Specialty retail had a volatile quarter. While not everyone tanked, the segment had an altogether difficult earnings season, with many companies pointing to bad weather and impending tariffs when it came to problems with performance. Below is a snapshot of a few of the most notable players in the sector, including what they delivered in terms of revenue and how that compared to what they expect for the fiscal year.
Thanks to its significant wholesale operations based on a strong portfolio of brands that includes DKNY, Donna Karan, Calvin Klein, Tommy Hilfiger and Karl Lagerfeld, G-III was sheltered from inclement weather — not so from tariffs on Chinese goods.
Net sales in the quarter rose 3.6% to $634 million and net income rose to $12 million from $9.9 million a year ago, according to a company press release. But tariffs have already weighed on sales, particularly of handbags, which executives told analysts represented about 7% of net sales for fiscal 2019, according to a conference call transcript from Seeking Alpha, and are poised to do more damage.
The company is wringing concessions from Chinese vendors and changing up some sourcing, but estimates "that the incremental 15% increase in tariffs for the remainder of fiscal 2020 will increase our cost by approximately $6 million," CEO Morris Goldfarb said on the call.
The costs brought on by tariffs will be spread among players — the company itself, its suppliers, its retail partners and its customers, he said.
"We believe that our customer who is shopping in department stores is one who appreciates aspirational brands and is willing to pay more for our products," he said. "These price increases will be supported by the fact that we have the best global power brands, well designed products at the highest quality, better real estate positioning in the stores and our always price better than our competition. Looking ahead, we recognize the need to further reduce our production in China to a level where we can still maintain the consistent high quality and craftsmanship that we have developed with our vendors over the past 40 years."
With comps sliding 5.3% and net sales dropping to $201 million from the prior-year quarter's $218.8 million, the biggest disappointment in the quarter for Retailwinds was found at its New York & Company brand, formerly the company's namesake. Margins were pressured, with gross profit as a percentage of net sales falling 80 basis points to 31.2% (from 32% last year), the company said in a press release. With e-commerce increasingly in focus, the company shuttered 22 locations since last year's quarter and now runs 410 stores.
CEO Gregory Scott told analysts that declining mall traffic was a factor in the period, which he said seems to contradict the notion that shoppers are financially healthy. Still, the company saw a boost from its newly acquired Fashion to Figure plus business, Happy x Nature (Kate Hudson eco-friendly line) and Uncommon Sense lingerie brand. Its NY&C Closet subscription box service also continues to grow, he said, according to a transcript from Thomson Reuters StreetEvents.
The company recently hired Traci Inglis, formerly at TechStyle Fashion Group, where she was president of JustFab, Fabkids and Shoedazzle, for its newly created position of president, chief marketing and customer officer.
The company doesn't expect to see much lift from the closure of rival Dressbarn and its 600 or so stores the way it did when The Limited shut down a few years ago, Scott said, because their stores don't really overlap. "While we were disappointed in our sales performance, the team was agile and reacted appropriately by managing expense in the inventory, by also investing in our new businesses to drive future growth, which contributed to meeting our operating income expectations," he said.
For brand group VF Corp., the spring quarter was also its fourth, and the results for that period and its full-year were full of sunshine, although the divestiture of its Wrangler and Lee denim business that officially separated as Kontoor Brands around the time of the report, did complicate the picture somewhat.
Revenue in the quarter rose 6% (9% in constant dollars) to $3.2 billion, driven by its largest brands, international and direct-to-consumer businesses, as well as strength from the Active, Outdoor and Work segments. Excluding Kontoor Brands, revenue rose 8% (12% in constant dollars), according to a company press release. Net income in the quarter fell 49% to $129 million, but rose 91% to $1.3 billion for the year.
But the story is really told by the remaining company's top brands: Vans revenue in the fourth quarter grew 18% in the quarter, The North Face grew 11% and Timberland grew 6%, according to a company press release. Wholesale rose 8%, while direct-to-consumer sales rose 11% and digital rose 24%.
"Without the low growth Jeans business, VFC is better equipped to focus on sustaining and/or increasing the momentum of Vans, The North Face, Timberland, and the other brands within the portfolio," Susquehanna Financial Group analyst Sam Poser said in comments emailed to Retail Dive. "Additionally, the ~$1.0B in cash that VFC received as a result of the spin will be used to pay down short term debt & will provide further optionality to invest in growth, including M&A."
Executives told analysts of their appetite to grow that way. "We've been very purposeful over the last 24 months to reshape our portfolio to align with our long-term growth aspirations. ... What you see today is who we intend to be," CEO Steven Rendle said. "Now M&A remains the number one capital allocation priority that we have. We have the means to do that. We will be very rigorous, very thoughtful and disciplined. And I would tell you our people would love it as much as you would if we would just let the dust settle, get to our move, execute for a few quarters. But we will be very mindful as we continue to look at the M&A opportunities around us."
Vince this quarter was less disheartened by the chilly period this spring, and more encouraged by "the increased momentum we are seeing in our business as weather improves," as CEO Brendan Hoffman put it in his statement.
The apparel and accessories company, which is increasingly operating more as a retailer, boosted its first quarter net sales by 1.1% to $55.1 million and its direct-to-consumer comps also rose 1.1%. As part of its turnaround, during which it's seen sales recover, the company has pivoted to sell more through its own stores, website and Vince Unfold subscription service. There were 59 company-operated stores at quarter's end, a net increase of two year over year, according to a company press release.
Wholesale also remains healthy, to the point of "driving further market share gains," according to Hoffman. Gross margin rate in the quarter expanded by 450 basis points year over year to 51.3%.
Profits remain elusive, however. Vince's operating loss widened to $5.7 million, (including $1.4 million of strategic consulting costs), from $4.4 million in the same period last year, and net loss also widened to $7 million from the $5.6 million net loss a year ago. But the results were expected and profits are coming, Hoffman said, adding, "Overall, we believe we are gaining momentum with merchandising strategies and an elevated focus on marketing leaving us well positioned to deliver profitable growth over the long term."