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Global fashion retail companies' 9-month performance in 2022

24 Feb '23
11 min read
Pic: Shutterstock
Pic: Shutterstock

Several global fashion retailers with reporting period April-March released their financial performance results for the third quarter (Q3) as well as nine months ending in December 2022 this month. We evaluate their results and segregate them as strong, moderate and weak based on their sales and profitability during the challenging period.

Strong – Growth in both Sales and Profitability

RALPH LAUREN CORPORATION (NYSE: RL): In February this year, Ralph Lauren, the global designer, marketer and distributor of luxury lifestyle products, reported its Q3, FY23 (Oct-Dec 2022) earnings per diluted share of $3.20 on a reported basis and $3.35 on an adjusted basis compared to last fiscal’s respective figures of $2.93 and $2.94. The result excludes restructuring-related and other net charges for Q3, FY23. On other performance metrics, the quarter’s revenue increased 1 per cent to $1.8 billion on reported basis and 7 per cent in constant currency – ahead of expectations, with positive sales growth across all regions. Gross profit of $1.2 billion was about two-third of revenue – 80 basis points below the prior year on reported basis but 80 basis points up in constant currency terms, driven by better pricing, product mix elevation and lower air freight expenses. The operating margin of 15.4 per cent ($282 million) on a reported basis and adjusted operating margin of 16 per cent ($294 million) were at high end of expected range driven by operating expense discipline, which were also key highlights. The company ended the quarter with $1.7 billion in cash and short-term investments, and $1.1 billion in total debt ($3 billion and $1.6 billion respectively in Q3, FY22).

For Q4 ending March 31, 2023, the company expects revenue to increase mid- to high-single digits in constant currency. Foreign currency is expected to negatively impact revenue growth by approximately 500 basis points, operating margin by ~160 basis points and gross margin by ~140 basis points; operating margin to remain ~5.5 per cent in constant currency.

For full FY23, the constant currency revenue is expected to increase about 8 per cent on 52-week comparable basis though foreign currency is expected to negatively impact this growth by ~600 basis points (730 basis points estimated earlier). On same comparison, the gross margin in constant currency is likely to remain almost flat, while AUR (average unit retail) growth and favourable product mix is expected to offset higher freight and product cost inflation. The expected operating margin may be in the range of 13.5 – 14 per cent in constant currency.

BURBERRY GROUP PLC (LON: BRBY): UK-based Burberry Group, established in 1856, is a global luxury brand that reported its Q3, FY23 unaudited results, limited to revenue figures, on January 18, 2023. Against Q3, FY22 (ending on 25th December 2021) this year’s Q3 (ending on 31st December 2022) sales grew marginally at 1 per cent, despite significant disruption from both lockdowns and the reopening of mainland China. Outside of mainland China, comparable stores sales advanced 11 per cent with EMEA, Japan, South Korea and South Asia Pacific all showing double-digit growth. The Group’s sales were partially offset by a 23 per cent decline in mainland China due to COVID-19 related restrictions.

In company’s outlook, its near and medium-term targets remain unchanged as it continues to target high-single digit revenue growth with operating leverage ensuring good margin progression, notwithstanding the current macro-environment. Based on the effective foreign exchange rates as of December 30, 2022, the company expects a currency tailwind of £160 million on revenue and £70 million on adjusted operating profit in FY23.

CANTABIL RETAIL LTD (NSE: CANTABIL): Incorporated in 1989, India-based Cantabil Retail Ltd is in the business of designing, manufacturing, branding and retailing of apparel and accessories. According to the company’s unaudited third quarter and nine-month financial results (as per IND AS 116 guidelines adjusting for leases), its Q3 revenue from operations increased to ₹163.10 crore against ₹131.72 crore in Q3, FY22 – a 23.82 per cent growth, mainly due to steady rise in the contribution from existing stores along with additional sales from new stores. EBITDA excluding other income stood at ₹55.94 crore – up 18.38 per cent, driven by higher per unit realisation and better procurement pricing. EBITDA margin stood at 34.3 per cent, PAT was ₹26.95 crore (16.53 per cent) and basic EPS was ₹16.51.  

