Retail’s fourth quarter earnings results won’t leave much to cheer about for many retailers, setting the stage for a slow start to the fiscal first quarter that begins in February.
High holiday discounts are behind the lower margins reported by several retailers trying to start the new fiscal year next month with a clean slate.
Michael Appel, a managing director and the retail restructuring practice leader at Getzler Henrich & Associates, worries that retailers could end up making yet another inventory mistake—not selling what customers want.
“We saw how retailers panicked during Covid when they canceled everything they could. They panicked again [last] spring, and canceled whatever forward orders that they could,” Appel said, adding that poor holiday sales could spook some companies into an overly conservative planning stance. “What retailers really need is fresh goods, new seasonal products for consumers to buy. They need really trendy fashion items to grab consumers’ attention.”
Some retailers were already tapping the brakes on spring merchandise last month as they trying to figure out what’s going on with consumer spending. No one wants to end up in the mess that saw giants from Walmart to Target make massive order cuts last year. But retailers playing it too safe could wind up with little to entice shoppers to buy, triggering a new wave of margin-killing markdowns.
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Though Q1 is typically slow for retail after Q4’s holiday high, this year fashion’s in a bit of a pickle given all of the uncertainties about where the economy’s headed. Wells Fargo economists expect consumer spending on goods to shrink this year as people turn their wallet share to spending on services.
Then there’s the state of the jobs market.
December’s 223,000 new non-farm jobs growth outpaced estimates and drove the unemployment rate down to 3.5 percent but still underperformed November’s gain of 256,000, according to federal data. The Conference Board Employment Trends Index (ETI), released on Monday, fell in December to 116.31 from a downwardly revised 117.14 in November 2022.
“The ETI declined for the third consecutive month in December 2022—a signal that further deceleration in job growth is likely over the coming months,” Frank Steemers, senior economist at The Conference Board, said.
The number of employees working in temporary help services has fallen for five consecutive months, and “may foreshadow weaker job gains or even job losses in other industries,” he added. “In addition, wage growth seems to be gradually slowing compared to early 2022, although it is still significantly higher than its pre-pandemic rate.”
“There’s gonna be a lot of uncertainty in the first quarter of 2023 until the retailers understand where they are in terms of inventory levels,” Natalie Kotlyar, national leader of BDO’s retail and consumer products practice, said. “And I think until they understand where their consumer is at, the first quarter of 2023 is going to be challenging and uncertain. It will improve going into the second quarter.”
Of the retailers reporting a first look at holiday-quarter sales, Costco said net sales rose 7 percent to $23.80 billion for the five weeks ended Jan. 1, following a 5.7 percent increase in November.
Abercrombie & Fitch Co. raised its outlook for the fourth quarter and full year of fiscal 2022. For the quarter, it expects net sales up 1 to 2 percent, from its prior estimate of down 2 to 4 percent. For the year, the current outlook is for net sales to be down 1 percent, an improvement from prior outlook of down 2 to 3 percent. Mall rival American Eagle Outfitters Inc. said fourth quarter revenue to date through Jan. 7 was down 3 percent “on the higher end of our expectations.” Still, AEO chairman and CEO Jay Schottenstein said that volume drove the chain’s “second highest sales period in company history.” In November AEO said revenue in the fourth quarter, on a percentage basis, would be down in the mid-single digits.
Express Inc., which expects its $400 million WHP Global deal to close this month, left its Dec. 8 full year outlook unchanged.
Macy’s Inc. guided net sales to the low-end to mid-point of its earlier forecast range of $8.16 billion to $8.40 billion. CEO Jeff Gennette said the “lulls of the non-peak holiday weeks were deeper than anticipated.” He said inventory levels should come in clean for the fourth quarter, but expects consumers will “continued to be pressured in 2023.”
For its nine-week holiday period ended Dec. 31, Chico’s said total net sales grew 49 percent. Total net sales are expected between $505 million to $515 million, down from prior estimates of $535 million to $555 million. And while Lululemon Athletica said fourth quarter revenues would range between $2.66 to $2.70 billion, above prior guidance of $2.61 billion to $2.66 billion, it warned that gross margins would decline in the quarter.