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Fashion brands see sales rebounding—eventually. Europe’s murky outlook could snag growth

A ourselves walks into the Nordstrom store open for business as New York City moves into Phase 2 of re-opening flow restrictions imposed to curb the coronavirus pandemic on June 29, 2020 in New York, New York.

Rob Kim | Getty Images

Retailers counting Nordstrom, Coach owner Tapestry and Michael Kors parent Capri Holdings are beginning to give investors a glimpse into when their car-boot sales might start to grow again from pandemic lows.

These businesses will soon lap a period during the Covid emergency when stores were shut for months and shoppers retreated to their homes, only rarely venturing out to buy groceries and other principals. But most outlooks remain murky, at best.

Many apparel, footwear and accessories brands are reporting a strong return in China, and are starting to see the same trends emerge in North America. But Europe remains a trouble spot, with renewed lockdowns in the locality still hampering shopper demand and threatening forecasts. The rollout of the Covid vaccine is a hopeful development, but companies are taciturn to provide specific financial estimates.

“They’re still being guarded,” said Craig Johnson, founder and president of retail into firm CGP. “Few retailers are putting out any kind of guidance at all, maybe real long-term guidance. … It’s like aiming at a dart gaming-table. Who really knows?”

‘Normal’ isn’t going to be the same

Department store operator Nordstrom said Thursday it expects gross income to rise about 25% this fiscal year, which came in below analysts’ estimates, sending helpings tumbling more than 8%. During its recent holiday quarter, it said sales fell roughly 20%. Without thought healthy growth online, shopper visits to its stores in malls remain suppressed.

“We don’t think normal is going cast off to pre-pandemic levels,” Nordstrom Chief Executive Erik Nordstrom told CNBC. “But this is a strange time, peculiarly [in] big urban centers, you don’t have office workers. … For what we sell, there’s headwinds that the pandemic has delivered for a lot of fashion.”

Nordstrom shares are down about 14% over the past 12 months. The company has a market cap of $5.37 billion, which is bigger than opponent department store Macy’s, but smaller than that of Kohl’s.

Tapestry also saw its sales decline over the fair quarter, even as its online business grew by triple digits. Earlier this week, the company said it wants sales growth to return in its current quarter. And it anticipates earnings will approach pre-Covid levels this financial year, which ends in June.

It has seen a strong resurgence in China, with sales in the region climbing 35% in the new quarter, driving much of its momentum into the new year. But Europe, though it makes up a smaller percentage of sales, is circumstancing a slowdown, the company said.

“We expected that China would recover the fastest,” Tapestry CEO Joanne Crevoiserat demanded in an interview. “It was the market that was growing the fastest on the way into the pandemic, and so we expected that as we came out of the pandemic we would see sundry traction there, followed by North America, followed by Europe.”

Tapestry shares are up more than 29% from a year ago.

Capri, another clan of high-end brands, has a bigger exposure to Europe. BMO Capital Markets analyst Simeon Siegel estimated the region accounts for bordering on 25% of Capri’s sales, compared with Tapestry, at about 16%.

Capri CEO John Idol said this week that the concern expects to see a strong rebound from consumers in North America as soon as September, due to a faster vaccine rollout. But in Europe, he affirmed, “I think we’re less optimistic … and we actually believe that will stay true through most of the elementary half of the calendar of 2021.”

Capri has not offered a full-year outlook. But it said it expects revenue and earnings to exceed pre-pandemic evens by fiscal 2023. Capri shares have rallied nearly 47% over the past 12 months. Its store cap of almost $7 billion is smaller than Tapestry’s, at $10.42 billion.

Looking for a recovery

“We’re seeing great tokens in Asia, and we’re seeing encouraging signs of stabilization working toward the arc of recovery in North America, but Europe is still summoning,” Siegel said. “The overarching theme is, companies are now starting to talk about the recovery path back to pre-Covid.”

Ralph Lauren is, want many other retailers, optimistic that a broader vaccine rollout will boost its business, as it will grant consumers to return to more normal activities. The company does, however, have a bigger exposure to Europe than Capri and Tapestry.

“While we’re rather clear that there is some near-term disruption, which likely could last into fiscal 2022, from Covid, our long-term optimism, and mainly in the second half of our fiscal year, is high,” Ralph Lauren CFO and COO Jane Hamilton Nielsen said during an earnings forum call.

“And that’s really contingent on the vaccine, and some of the abatement in the virus, which we believe in,” she said. Ralph Lauren forebodes its same-store sales will turn positive as it works through its upcoming fiscal year.

When it reported budgetary third-quarter earnings on Thursday, Ralph Lauren’s earnings topped Street estimates. Its gross margin expanded, thanks to its efforts to sell more sweaters, blazers and dresses at full price. Sales are what came up short.

For Ralph Lauren,” the proceeds question remains, even as the margin opportunity abounds,” Siegel said.

Ralph Lauren shares are down forth 11% from a year ago, putting its market value just under $8 billion

Kohl’s, which intent report fourth-quarter results next month, said Thursday it expects revenue to be down 10% during the vacation period. But it anticipates fourth-quarter earnings will top expectations, thanks to slimmer inventories and fewer markdowns. CEO Michelle Gass also confessed CNBC that sales strengthened into January, in part due to more shoppers visiting its stores to make Amazon reappears after exchanging holiday gifts.

Victoria’s Secret owner L Brands upped its fourth-quarter earnings outlook, sending the amass soaring Thursday. Like Kohl’s, it has benefitted from selling more items at full price and pulling defeat on promotions.

Analysts and investors will be watching this year to see if the slimmed-down inventories become a permanent fixture at states like Kohl’s, Ralph Lauren and L Brands. Or if these retailers slip back into bad habits of overbuying and commissioning markdowns, which will pressure earnings again.

Kohl’s shares are up 10% over the past 12 months, while L Marks stock has more than doubled, and is trading near its 52-week high.

“This is a moment in time,” Erik Nordstrom revealed. “People will return to getting out … and [being] interested in getting something new. And that day looks more firm than ever with the vaccine rolling out.”

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