On the nine-month basis, revenue of ₹379.86 crore registered 51.88 per cent growth over ₹250.10 crore during same period last fiscal. EBITDA for the same period reported was ₹122.69 crore (32.3 per cent), PAT of ₹50.36 crore (13.26 per cent) and basic EPS of ₹30.84.

With full fiscal to end in March 2023, the company is targeting a top line target of ₹1,000 crore in next few years.

MARKS & SPENCER GROUP PLC (LON: MKS): On January 12, 2023, Marks and Spencer Group announced its Christmas 2022-23 trading 13 weeks (Q3) to 31 December 2022 result minus Ocado Retail, comparable to 13 weeks to January 1, 2022. With most stores closed on January 1, 2022, the reported quarter gained a 0.7 per cent positive effect. While food outperformed on volume and value, clothing & home (C&H) sales increased 8.8 per cent with like-to-like sales up by 8.6 per cent. During the reported period C&H achieved over 10 per cent market share – highest ever since 2015. Stores sales increased 12.8 per cent; online sales increased 0.7 per cent, driven by growth of 33 per cent through the M&S App, with a strong performance of click and collect sales; formalwear increased 40 per cent, partywear more than doubled and sales of third party brands grew 50 per cent. International sales increased 12.5 per cent at constant currency with strong retail sales growth in key franchise markets in the Middle East and owned markets including India. During the period the group further strengthened its balance sheet and liquidity position by extending its £850 million Revolving Credit Facility by one year to June 2026.

Given the inflationary pressures impacting customers and business, M&S is taking action to structurally reduce costs and reinforce its customer proposition. The group is confident of the results for the year being consistent with the guidance set out at the Group’s interim results in November. The full year results will be reported on May 24, 2023.

Moderate – Growth in either Sales or Profitability

VF CORP (NYSE: VFC): The third quarter revenue of NYSE-listed VF Corp for FY 23, ending on December 31, 2022, remained 3 per cent down but also 3 per cent up in constant currency to $3.5 billion. EMEA region continued with double-digit constant currency growth in seventh consecutive quarter while Asia-Pacific region, despite 7 per cent down, was up 4 per cent in constant-dollar term. On brands’ side, The North Face was up 13 per cent and Timberland 6 per cent, whereas Vans was down 9 per cent – all in constant-dollar. Its D2C and wholesale channels reported balanced performance but encountered challenges in supply chain.

The company expects to end FY23 with 3 per cent revenue growth in constant-dollar – within previous outlook range. Adjusted gross margin will, however, be ~200 basis points down compared to previous outlook of down 100-150 basis points. Similarly, adjusted operating margin is likely to remain 9.5 per cent against outlook of 11 per cent. Inventory is also expected to reduce by approximately $300 million during Q4 FY23. Going ahead in FY24, VFC estimates total revenue to be up by at least low-single digit per cent in constant-dollar; expansion in gross and operating margin; double-digit growth in operating earnings; and, operating cash flow to grow faster than earnings.

ADITYA BIRLA FASHION & RETAIL (NSE: ABFRL): One of India’s largest fashion companies, ABFRL continued with its strong sales growth trajectory as it delivered fifth consecutive quarter (Q3, FY23) of double-digit growth (20 per cent) over pre-COVID period, with revenue being ₹3,589 crore. The growth was primarily driven by strong like-to-like across branded business and consistent performance in e-commerce sales which grew 33 per cent y-o-y, driven by omni-channel coverage across 2,350+ stores.

The consolidated EBITDA of ₹467 crore was 23 per cent down from Q3, FY22 at ₹609 crore. On standalone basis, the company’s revenue grew and EBITDA dropped by 17 per cent. Net profits for the quarter were impacted by ~2.3 times increase in marketing and strategic investments in new ventures, post a 2-year interruption across businesses as the company reinstated its consistency in expanding its brands and building customer engagement.

The company is positive on long-term outlook owing to normalisation of offline businesses, proliferation of e-commerce, and continued penetration for organised and branded apparel market.

