarter, and for the time period the brick-and-mortar stores were closed, e-commerce sales increased over 350%. Net loss, meanwhile, amounted to $16.2m. This compares to net income of $13.9m in the prior-year period. Gross profit margin narrowed to 21.3% from 29.6% last year. 

Target Corp

Department store retailer Target Corp said total revenue of US$19.6bn grew 11.3% compared with last year, reflecting sales growth of 11.3% and a 7.7% increase in other revenue. The company's total comparable sales grew 10.8% in the three months to 2 May, reflecting comparable digital sales growth of 141%. Net earnings amounted to $284m, compared to $795m the prior-year period. First-quarter gross margin rate was 25.1%, compared with 29.6% last time. Target said the decrease reflected the net impact of actions taken by the company's merchandising teams, including costs and inventory impairments related to the rapid slowdown in apparel and accessories sales, unfavourable category mix as guests stocked up on lower-margin categories like essentials and food and beverage, and higher digital and supply chain costs, driven by unusually strong digital volume as well as investments in team member wages and benefits.

Urban Outfitters, Inc

Urban Outfitters has announced a preliminary net loss of US$138m for the three months ended 30 April. Preliminary gross profit rate decreased to 2% from 31.1% in the prior year's comparable period due to significant store occupancy deleverage, a meaningful increase in inventory obsolescence reserves, an increase in delivery expense, and an increase in merchandise markdowns. Total company net sales, meanwhile, decreased 31.9% over the same period last year to $588m. Comparable retail segment net sales declined 28%, driven by negative retail store sales due to mandated store closures, partially offset by low double-digit growth in the digital channel. By brand, comparable retail segment net sales fell 19% at Free People, 24% at Urban Outfitters, and 33% at the Anthropologie Group. Total retail segment net sales were down 28%, while wholesale segment net sales tumbled 74%.

Kohl's

US department store retailer Kohl's has noted a 43.5% drop in first-quarter net sales to US$2.16bn from $3.82bn in the prior-year period. For the three months to 2 May, net loss amounted to $541m, compared to net income of $62m a year ago, while gross margin narrowed to 17.3% from 36.8%. On a non-GAAP basis, adjusted net loss was $495m, compared to an adjusted net income of $98m last time. "We entered the year in a strong financial position and our business was tracking to our expectations prior to the onset of the crisis," said CEO Michelle Gass.

Meanwhile, Kohl's is exiting eight "down-trending" womenswear brands as it moves to tighten up its apparel offering.

Walmart

US retail giant Walmart has reported an increase of US$10.7bn, or 8.6%, in total revenue to US$134.6bn for the first quarter. Excluding currency, total revenue would have increased by 9.7% to reach $135.9bn. Walmart US posted a 10.5% rise in net sales to $88.7m, while US comp sales increased 10% in the quarter. Walmart US e-commerce sales grew 74%. Net sales at Walmart International, meanwhile, were $29.8bn, an increase of 3.4%. Changes in currency rates negatively affected net sales by approximately $1.3bn. Consolidated net income attributable to Walmart increased 3.9% on last year to $3.99bn. Consolidated gross profit rate declined 66 basis points primarily as a result of the carryover of investments in price from last year, a shift in the sales mix to lower-margin categories and channels as well as some markdowns in general merchandise.

Walmart also announced it will discontinue Jet.com due to what it called the "continued strength of the Walmart.com brand." It added: "The acquisition of Jet.com nearly four years ago was critical to accelerating our omni strategy."

Sequential Brands

Brand management company Sequential Brands Group, Inc has reported a drop in first-quarter net revenue to US$20.2m from $25.5m in the prior-year quarter. For the three months ended 31 March, on a GAAP basis, loss from continuing operations totalled $85.3m, compared to loss from continuing operations for the first quarter 2019 of $4.8m. Included in the net loss from continuing operations for the first quarter 2020 were non-cash impairment charges of $85.6m for indefinite-lived intangible assets related to the trademarks for the Jessica Simpson, Gaiam, Joe's and Ellen Tracy brands reflecting the financial impacts of Covid-19. Net loss, meanwhile, was $86.6m, compared to $125.4m last year. 

