(Bloomberg) — US apparel companies produced third-quarter results that were far better than expected as efforts to clear excess inventory with deep discounts paid off. But the coming holiday season may not be quite as cheerful: Retailers said sales activity has slowed in recent weeks.
(Bloomberg) — US apparel companies produced third-quarter results that were far better than expected as efforts to clear excess inventory with deep discounts paid off. But the coming holiday season may not be quite as cheerful: Retailers said sales activity has slowed in recent weeks.
On earnings calls this week, Kohl’s Corp, Macy’s Inc., Gap Inc. and TJX Cos. noted weaker performance in late October and early November. Some blamed unseasonably warm weather that led to slower foot traffic in stores, while others said consumers might be starting their holiday shopping trips later this year as they await Black Friday deals.
“It seems that the consumer is starting holiday spending later, although it remains to be seen how much the consumer will spend,” Cowen analyst Oliver Chen said in a note following the Macy’s earnings report.
As a result of the softness, retailers approached fourth-quarter guidance with caution.
“We are evaluating the sustainability of recent trends and the drivers that we believe will impact holiday consumption,” Macy’s Chief Executive Officer Jeff Gennette said on a conference call. “The low end of our outlook assumes late October and early November sales trends continue, pressure on the consumer persists and the promotional competitive landscape intensifies throughout the holiday and into January.”
Like Macy’s, Gap said it remains “prudent on the outlook for fourth-quarter revenue,” and expects net sales to be down in the mid-single digits. Kohl’s, meanwhile, pulled its guidance all together, citing a difficult macroeconomic environment and the unexpected departure of Chief Executive Officer Michelle Gass.
Apparel retailers across the board have been offering deep discounts in recent months as they work to offload excess inventory that piled up earlier this year resulting from weaker consumer demand and poor forecasting.
In the third quarter, those promotions seemed to pay off as companies, including Gap, which reported merchandise growth of 12% compared with an expected 25% increase, slowed their inventory build up significantly and reported better-than-forecast sales.
While it’s possible that the recent softness is temporary and retailers will experience renewed momentum around Black Friday and into December, headwinds including stubbornly high inflation, rising borrowing costs and growing concerns about a US recession may lead shoppers to spend less this year.
“Consumers are feeling pinched, and our survey points to lower spending even in higher income brackets,” Citigroup Inc. analysts led by Paul Lejuez said in a note. “As to whether consumers are shopping later than last year — as some retailers have theorized to explain the October and November slowdown — our survey revealed no meaningful change in when consumers expect to shop.”
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