Performance of global fashion companies in Q1 FY24 & H1 FY23

STRONG – Growth in both sales and profits

Burberry Group Plc (LON: BRBY) | Q1 FY24 (April 1, 2023 - July 1, 2023)

For Burberry, FY24 began on a positive and encouraging note. The group’s first quarter sales grew 18 per cent on comparable basis over same (ended July 2, 2022) quarter prior-year, benefitting from strong growths seen in EMEA (+17 per cent), South Asia-Pacific (+39 per cent), Japan (+44 per cent), South Korea (+6 per cent) and a much awaited recovery in mainland China (+46 per cent) from COVID-19 related lockdowns of last year, though Americas (-8 per cent) stayed negative. Among core categories, outerwear’s—heritage rainwear in particular—comparable store sales increased 36 per cent and 13 per cent in case of leather goods. Only the sales performance was reported minus profitability.

During the quarter, Burberry refurbished 19 stores including new Bond Street store in London that reopened in June; as well as opened a store on 5th Avenue, New York that temporarily replaced the 57th Street store while under refurbishment. The company claims to be on track with regards to refurbishing over 50 per cent of its store network by FY24-end and to complete roll out across the rest of the portfolio by FY26. A full £400 million share buy-back was also commenced, expected to be completed by end of calendar year.

The group marches ahead in the fiscal, maintaining its current year guidance of high single-digit revenue CAGR from FY20 base equating to a low double-digit growth in FY24, and around 20 per cent adjusted operating margin at FY20 (CER). Basis foreign exchange rates as on June 29, 2023, Burberry expects a currency headwind of £150 million to revenue and £70 million to adjusted operating profit.  

H&M (STO: HM-B) | H1, FY23 (December 1, 2022 – May 31, 2023)

In its June release, Swedish H&M group reported Q2 and first half-year (H1) performance. On quarter comparison, the sales increased 6 per cent to SEK 57,616 million and gross profit increased to SEK 30,338 million from SEK 29,846 million in Q2, FY22. In H1, FY23, the reported sales at SEK 112,488 million increased 9 per cent and 1 per cent in local currencies. The gross profit also increased from SEK 54,106 million (52.2 per cent) last year to SEK 56,224 million (50 per cent) this year, with operating profit just managing to surpass previous year—from SEK 5,446 million to SEK 5,466 million.

Compared to Q2 FY22, the high raw materials and freight costs combined with a strong US dollar impacted negatively on most purchases made during the quarter. The cost of markdowns in relation to sales remained flat y-o-y. With improvement in external factors affecting purchases of goods, the goods to be sold in Q3 FY23 are expected to encounter their neutral affect before becoming positive for the rest of the fiscal. 

The group is focusing on omnichannel sales for expansion and will continue with optimisation of its store portfolio. H&M online debuted in Vietnam and Arket was launched in Estonia in May. Going forward, COS will be launched in Mexico, Arket and &Other Stories first stores will be launched in Switzerland in H2 FY23. During the same period, Arket store will enter Latvia while Monki will open in Zalora, Hong Kong. The rebuilding and adjustment of the number of stores and of store spaces in each market will continue as part of H&M group’s store optimisation strategy that will also include renegotiation of a large number of leases. For FY23, opening of around 100 new stores and closure of 200 stores is on the cards. While most of the new openings will be in growth markets the closures will be mainly in established markets.

Tesco Plc (LON: TSCO) | Q1 FY24 (13 weeks ended May 27, 2023)

Tesco’s total sales at group level in Q1 FY24 (ended May 27, 2023) was £15,168 million and £14,834 million excluding Bank - growing 8.7 per cent in constant currency and 9.3 per cent in actual rates over same quarter last year. In constant currency terms, UK & ROI market grew 9.2 per cent while central Europe grew 1.4 per cent. The UK, in particular, delivered strong performance across all formats and channels maintaining a market share of 27.1 per cent. The LFL (Like for Like) growth in large store sales was 9.9 per cent; online sales were up 8.2 per cent enhancing online market share by 75 basis points to 37.5 per cent. The growth in central Europe reflected strong last year base as well as impact of sustained high inflation on consumer spending as the volumes were impacted by ongoing cost-of-living pressures. No updates on profitability performance were reported though.

The group is expecting to deliver a broadly flat level of retail adjusted operating profit in FY24 and retail free cash flow within a range of £1.4 billion - £1.8 billion, and Bank adjusted operating profit of £130 million - £160 million.

