China Recovery, Cooling Inventories and Store Strength Likely to Define Earnings Results
Retailers are gearing up to report earnings for the fourth quarter and full-year.
This week, Columbia Sportswear, Deckers and Skechers will report results for the most recent quarter, followed by Under Armour, VF Corporation, Tapestry and Capri Holdings next week.
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Given recent challenges in the retail environment, the upcoming results will likely touch on a few major themes that are top of mind for business leaders navigating an environment in flux.
Here are three key themes that will likely surface in the reports.
Recovery in China
Since China made the move to relax its zero-COVID policy and travel restrictions in recent months, global footwear companies have been cautiously optimistic about what this means for their businesses moving forward. Analysts are also bullish on brands with a strong presence in China — such as Nike, Adidas and Skechers — and say they are in a good position to capture renewed demand after multiple quarters of stagnation.
Already, some companies have shown positive trends in the crucial region for footwear production and sales. On Jan. 16, UBS China sportswear analyst Samuel Wang held a call with a major distributor for Li Ning, Anta, Nike and Adidas in China and noted that traffic has returned to normal after slowness in December. Pent-up demand drove strong sales throughout Chinese New Year, he said.
Inventories will level out
Target, Lululemon and other major retailers entered the holiday season this year with higher-than-usual inventories, due to rapidly shifting trends and inflation-stricken consumers.
In Q4, retailers will likely report declining inventories after they utilized markdowns and other strategies to clear through the excess, which will put them in a stronger position in 2023.
Some companies such as Nordstrom and Boot Barn have already noted improvements to inventories. Nike’s CEO in December said the company had officially passed its inventory peak.
A bullish view on brick-and-mortar
After years of store closures and temporary shutdowns, many retailers are going all in on strategic store expansion plans.
Macy’s new store strategy involves leaning into smaller, off-mall stores in different locations, while closing lower-performing stores in mall. Neiman Marcus has also made a $200 million strategic investment in stores over three years to add space for style advisors as well as food and beverage concepts to make it a top destination for luxury consumers.
Overall, U.S. retailers have 522 planned store closures and 1,846 planned store openings for 2023, according to Dec. 23 data from Coresight Research. Other retailers with store opening plans for 2023 include Academy Sports + Outdoors, Boot Barn, Dollar General, Ralph Lauren, REI and more.
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