Clothing sales, already facing headwinds as consumers devote less of their budgets to it, have been decimated by the pandemic, dragging down retail for the last few months. As second quarter earnings reports trickle in, some bright spots are emerging, however.
After avoiding apparel purchases for weeks, consumers are buying again. About 29% to 30% of consumers have bought clothing recently, almost double the mid-teens percentage in April recorded by William Blair analysts for their weekly consumer survey. Consumers ages 18 to 29 and those in the Northeast (where the pandemic is most under control at the moment), were most likely to have bought clothes, at 35% each, according to the report.
With COVID-19 containment efforts keeping many, if not most, students at home, retailers face uncertainty in the back-to-school season, which usually spurs apparel sales and can presage the holidays. A look at several retailers' reports shows that certain variables can be especially favorable: being an off-price retailer; operating away from the mall; selling more than apparel, and selling casual clothing when you do; strong e-commerce and/or BOPIS; good inventory management; and, perhaps above all, not being a department store.
Indeed, department stores for the quarter are expected to be the worst performing segment with a 691% year-over-year decline, producing retail's largest loss in the quarter at $1.2 billion, with half of that coming from Macy's with a projected quarterly loss of $550 million, according to a Thursday note from Retail Metrics.
Retail Dive covered many apparel and department store earnings separately; here's how others did last week.
Abercrombie & Fitch Co.
The teen apparel retailer surprised several analysts who had expected a greater hit to revenue, (which fell 17%), and margins in the quarter. E-commerce rose 56% year over year, executives told analysts Thursday, according to a Seeking Alpha transcript.
The sales decline was "far shallower a dip than overall spending on apparel across the same period," GlobalData Retail Managing Director Neil Saunders said in emailed comments. "The drop is also markedly less steep than that posted by other clothing specialists and by the fashion sections of department stores. In the strange world of the pandemic, all of this means that Abercrombie & Fitch gained market share across the second quarter."
The performance is impressive for a largely mall-based retailer, according to Retail Metrics President Ken Perkins, writing in a Thursday note that the chain's operating income was its strongest of any second quarter in six years, thanks to "strong inventory management, rapid adjustments to changing spending habits, strong ecommerce sales up 56%, and by adding curbside contactless pickup to 80% of stores by quarter’s end."
The retailer is helped not only by its early entry into e-commerce and BOPIS, but also because it sells the casual clothing most in demand right now, Saunders also said.
Like its off-price peers TJX Companies and Ross, which last week both reported inventory snafus, Burlington had strong sales as stores reopened. As at those rivals, that early strength was undermined as inventory was depleted (down 26% in the quarter), and exacerbated by distribution center slowdowns due to the pandemic.
Once Burlington was able to get merchandise back into its stores, sales lifted again in July and into August, CFO John Crimmins told analysts Thursday, according to a Seeking Alpha call transcript. The recovery positions the off-price retailer nicely going forward, according to MKM Partners Managing Director Roxanne Meyer.
"[Burlington] likely enters 3Q with cleaner and more in-season inventory than ever before," Meyer said in a Friday note. "Total inventory ended down 26% vs. the 39% decline in sales. In light of [Burlington's] clearance efforts, we believe current inventory is largely in-season and thus reflects reduced exposure to categories that are less in demand (i.e., suiting, dresses, etc)."
The women's apparel retailer did better this quarter than last, even though stores were closed due to the pandemic for about the same amount of time, CEO Molly Langenstein told analysts on Wednesday, per a Motley Fool transcript.
But discounts were "exceptionally deep considering [Chico's] removed aged merchandise in 1Q and already recorded write-downs," MKM's Meyer said in a Thursday client note.
Moreover, Chico's may not have much to look forward to in the second half of the year, especially when it comes to gross margin, because neither its store productivity nor its e-commerce growth improved much in the second quarter, Meyer said.
That's a little late. While the retailer reported "significant momentum" in digital sales in the quarter, with July marking the second straight month of "positive" online demand (growing from negative 35% in early May to plus 25% in the last two weeks of July, that pales in comparison to rivals.
"While other retailers were tapping store inventory to satisfy online demand in [the first half of the year, Express's] closed stores remained truly dark, which was a competitive disadvantage," MKM's Meyer said in a Thursday note, adding, "Despite incremental investments in e-commerce and clear growth in this channel, the majority of new customers come to [Express] through stores, where traffic is likely to be impaired for at least the medium term; effective marketing that drives new customers online will be one of [its] core challenges and opportunities."
If Abercrombie was a surprise, Urban Outfitters was a standout in the second quarter. All its brands (which include Free People, Anthropologie and Urban Outfitters, among others) were profitable, thanks in part to a quarter with "one of the lowest markdown rates and best full price selling in [the company's] history," CEO Richard Hayne told analysts Tuesday, according to a Motley Fool transcript. "Overall results were driven by the strength of our digital channel, exemplary expense and inventory control, and our ability to create and offer compelling products."
It helps that the brands sell more than apparel, including one of the best performing categories at the moment — home. The category "produced very strong regular price comps throughout" the quarter, Hayne said.
The company "defied the odds," according to MKM Partners.
"Unique to [Urban Outfitters] was a decline in inventory that outpaced the sales decline, and positions [it] well for what is likely to be a choppy [second half]," MKM's Meyer said in a Wednesday note. "Unlike most others, [Urban Outfitters] is experiencing improved trends in August, benefiting from its home assortment and evolving apparel exposure (which increasingly is skewing more casual), which, coupled with lean inventory and ongoing cost-cuts provides an initially favorable 3Q set up."
One area where the pandemic might yet disrupt the apparel conglomerate's relative success is in its new rental brand, Nuuly, which in the second quarter delivered just 0.6% in revenue but drove a $4.6 million operating loss, per a Tuesday note from BMO Capital Markets. "It seems too early to determine how COVID-19 may have changed this business [long term]," BMO Managing Director Simeon Siegel said of those results.