BOOT BARN HOLDINGS, INC. (NYSE: BOOT): American Boot Barn – a lifestyle retailer of western and work-related footwear, apparel and accessories for men, women and children, reported its nine-month (April-December 2022) performance on January 25, 2023. In this, net sales for third quarter (Oct-Dec 2022) increased by 5.9 per cent to $514.6 million; the gross profit declined from $191.7 million to $187.8 million, and net income decreased to $72.5 million from $92.2 million compared to Oct-Dec period of 2021. On a nine-month comparison, net sales increased by 11.5 per cent to $1.232 billion; gross profit increased to $454.7 million (36.9 per cent of sales) from $426.2 million (38.6 per cent of sales) in FY23; and net income decreased to $124.1 million ($4.09 per share) from $147.7 million ($4.86 per share), a year back.  

For fourth quarter ending April 1, 2023, the company expects total sales of $438-448 million, growing 14.4-17 per cent over prior fiscal; gross profit to stay between $156-160 million (~35.7 per cent of sales), and net income per diluted share to end up $1.42-1.51. Fiscal 2023 outlook overrode previous guidance issued in its Q2 earnings report in October 2022. As a result, FY23 is expected to do total sales of $1.67-1.68 billion, growing 12.2-12.9 per cent. Gross margin is estimated between $611-615 million or approximately 36.6 per cent of sales with net income of $167.2-170.0 million yielding net income per diluted share of $5.51 to $5.60.

Weak – Growth neither in Sales nor Profitability

CANADA GOOSE HOLDINGS INC. (NYSE & TSE: GOOS): Founded in 1957, Canada Goose Holdings Inc. (traded as GOOS) is the manufacturer of extreme weather outerwear which released its Q3 performance (ended January 1, 2023) on February 2, 2023. The quarter’s revenue declined 1.6 per cent on a reported basis and 2.2 per cent on constant currency. The gross margin increased (in Canadian dollars) $2.6 million (0.6 per cent growth) from $413.8 million to $416.4 million in Q3, FY22 that ended January 2, 2022. The increase reflected gross margin of 72.2 per cent against 70.6 per cent last year. The gross profit increased due to gross margin expansion which was favourably impacted by pricing, partially offset by higher duty costs, product mix from a lower proportion of parka sales and the unfavourable impact of the fair value inventory acquisition adjustment on sales related to the Japan joint venture. Consequently, operating income dropped from $205 million to $194.3 million (5.2 per cent down) and net income dropped to $134.9 million from $151.3 million (10.8 per cent down). Operating income declined largely due to unfavourable foreign exchange fluctuations related to the company’s senior secured term loan facility and working capital, net of hedge impacts, investment in IT for business growth, higher costs related to opening new stores and running stores at full capacity.

With Q4 sales expected to be in the range of $251-271 million and adjusted EBIT to be $19-35 million, the company has lowered its overall guidance ranges from the previous outlook. The company now expects a total revenue of $1.175 billion to $1.195 billion compared to previous guidance of $1.2-1.3 billion; adjusted EBIT of $167-182 million representing a margin of 14.2 per cent to 15.3 per cent compared to earlier guidance of $215 (17.9 per cent) to $255 million (19.6 per cent); and, adjusted net income per diluted share to be $0.92 to $1.03 against $1.31 to $1.62.

GUNZE LTD (TYO: 3002): Japanese company Gunze, which is into functional solutions, apparel and lifestyle creations, released its nine-month (April-December 2022) consolidated figures in early February 2023. The company posted 12 per cent growth via net sales of ¥103,843 million compared to ¥92,750 million for the same period previous year. However, the operating profit declined 12.1 per cent from ¥5,448 million to ¥4,787 million during the period. Y-o-y, the EPS changed to ¥224.23 from ¥378.36 and diluted EPS decreased to ¥223.69 from ¥377.23. The apparel business sales grew (8.2 per cent) overall with market revival post-pandemic related regulations getting eased out, brisk sales in e-commerce and the SPA channel but profitability deteriorated (-73 per cent) due to rising raw material and fuel prices, and exchange rates. The company has begun revising its prices as a remedy. 

The full financial year projection ending March 31, 2023, is net sales of ¥136,000 million, up 9.4 per cent, and operating profit of ¥6,000 million, up 23 per cent. The economic outlook, however, remains unclear with rising prices of raw material and fuel as the situation in Ukraine prolongs amidst unstable exchange rate fluctuations.

Fibre2Fashion News Desk (WE - SB)

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