Dillard's

Dillard's reported a net loss for the 13 weeks ended 2 May of US$162m, compared to net income of $78.6m for the prior-year first quarter. The company expects to be in a net operating loss position for the fiscal year. Net sales fell to $786.7m from $1.47bn last year. Net sales includes the operations of the company's construction business, CDI Contractors, LLC (CDI). Total retail sales, which excludes CDI, decreased 47% to $751m from $1.42bn last year. Retail gross margin narrowed to 12.8% from 37.8% last time.

Iconix Brand Group

For the first quarter ended 31 March, Iconix Brand Group has posted total revenue of US$28m, a 22% decline, compared to $35.9m in the first quarter of 2019. Revenue across all segments was negatively impacted by the effects of the Covid-19 pandemic on the global economy. The firm said a 23% decrease in revenue in its women's segment was principally as a result of a decrease in licensing revenue from the Mudd brand. Revenue from the men's segment, meanwhile, declined 38% from $10.9m in the prior-year quarter to $6.8m mainly due to a decrease in licensing revenue from the Buffalo and Umbro brands. International segment revenue declined 12% mainly due to decreases in Latin America and Europe. GAAP net income attributable to Iconix for the first quarter of 2020 reflected a loss of $21.5m, compared to income of $17.9m for the first quarter of 2019.

Under Armour

US sportswear brand Under Armour has booked a net loss of US$589.7m for the first quarter ended 31 March, compared to net income of $22.5m in the prior-year period. Adjusted net loss was $152m. The company cited restructuring and impairment charges of $436m in the period. Revenue, meanwhile, was down 23% to $930m, down 22% currency-neutral, with approximately 15 percentage points of the decline related to Covid-19 pandemic impacts in the quarter. North America revenue decreased 28% to $609m, while and revenue from the firm's international business was down 12% to $287m, representing 31% of total revenue. Within the international business, revenue increased 3% in EMEA, decreased 34% in Asia-Pacific, and increased 8% in Latin America. Apparel revenue fell 23% in the period to $598m, while footwear sales were down 28% on last year to $210m. Accessories revenue decreased 17%. Gross margin expanded 110 basis points to 46.3% compared to the prior year driven primarily by channel mix which benefitted from lower off-price sales, partially offset by the negative impacts from Covid-19 related discounting and changes in foreign currency.

Tilly's, Inc

Tilly's has outlined its preliminary first-quarter results, including a 40.7% decline in net sales to US$77.3m from $130.3m last year. Net sales from physical stores for the first quarter of fiscal 2020 were about $47m, a decrease of 57.5% compared to approximately $110.4m for the first quarter of fiscal 2019. Physical stores were open to the public for only the first 45 days of the total 91 days in the fiscal quarter and were closed during what would have been the normal school spring break and Easter periods. Net sales from e-commerce, meanwhile, totalled about $30.4m, an increase of 54.4% from approximately $19.7m in the prior-year period. Tilly's said e-commerce net sales increased "significantly" following the closure of the company's stores on 18 March. The company will release its final first-quarter results for the period ended 2 May on 3 June.

Kontoor Brands

Kontoor Brands, the owner of iconic denim brands Wrangler and Lee, said Covid-19 had a "significant" impact on first-quarter 2020 revenue, as sales decreased to US$504m, a 22% year-over-year decline on a reported and constant currency basis. Compared with first-quarter 2019 adjusted revenue, revenue for the period ended 28 March 2020, declined 20% or 19% on a constant currency basis. Wrangler brand global revenue fell to $303m, an 18% decline on a reported and constant currency basis, while brand global revenue at Lee was down 24% on a reported and constant currency basis to $183m. Meanwhile, Kontoor Brands reported a net loss of $2.7m in the period, compared to net income of $15.4m a year ago. Gross margin decreased 30 basis points to 37.8% on a reported basis. On an adjusted basis, gross margin decreased 320 basis points to 38%. Decreases were primarily driven by increased inventory provisions, which contributed approximately 340 basis points of the decline. Geographic mix also contributed 210 basis points to the decline, which was adversely impacted by lower revenues generated in international markets, particularly in China. An additional 40 basis points of the decline was due to proactive production adjustments, including downtime in some manufacturing facilities to align production with near-term demand.

