A person walks into the Nordstrom store, which is open for business, as New York City re-opens Phase 2 after restrictions to contain the coronavirus pandemic were put in place in New York, New York on June 29, 2020.
Rob Kim | Getty Images
Retailers like Nordstrom, bus owner Tapestry and Michael Kors parent company Capri Holdings are giving investors some insight into when their sales could grow again due to pandemic lows.
These companies will soon survive a period during the Covid crisis when stores were closed for months and shoppers retreated to their homes and rarely went out to buy groceries and other essentials. But most outlook remains bleak at best.
Many apparel, footwear and accessories brands are reporting a strong rebound in China and are starting to see the same trends in North America. Europe remains a concern, however, as new lockdowns in the region continue to hamper buyer demand and threaten forecasts. The introduction of the Covid vaccine is a hopeful development, but companies are reluctant to provide specific financial estimates.
“They’re still being guarded,” said Craig Johnson, founder and president of retail research firm CGP. “Few retailers give out a guide at all, maybe a real long-term guide. … It’s like aiming at a dartboard. Who really knows?”
“Normal” will not be the same
Department store operator Nordstrom expects sales to increase by around 25% this fiscal year, which was below analyst estimates and which caused stocks to fall by more than 8%. During the last holiday quarter there was a drop in sales of around 20%. Despite healthy online growth, customer visits to malls continue to be suppressed.
“We don’t think things will return to normal before the pandemic,” Erik Nordstrom, Nordstrom’s chief executive, told CNBC. “But this is a particularly strange time [in] There are no office workers in large urban centers. … There is headwinds for what we sell that the pandemic has brought to much fashion. “
Nordstrom stock has fallen around 14% in the past 12 months. The company has a market capitalization of $ 5.37 billion, which is larger than Macy’s department store but smaller than Kohl’s.
Tapestry also posted a decline in sales in the holiday quarter, despite triple-digit growth in online business. Earlier this week, the company expects sales to grow in the current quarter. Earnings are expected to hit pre-Covid levels this fiscal year, which ends in June.
There is a strong upswing in China. Sales in the region rose 35% in the most recent quarter, which drove much of its momentum into the new year. But Europe, despite making up a smaller percentage of sales, is experiencing a slowdown, the company said.
“We expected China to recover the fastest,” said Joanne Crevoiserat, CEO of Tapestry, in an interview. “It was the fastest growing market on the way into the pandemic, so we expected that after the pandemic broke out we would see more traction there, followed by North America, followed by Europe.”
Tapestry stocks are up more than 29% year over year.
Capri, another house of high-end brands, is more involved in Europe. BMO Capital Markets analyst Simeon Siegel estimated that the region accounts for nearly 25% of Capri’s sales, compared to Tapestry, at around 16%.
John Idol, CEO of Capri, said this week that the company expects a strong consumer recovery in North America as early as September due to a faster adoption of vaccines. But in Europe, he said, “I think we are less optimistic … and we actually believe this will remain so for most of the first half of the 2021 calendar.”
Capri did not offer an outlook for the full year. However, sales and earnings are expected to exceed pre-pandemic levels by fiscal 2023. Capri stocks are up nearly 47% over the past 12 months. The market cap of nearly $ 7 billion is less than Tapestry’s at $ 10.42 billion.
Looking for a rest
“We are seeing big signs in Asia and encouraging signs of stabilization working towards the recovery arc in North America, but Europe is still challenging,” Siegel said. “The overall topic is that companies are now starting to talk about the recovery path back to pre-Covid.”
Ralph Lauren, like many other retailers, is optimistic that wider adoption of vaccines will boost business as consumers can get back to more normal activities. However, the company is more heavily involved in Europe than Capri and Tapestry.
“While we are very confident that there are some short-term disruptions from Covid that could likely continue into FY 2022, our long-term optimism, especially in the second half of our FY, is high,” said Ralph Lauren CFO and COO Jane Hamilton Nielsen said about the result during a conference call.
“And that really depends on the vaccine and some part of the fight against the virus that we believe in,” she said. Ralph Lauren predicts that sales in the same store will be positive in the coming fiscal year.
When Ralph Lauren reported a profit for the third quarter of the fiscal year on Thursday, it beat Street’s estimates. Gross margin increased thanks to efforts to sell more sweaters, blazers, and dresses at full price. Sales fell short.
For Ralph Lauren, “the revenue issue remains even when the margin opportunity abounds,” Siegel said.
Ralph Lauren’s shares are down roughly 11% year over year and have a market value of nearly $ 8 billion
Kohl’s, which will be releasing fourth quarter results next month, expects sales to decline 10% during the holiday season on Thursday. However, fourth quarter earnings are expected to exceed expectations thanks to lower inventory levels and fewer discounts. CEO Michelle Gass told CNBC that sales had increased well into January, in part due to more shoppers visiting stores to return to Amazon after exchanging Christmas presents.
Victoria’s secret owner L Brands improved its fourth quarter earnings outlook, sending shares soaring Thursday. Like Kohl’s, it has benefited from selling more items at full price and withdrawing promotions.
This year, analysts and investors will be watching to see if the reduced inventory levels in places like Kohl’s, Ralph Lauren and L Brands become a permanent fixture. Or when those retailers have bad habits of buying too much and applying discounts again, which will put pressure on profits again.
Kohl’s shares are up 10% over the past 12 months, while L Brands stock has more than doubled, trading near its 52-week high.
“This is a moment in time,” said Erik Nordstrom. “People will come back out … and [being] interested in something new. And this day looks safer than ever with the vaccine in place. “