It’s still tough out there for fashion.
But a week of earnings updates from some of the industry’s top names showed that — while pitfalls remain for everyone — it is a landscape that can be navigated by those that have adapted to the uncertain consumer economy.
Ralph Lauren Corp. is a good example.
“We expect the environment to continue to be really choppy, but we’re used to that now,” said Patrice Louvet, Ralph Lauren Corp.’s president and chief executive officer, in an interview. “Through the ongoing uncertainty our teams have built an agility muscle that’s really servicing us quite well.”
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Ralph Lauren surprised Wall Street with stronger-than-forecast third-quarter earnings and a 7 percent increase in constant currency revenues.
The brand has increased its average unit retail prices by nearly 70 percent over the past four years and now has a little cushion as it continues to evolve through a shaky economy.
Likewise, Coach parent Tapestry Inc. was successful in its efforts to bring younger consumers on board and, although currency adjusted revenues slipped 2 percent in its fiscal second quarter, the company boosted its outlook for the year.
“We delivered record second-quarter earnings despite a challenging backdrop,” said CEO Joanne Crevoiserat. “We remained disciplined stewards of our brands, expanding gross margin, while making investments that support our strategic growth agenda.”
Tapestry plans to return about $1 billion to shareholders in fiscal 2023, paying an annual dividend of $1.20 a share, a 20 percent boost.
But not everyone is feeling quite as comfortable.
Michael Kors and Versace parent Capri Holdings reported a fiscal third quarter that chairman and CEO John Idol acknowledged was “more challenging than we anticipated” with weakness at wholesale.
Idol, however, said the company has elevated the Michael Kors brand in recent years and is ready to take some pain to keep its gains.
“We do not want to put additional inventory into the channel to cause markdowns, which we think will cause brand erosion,” Idol said. “We’ve worked too hard to get ourselves to this point. We’ve said we would suffer the inventory declines…if that meant preserving the brand, and I think we’re going to continue to do that.”
Also on the defensive was VF Corp., which is led by interim CEO Benno Dorer and is parent to the struggling Vans and also The North Face and Supreme.
The once rock-solid fashion machine — known for its supply chain might and paying steady dividends — became shaky last year, prompting it to change CEOs, cut the dividend and focus in on some basics.
Among Dorer’s priorities is to “return to the company’s hallmark standard of excellence in the supply chain arena.”
“We are working through a variety of external and internal issues that impacted revenues and profits in a high-volume quarter like [the third quarter],” he said. “Lengthened manufacturing and freight lead times, larger upfront product buys, unpredicted demand spikes from elevated promotional activity in the quarter, plus higher than normal customer order cancellations add up to unsatisfactory customer service, elevated inventory and significantly higher costs. So we’re taking aggressive actions to address these issues.”
After the massive supply chain disruptions of the pandemic, this is a project on many retailers’ to-do list, but it’s also a big project that needs to be done while consumers are in a post-Christmas funk and still sweating inflation and the prospects of a recession.
“We’re going into a challenging time, we’ve all acknowledged that,” said Natalie Kotlyar, retail and consumer products national industry leader at BDO, which surveyed retail chief financial officers late last year on their plans for 2023.
Kotylar said the first half especially would be difficult with excess inventory, higher interest rates, consumer debt and the pay later portion of the buy now, pay later spending blitz over Christmas.
“Keeping all that in mind, [first quarter] is going to be challenging so that natural instinct of retailers is going to be: ‘Let me save money for a rainy day,’” she said.
Companies are seen not just converting inventory into cash, but cutting head count and looking to boost efficiency, even if it means some up front spending.
“In 2023, retailers are trying to take the lessons learned over the last couple years and right size,” Kotylar said. “Setting yourself up for success is going to be about looking at your technology.”
That means more predictive analytics and stronger technology platforms to manage supply chains and so on.
Just how quickly retailers are moving to revamp will become clearer when more biggies — including Walmart Inc., Target Corp. and Kohl’s Corp. — update investors on their quarter later this month.