Wolverine World Wide

Wolverine World Wide CEO Blake Krueger said following record financial results in the final quarter of 2019, the company delivered "strong" first-quarter earnings results, despite challenging conditions caused by the Covid-19 pandemic late in the quarter. For the period ended 28 March, net earnings amounted to US$12.8m, compared to $40.6m last year. Reported revenue was $439.3m, down 16.1% versus the prior year. On a constant currency basis, revenue was down 15.6%, while owned e-commerce growth for the quarter was 17.5%. Reported gross margin, meanwhile, was 41.4%, compared to 42.1% in the prior year, in line with expectations.

Weyco Group, Inc

Footwear maker Weyco has cited "significant disruptions" beginning in the second half of March 2020 due to the unprecedented conditions surrounding the Covid-19 pandemic. Government-mandated shutdowns of non-essential businesses worldwide resulted in lower first-quarter sales and earnings across all of the company's businesses, with Weyco expecting the shutdowns and global economic slowdown caused by the pandemic to continue to adversely impact its businesses during 2020. Net sales for the period ended 31 March were US$63.6m, down 14% compared to first quarter 2019 net sales of $74.1m. Net earnings fell to $1.2m from $4m last year.

Carter's, Inc

Carter's CEO Michael Casey said the global Covid-19 pandemic began to impact the company's performance in March and will weigh on the growth it had planned this year. For the first quarter ended 28 March, Carter's reported a net loss of US$78.7m, compared to net income of $34.5m in the prior-year period. First-quarter fiscal 2020 results included after-tax charges of $42.2m in inventory provisions (principally related to Covid-19 excess inventory), a $17.7m goodwill impairment charge, and a $20.2mn tradename impairment charge. The results also include a total of $6m in after-tax charges related to Covid-19 expenses and organisational restructurings. Adjusted net loss was $34.8m, compared to adjusted net income of $39.6m a year ago. Net sales, meanwhile, decreased $86.6m, or 11.7%, to $654.5m, reflecting store closures in North America and lower wholesale customer demand as a result of the pandemic. Changes in foreign currency exchange rates in the first quarter of fiscal 2020 did not meaningfully affect first-quarter results.

Columbia Sportswear

Net sales at Columbia Sportswear decreased 13% on last year to US$568.2m for the three months ended 31 March. Net income declined 100% to $0.2m from $74.2m for the comparable period in 2019, while gross margin contracted 360 basis points to 47.8% from 51.4% last year. "First quarter results largely reflect the impact of the Covid-19 pandemic, which escalated throughout the quarter as the global effort to contain the pandemic unfolded," said CEO Tim Boyle. The firm added lower consumer demand related to the crisis began to impact financial performance in China in late January, Korea and Japan in early February and North America and Europe in March. Retail traffic trends declined across North America and Europe in early March, prior to store closures which began in mid-March.

HanesBrands

Underwear and activewear maker HanesBrands has reported first-quarter results it said were "significantly affected" by the Covid-19 pandemic. "Prior to the pandemic's late-quarter disruption of economies around the world, the company experienced strong revenue and profit trends. In the last two weeks of the quarter, the company experienced an unprecedented drop in sales and profit," Hanes said in its earnings statement. It estimates the late-quarter impact of the pandemic reduced revenue by approximately US$181m, operating profit by about $86m, and EPS by approximately $0.20. 

For the period ended 28 March, the firm reported a net loss of $7.87m, compared to net income of $81.09m in the prior-year quarter. Net sales, meanwhile, were down 17.1% to $1.32bn from $1.59bn last time. Hanes said the year-ago quarter included net sales of $94m from the now exited C9 Champion mass programme and the DKNY intimate apparel license. Excluding the exited programmes, the impact of Covid-19, and foreign exchange rates, total constant-currency net sales for the first-quarter 2020 would have increased by 1.6%. International segment sales declined 14%, while net sales for the innerwear segment were down 11% on last year. US activewear segment first-quarter sales decreased 29%.

