Early estimates for the 2021 holiday season shined a light on apparel’s bounce back, with the sector’s year-over-year sales rising 47.3 percent through Nov. 1 to Dec. 24 and up 29 percent on a two-year basis, according to Mastercard. Even when accounting for just December sales totals, this number was up 46.3 percent over 2020 numbers.
But while the sector-wide numbers generated high expectations for individual brands, recently released preliminary results illustrate that certain apparel companies have benefitted from the spending environment better than others. And in some cases, the spread of the Omicron variant negatively impacted the outlook of both the fourth quarter and the full year, resulting in tumbling investor confidence.
In conjunction with the start of the virtual ICR Conference held from Jan. 10-12, participating apparel brands including Lululemon Athletica, Tilly’s, Citi Trends, Zumiez, Torrid, Delta Apparel, Figs, Destination XL, and J.Jill pulled back the curtain on their holiday performance.
Figs, DXL and Delta Apparel show promising growth
Figs, the medical scrubs startup that filed for an IPO last May, had one of the best performances across the apparel industry this holiday season. The brand said preliminary fourth-quarter net revenues are expected to be $128 million, an increase of 42 percent compared to the 2020 fourth quarter. Active customers are expected to total 1.9 million, marking a 46 percent jump. Average order value is expected to be $113, a 15 percent increase.
For the full year, net revenues are expected to be $419 million, up 59 percent compared to the prior year, exceeding the company’s prior guidance of approximately $410 million of net revenues. Average order value is expected to be $105, an increase of 12 percent compared to 2020.
In line with its prior outlook, Figs expects an annual gross margin of at least 70 percent for 2021, as well as an annual adjusted EBITDA margin of at least 20 percent. Through 2025 the DTC brand expects to maintain those percentages, while taking in $1 billion in annual revenues.
Often found on distressed retailer lists in recent years, Destination XL Group, the specialty retailer of big and tall men’s apparel, has sought to turn over a new leaf. DXL generated $106.6 million in sales over the nine-week period ended Jan. 1, 2022, a 36 percent improvement over 2020 totals.
On a two-year basis, net sales jumped 3.4 percent compared to the 2019 holiday’s $103.1 million. Comparable sales since 2019 jumped 11.4 percent, partially offset by closed stores and a decrease in wholesale revenues.
Based on the holiday sales and expectations for the remainder of the fourth quarter, DXL is narrowing its revenue guidance. Total sales for fiscal 2021 are expected to be $500 million to $505 million, with the high end of the range down from an initially projected $510 million.
However, DXL also raised its guidance for net income and adjusted EBITDA, with profit now expected to come in at 80 cents to 85 cents per diluted share, up from the previous guidance of net income of 72 cents to 80 cents per diluted share. Adjusted EBITDA of $74 million to $78 million, increased from previous guidance of $70 to $75 million.
“We continue to transform our business through DXL’s brand repositioning which allows us to better target the addressable market and drive sales growth. For the critical nine-week holiday shopping season we grew sales both in-store and through our direct channels with very few promotions which contributed to higher margins based on lower markdowns,” said Harvey Kanter, president and CEO at Destination XL Group. “These structural elements are a major factor in driving our expected record performance for the full year in adjusted EBITDA, net income and free cash flow. We have remained faithful to our strategic initiative to transform DXL and reposition our brand with a greater focus on fit, selection and experience.”
Delta Apparel, a designer and manufacturer of core activewear and lifestyle apparel, says overall net sales for the first quarter ended Jan. 1, 2022 jumped 15 percent to approximately $109 million from the $94.7 million taken in during the prior holiday period.
The Delta Group and the Salt Life Group each achieved double-digit sales growth for the quarter, with the latter jumping approximately 25 percent. The Delta Group demand currently exceeds capacity in most channels of distribution, the company said, but current manufacturing initiatives are expected to increase available capacity in the back half of the 2022 fiscal year. Meanwhile, Salt Life’s growth was driven by strong demand from wholesale customers combined with outstanding growth in its direct to consumer channels of distribution.