Adastria (TYO: 2685) | Q1 FY24 (March 1, 2023 – May 31, 2023)

Tokyo Stock Exchange-listed Adastria ended its first quarter of FY24 with a record high sales and operating profit due to demand-induced outings, favourable weather and a successful merchandise strategy. Sales and incomes were higher than planned. Net sales grew 18.1 per cent on consolidated basis to ¥68.4 billion wherein parent company grew 14.1 per cent up to ¥55.3 billion; domestic subsidiaries grew 51.1 per cent to ¥6.4 billion; and overseas subsidiaries grew 27.9 per cent to ¥5.09 billion.

Adastria’s consolidated gross profit margins were 57.1 per cent benefitting from revisions of product prices that reflected the increasing value of merchandise and from continuing measures to limit discounting, though there was a small decrease in the gross profit margin because of forex and higher prices of raw materials. Operating profit of ¥6.2 billion was an increase of ¥1.70 billion y-o-y, and represented the operating margin of 9.2 per cent. The profit included one-time items totalling to ¥300 million i.e. ¥100 million worth of change in fiscal year of subsidiaries in Japan, and ¥200 million worth of postponement of some promotional activities. The ordinary (adjusted operating) profit of ¥6.3 billion (9.3 per cent of sales) was up 28.9 per cent; net income attributable to owners of the parent company was ¥4.4 billion – an increase of ¥1.15 billion y-o-y. By the quarter-end, the company was operating 1,543 stores across all brands and markets.

The company made no change in its FY24 forecast announced on April 4, 2023.

Onward Holdings (TYO: 8016) | Q1 FY23 (March 1, 2023 - May 31, 2023)

Onward Holdings Co Ltd, another of Japan’s Tokyo Stock Exchange-listed companies, ended first quarter (FY24) with net sales of ¥49,907 million (up 12 per cent), operating profit of ¥5,380 million (+168.3 per cent), profits attributable to owners of parent of ¥3,348 million (83.6 per cent growth). On quarter to quarter comparison, diluted EPS increased from ¥13.42 in 2022 to ¥24.64 in 2023 – an increase of 83.6 per cent.

With this result, the company revised forecast for H1 and full FY24 respectively as: net sales of ¥90,000 million (+9.2 per cent) and ¥188,800 million (+7.2 per cent); operating profit of ¥4,000 million (+>1,000 per cent) and ¥10,000 million (+91.8 per cent); and, basic earnings per share of ¥17.68 and ¥36.84. FY24 will end on February 29, 2024.

MODERATE – Growth either in sales or profits

Boot Barn Holdings (NYSE: BOOT) | Q1 FY24 (April 1, 2023 – July 1, 2023)

California-based Boot Barn’s first quarter of FY24 ended July 1, 2023, performance of which was reported on August 2, 2023 informing sales increase of 4.9 per cent to $383.7 million over Q1 FY22. On same period comparison, the aggregate same store sales decreased 2.9 per cent, cycling 10 per cent same store sales growth in the prior-year period. The decrease of 2.9 per cent was a yield of 1.8 per cent decrease in retail store and 10.8 per cent decrease in e-commerce. Gross profit in the Q1, FY24 was $142 million (37 per cent of net sales) against $137.8 million (37.7 per cent of net sales) in the prior year period. The gross profit increase was primarily due to higher sales this year. However, net income decreased to $34.4 million ($1.13 per diluted share) from $39.3 million ($1.29 per diluted share) in Q1 FY23, producing approximately $0.02 and $0.03 per share benefit in the current and prior year, respectively. The benefit is mainly due to income tax accounting for share-based compensation. During the quarter, the company opened 16 new stores culminating into a total count of 361 stores.  

The second quarter of FY24 ending September 30, 2023 is expected to achieve total sales of $372 million to $379 million – growing 5.8 per cent to 7.8 per cent over Q2 FY23. In the succeeding quarter, the company is expecting same store sales to decline ~5.5 per cent – 3.5 per cent; gross profit to remain between $130.7 million (35.1 per cent of sales) and $134.2 million (35.4 per cent of sales); and income from operations to be in the range of $35.4 million (9.5 per cent of sales) and $37.8 million (10 per cent of sales). In its revised full FY24 guidance, the company will open 52 new stores, and is expecting to deliver the total sales of $1.715 billion to $1.748 billion, gross profit of $629.7 million to $645.7 million, and a net income of $210.4 million (12.3 per cent) to $222.8 million (12.7 per cent).