Rocky Brands, Inc

Rocky Brands has booked a decline in profit and sales for the first quarter ended 31 March. Net sales in the period fell to US$55.7m from $65.9m last year, with retail sales up 9.4% to $16.9m, compared to $15.4m for the same period last year. Net income was $1.2m, compared to $3.6m in the first quarter of 2019. Adjusted net income, which excludes expenses related to the closure of the company's manufacturing facilities due to Covid-19, was $2m. Gross margin narrowed to 34.7% from 34.9% for the same period last year, while adjusted gross margin was 36.4%. The 150 basis point increase in adjusted gross margin was driven primarily by higher percentage of retail sales, which carry higher gross margins than wholesale and military sales, partially offset by lower wholesale and military margins.

Skechers USA

Casual footwear brand Skechers USA had been on track for a new first-quarter sales record. However, significantly reduced economic activity in China after January, and the spread of the Covid-19 pandemic around the rest of the world in March, meant sales fell 2.7% in the first quarter to US$1.24bn. International sales for the three months to 31 March were down 6.8%, while the company's domestic business saw a rise of 2.9%. On a constant currency basis, total sales dropped 1.2%. Comparable same-store sales fell 8.1%, including a decline of 4.7% in the US and 16.6% internationally, reflecting the closure of most company-owned stores in mid-March. Net earnings tumbled by more than 50% to $49.1m from $108.8m a year ago, while gross margin dropped 220 basis points. Gross profit was hit by a one-time, non-cash purchase price adjustment of about $8m related to the acquisition of the company's stake in its Mexico joint venture in 2019. 

"We know from the triple-digit growth we are experiencing so far in this month in our e-commerce business, and the positive sales trajectory of our recovering business in China, that Skechers' product continues to resonate with consumers," said CEO Robert Greenberg. 

Crocs, Inc

Crocs CEO Andrew Rees said the footwear firm's total revenue held up well despite unprecedented market conditions globally. "Exceptional" performance in its Americas and e-commerce businesses was overshadowed by Covid-19 related store closures. Many of the 367 company-operated stores, as well as many partner stores and wholesale customers' stores, were closed at some point during the first quarter and many remain closed today. Revenues fell 5% year-on-year to US$281.2m in the first quarter, a drop of 3.3% on a constant currency basis. Currency negatively impacted revenues by $5.2m. Wholesale revenues declined 5.6% and retail comparable store sales grew 7.5% with total retail revenues down 15% due to Covid-19 closures. The decline in wholesale and retail are partially offset by e-commerce revenue growth of 15.8%. Net income, meanwhile, more than halved to $11.09m from $24.7m in the prior-year period, but gross margin edged up to 47.7% from 46.5% a year ago. 

Crocs expects a larger decline in second quarter revenues as the majority of its retail and partner stores may be closed for the whole period. It cited some recovery in store traffic and sales in China and Korea where almost all stores are now open but noted declines in Japan, India, and much of Southeast Asia – areas that have been impacted by a second wave of the virus.

Levi Strauss & Co

Jeans giant Levi Strauss & Co reported a rise in both revenue and profit for its first quarter ended 23 February. Net income rose to US$152.69m from $146.58m last year. Gross margin was up 110 basis points to 55.7%. Due to the timing of the company's fiscal year-end, its fiscal quarter included the benefit of the calendar 2019 Black Friday week. However, the mid-quarter outbreak of Covid-19 adversely impacted net revenues in Asia by an estimated $20m. Net revenues of $1.51bn grew 5% on a reported basis and 6% in constant currency, excluding $11m in unfavourable currency effects. In Europe, net revenues rose 10% on a reported basis and 13% on a constant-currency basis, while in the Americas, net revenues grew 4% on both a reported and on a constant currency basis. In Asia, net revenues fell 2% on a reported basis and 1% in constant currency. Prior to Covid-19, net revenue growth in China was in the double digits, but at the end of the quarter nearly all company-operated owned and franchisee doors in mainland China were closed. Since mid-March, it has temporarily closed all its doors in the Americas and Europe, as well as most doors in Asia outside greater China, Korea, and Japan. The adverse impact to the second-quarter is expected to be significant.