“We have demonstrated over the past year Delta Apparel has a strong vertical supply chain that is diversified, reliable and delivers value adding services that are in high demand,” said Robert W. Humphreys, Delta Apparel chairman and CEO. “This combined with our unique technology and print on demand business, DTG2Go, positions us uniquely in the marketplace. Further, our high growth, high margin Salt Life branded business provides an additional platform to drive value for our shareholders while further leveraging our manufacturing, sourcing and design capabilities.”
Tilly’s, Zumiez, J.Jill growth rates don’t impress investors
Specialty apparel retailer Tilly’s saw a healthy sales increase of 16.5 percent to $173.3 million compared to $148.7 million for last year’s comparable nine-week holiday period that ended Jan. 2, 2021. Total comparable net sales, including both physical stores and e-commerce, increased by 14.1 percent for the 2021 holiday period compared to an increase of 2.7 percent in the year-ago period. However, stock plummeted nearly 10 percent in Monday morning trading.
For one, the company saw e-commerce net sales actually decline by 5.7 percent for the 2021 holiday period compared to last year’s holiday increase of 65.2 percent. E-commerce net sales represented 25.5 percent of total net sales for the 2021 holiday period, a smaller total compared to last year’s 31.6 percent share. On a two-year basis, e-commerce net sales increased by 57.4 percent.
Tilly’s now expects quarterly net sales in the range of approximately $203 million to $205 million and its earnings per share to be in the range of approximately 39 cents to 42 cents per diluted share for the fourth quarter of fiscal 2021, representing the company’s most profitable fourth quarter in its public-company history. The retailer expects to end fiscal 2021 with 241 total stores after closing two stores in late January 2022.
“We believe these results were driven by favorable market conditions and a compelling merchandise assortment,” said Ed Thomas, president and CEO of Tilly’s.
Zumiez saw net sales increase 9 percent for the nine-week holiday period ended Jan. 1, 2022, with comparable sales increasing 6 percent. Total net sales on a two-year basis increased 6.6 percent. Like Tilly’s, the growth wasn’t enough to please investors. Zumiez saw its stock take a hit on the report, dipping more than 6 percent in early Monday trading.
From a regional perspective, quarter-to-date North America net sales increased 5.1 percent, while international net sales, which consists of Europe and Australia, soared 36.6 percent despite continued store closures and challenges associated with the pandemic. Excluding the impact of foreign currency translation, North America net sales increased 5 percent and international net sales increased 44.5 percent.
During the period, the men’s category provided Zumiez with its largest comparable sales increase followed by footwear, accessories and women’s. Hardgoods was the company’s only negative comping category.
The specialty apparel seller continues to expect year-over year net sales growth for the full fourth quarter to be “below the quarter-to-date trends” based upon the benefits of stimulus in January 2021 and the ongoing impact of the Covid-19 pandemic. The retailer is also reiterating projected year-over-year net sales growth for the full-year fiscal 2021 to be just over 20 percent.
“Our teams continue to perform very well under difficult retail conditions. Our 2021 holiday sales pattern resembled pre-pandemic seasons with volume focused around peak periods and a strong return to physical shopping providing our customers human to human experiences with our best in class sales teams,” said Rick Brooks, CEO of Zumiez Inc. “We are on track for record annual results and believe we have built a model that can continue to drive long-term shareholder value.”
J.Jill was more vague in its preliminary results than Tilly’s and Zumiez, but says it expects fourth quarter net sales to increase 12 percent to 13 percent on a year-over-year basis. The specialty women’s apparel retailer previously didn’t disclose its sales estimates, only calling for them to grow from 2020 holiday totals. J.Jill also expects adjusted EBITDA to range within $11 million to $13 million, compared to a loss of $3.8 million in the fourth quarter of fiscal 2020. The expected strong increase in adjusted EBITDA is driven by gross margin expansion and disciplined expense management. However, the company saw the same results on Wall Street as some of its peers, with stock dropping more than 6 percent Monday.