Canada Goose Holdings (NYSE, TSX: GOOS) | Q1 FY24 (April 1, 2023 – July 2, 2023)

Toronto-based performance luxury and lifestyle company Canada Goose announced its Q1, FY24 results on August 3, 2023. The highlight of result was 21 per cent (18 per cent in constant currency) revenue increment to CAD 84.8 million, including 60 per cent growth in DTC and 18 per cent decrease in wholesale. The company’s gross profit in the reported quarter grew 29 per cent to CAD 55.2 million, reflecting gross margin of 65.1 per cent compared to 61.1 per cent in Q1 FY23. Operating loss, nevertheless, increased from CAD 82.2 million of last year to CAD 99.7 million owing to higher SG&A costs despite partial offsetting by higher gross profit. During the quarter, the company continued to engage consumers through its innovative products and customer experiences.

In the subsequent quarter, total revenue is expected to be in the range of CAD 270 million – CAD 290 million, and EBIT loss of CAD 30 million to CAD 20 million. For full FY24, the company expects total revenue of CAD 1.4 billion – CAD 1.5 billion, non-IFRS adjusted EBIT of CAD 210 million to CAD 240 million representing 15 per cent and 16 per cent respective margins, and non-IFRS adjusted net income per diluted share of CAD 1.20 to CAD 1.48. 

WEAK – No growth either in sales or profits

Levi’s (NYSE: LEVI) | H1 FY23 (December 1, 2022 - May 28, 2023)

San Francisco-based Levi Strauss & Co announced its Q2 FY23 results in early July and with it H1 FY23 performance too. For six month-period, net revenues dropped from $3,062.7 million in 2022 to $3,025.7 million in 2023, gross profit reduced from $1,798.6 million to $1,726.5 million, and net income plunged from $245.6 million to $113.1 million. For Q2, net revenues decreased 9 per cent to $1.3 billion on reported as well as constant-currency basis, when compared to Q2 FY22. The Q2 result was negatively impacted by ~$100 million (7 per cent of net revenues) owing to the planned shift in wholesale shipments (that declined 22 per cent) from Q2 to Q1, as a consequence of the US ERP implementation. DTC net revenues grew 13 per cent on reported and 14 per cent on constant-currency basis. The main growth drivers included growth in both company-operated mainline and outlet stores, and e-commerce which grew 20 per cent on reported and 21 per cent on constant currency basis. 

The second quarter’s gross margin was 60 basis points up to 58.7 per cent (58.1 per cent in Q2 FY22) and adjusted gross margin increased 50 basis points also to 58.7 per cent. Both margin expansions were majorly driven by favourable channel and geographic mix, price increases, lower air freight expenses and favourable currency exchange. However, operating margin declined 450 basis points to 0.7 per cent from 5.2 per cent in same quarter last year. Further, adjusted EBIT margin declined 750 basis points to 2.4 per cent (9.9 per cent last year) because gross margin expansion was offset by sales, general and administrative expenses deleverage on lower net revenues and higher marketing and DTC expenses.

The Q2 results compelled revision in FY23 guidance: net revenues are now expected to grow between 1.5 per cent – 2.5 per cent against earlier expectation of 1.5 per cent – 3 per cent, adjusted diluted EPS is projected to be within $1.10 and $1.20 against earlier $1.30 and $1.40, with more details to follow later on.

VF Corp (NYSE: VFC) | Q1 FY24 (April 1, 2023 – July 1, 2023)

VFC’s Q1 FY24 result announced on August 1, 2023, reported 8 per cent reduction in net revenue compared to same quarter last year. Its brands Vans, Dickies and Timberland were down 22 per cent, 20 per cent and 6 per cent respectively. Fifty-seven per cent contributor to company’s net revenues, the market of Americas was down 15 per cent and both DTC and wholesale channels stayed 3 per cent and 12 per cent short of last year’s figures. 

While operating income reduced from $1.22 billion (53.9 per cent) to $1.1 billion (52.8 per cent), the net loss increased to $57.42 million from $55.96 million in Q1, FY23. Loss per share was $0.15 – down 2 per cent.

VFC’s FY24 outlook projects full year EPS guidance to be in the range of $2.05 to $2.25; revenue expected to be modestly down to flat for the year reflecting ongoing weakness in wholesale segment and a longer than anticipated turnaround of Vans; and, free cash flow expectation to remain as per previous guidance of ~$900 million. 

Fibre2Fashion News Desk (WE SB)