Despite strong quarter, Omicron delivers weaker-than-expected holiday for Lululemon
Lululemon Athletica expects a strong fourth quarter, but not quite what it was initially hoping for. The retailer projects holiday sales to come in toward the low end of its range of $2.125 billion to $2.165 billion, which projects to be between 22.9 percent and 25.2 percent growth from last year. The athleticwear seller expects diluted earnings per share and adjusted diluted earnings per share to be toward the low end of its ranges of $3.24 to $3.31 and $3.25 to $3.32, respectively.
Stock was down more than 7 percent in morning trading in the wake of the news. The yogawear seller was recently sued by Nike over patent infringement related at-home workout platform Mirror, which it acquired for $500 million in 2020.
Calvin McDonald, CEO of Lululemon Athletica, said, “We are closing out a strong 2021 in the coming weeks, and we’re pleased with how Lululemon has delivered over the course of the year. We started the holiday season in a strong position but have since experienced several consequences of the Omicron variant, including increased capacity constraints, more limited staff availability, and reduced operating hours in certain locations. I am proud of how our teams continue to deliver for our guests, and we are excited about what the future holds for Lululemon.”
Torrid, Citi Trends sees stock drop 20 percent on guidance downgrade
Lululemon wasn’t the only company hammered by investors thanks to the impacts from the widespread Omicron variant. Another company that went public in 2021, women’s plus-size apparel, intimates and accessories seller Torrid, lowered its guidance for the fourth quarter and the full year, sending its stock plummeting as much as 20 percent in early morning trading on Monday.
Fourth-quarter net sales are now expected to be in the range of $300 million to $305 million, compared to its prior guidance range of $325 million to $335 million. This would represent a slight increase of 0.8 percent to 2.5 percent on a year-over-year basis from last year’s $297.7 million in revenue. Adjusted EBITDA for the period is now anticipated to end up between $23 million and $25 million, compared to its prior guidance range of $35 million to $40 million.
For the full year, Torrid says net sales should fall within the range of $1.265 billion to $1.27 billion, an approximately 30 percent boosts from last year’s sales total. This slipped from the prior guidance range of $1.29 billion to $1.30 billion. Adjusted EBITDA for the year should fall between $240 million to $242 million, well under the prior $252 million to $257 million range.
“We had a strong start to our fourth quarter, however, the spread of the Omicron variant negatively impacted performance largely due to labor challenges at both our distribution center and a portion of our stores,” said Torrid CEO Liz Muñoz. “While we are not a business heavily dependent on holiday sales, our Torrid cash event in January saw a negative impact from these factors.”
Citi Trends, a specialty value retailer of apparel, accessories and home products, also blamed the Covid-19 resurgence for a decline in overall traffic, and for what ended up being its own full-year earnings downgrade. The Savannah, Ga.-based retailer’s stock fell nearly 17 percent upon news of the curbed outlook.
“Despite the recent decline in traffic, which we believe is transitory in nature, we are experiencing strong conversion rates, indicating that our customers continue to find our assortment compelling,” said David Makuen, CEO of Citi Trends.
Total sales for the nine-week period ended Jan. 1, 2022 increased 20.1 percent on a two-year basis to $204.8 million, compared to $170.5 million in 2019. Citi Trends did not break out its year-over-year totals. Comparable store sales increased 14.8 percent.
Citi Trends now expects its full year 2021 total sales to be in the range of $990 million to $995 million, which at the midpoint of the range reflects a 26.7 percent sales increase over fiscal 2020 and a 26.9 percent increase over fiscal 2019. However, this is down from the $1 billion to $1.02 billion range projected by the retailer in November.
Diluted earnings per share is now expected to be in a range of $6.70 to $6.85, compared to $2.32 in fiscal 2020 and $1.41 in fiscal 2019. The guidance is cut from the prior expectation of $6.95 to $7.10 a share.
For fiscal 2022, Citi Trends plans to open approximately 45 new stores, coupled with remodeling approximately 45 stores, all reflecting the new “CTx” format. Makuen said the company plans to low-to-mid single-digit total sales growth coupled with at least low-double-digit EPS growth in fiscal 2022.