After a Healthy Year, What’s Ahead for Tanger
After reporting fourth-quarter gains on most metrics, Tanger Factory Outlet Centers is expecting even bigger profits in 2023.
The optimism comes despite the possibility of a recession soon, consumers already easing back on discretionary spending, and retailers focused on whittling down unusually bloated inventories over the past year, meaning there might be less of the excess out there entering the outlet channel this year.
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This week Tanger, a publicly traded real estate investment trust that manages a portfolio of 37 upscale open-air outlet centers, reported fourth-quarter net income of $0.17 a share, or $18.1 million, compared to $0.12 a share, or $13.0 million, for the 2021 period.
Funds from operations was $0.47 a share, or $51.6 million, compared to $0.45 a share, or $49.7 million for the 2021 period.
And lease spreads, which refers to the difference in price from an old lease to a renewal or signing of a new lease with a tenant just entering that space, were up 10 percent.
Though traffic at Tanger centers overall was flat last year compared to 2021, the latest profit figures beat analysts’ expectations, sparking a 4 percent lift in the stock price to $18.47 after the company’s conference call with analysts on Wednesday.
For all of 2022, net income was $0.77 a share, or $81.2 million, compared to $0.08 a share, or $8.3 million, for 2021. FFO was $1.83 a share, or $201.5 million, compared to $1.29 a share, or $138.1 million in 2021.
Tanger is forecasting 2023 net income of $0.87 to $0.95 a diluted share, exceeding 2022’s result and despite the possibility of a recession and consumers reducing discretionary spending.
“Look, our business was founded on the principle that during a macroeconomic headwind, the consumer will always look for the best value pricing for the goods they need and want. And being on sale every day, we’re the ideal place to shop for the brands people seek,” Stephen Yalof, Tanger’s president and chief executive officer, told WWD in an interview Wednesday.
“With a recession that’s possibly looming, we have to be smart. We have to be nimble. So we’ve put a number of measures in place to make sure that we get the same quality of operating and marketing but also being a lot more efficient with our spend,” Yalof said.
With inflation, 2021 seeing a surge of shopping in stores which softened by mid-2022, and international travel on the rise last year, Yalof sounded pleased that traffic was flat overall in 2022. “We’re still seeing the same amount of people come through our shopping centers, which is really a great testament to our ability to market our centers and drive traffic.”
In the following Q&A, Yalof discusses what’s ahead for Tanger, changes in the tenant mix, the 300,000-square-foot outlet center under development in Nashville, a paradigm change in marketing, and how the company successfully navigated 2022.
WWD: What’s behind Tanger’s success in recent quarters?
Stephen Yalof: We set our objectives at the beginning of 2020 and we continue to execute and make progress and build on that. It’s been fun. It’s been a good journey. Our same-center [net operating income] has been driven by leasing. Retailers choose to be in our outlet space. And that’s a mix of old stalwarts that are continuing to grow in our space and us taking on new stores in markets they haven’t been in before. Most intriguing is the acceleration of our renewal activity. A lot of our retailers, as their leases come due, not only renew, but they’re paying more rent.
WWD: Which categories and brands are more aggressively leasing or renewing outlet space than others?
S.Y.: Let’s talk about athletic footwear. Our channel has and will continue to be far more vital to brands like Nike and Under Armour which have expanded with a number of stores in our portfolio. Columbia Sportswear has grown its footprint in our portfolio as well. We’ve also had tremendous success with direct-to-consumer brands, brands like Serena & Lily, Summersalt, Mack Weldon, Radley London, Allbirds. And the home store category has been a great source of expanded stores and new stores in our portfolio, brands like Design Within Reach, Crate & Barrel and Restoration Hardware. And Casper just opened stores in our platform.
Our customer is looking not just for this power shopping experience, but really a full and well-rounded day out. And that comes with better food and beverage. We added over 65,000 square feet of new restaurants to our portfolio last year, which is a pretty big number in one year. And that number continues to grow across our portfolio. We’ve got a few people on our leasing team that specialize in activating food and beverage, both in line as well as on peripheral land around our shopping centers which we also control. That will be a huge source of revenue growth going forward, and a good source for amenity growth.
WWD: Is the outlet sector performing better than full-price, traditional retail settings?
S.Y.: The size of our rent spreads might outpace other retail channels. But I think a lot of this asset class repriced their real estate during that COVID[-19] period, so we’re having great success, building from that base. But also I’ve got a leasing team that really understands the value of our real estate.
WWD: With retailers planning conservatively and aggressively clearing excess inventory are you concerned about how much of it will be available for the outlet channel going forward?
S.Y.: We’ve been in this business for 40 years, and as a public company for 30 years, and I think there will always be cycles where there’ll be more or less inventory in the channel. That’s when the retailers will choose to promote or not, depending on their inventory issues. The beauty of outlets is that they provide retailers and brands with that flexibility. A number of the retailers recently announced in their earnings that they’re going to push [through] a lot of that excess inventory, either overstocks accumulated from prior years, or from the supply chain loosening up and flooding them with additional inventory, or from wholesale cancellations. A lot of these brands are using the outlet channel to clear that inventory, so they can keep their full-price channels cleaner. And even if a retailer doesn’t grow their top line, they’re still getting lots of value out of having stores in our channel because they’re able to execute to clearance in a way they can’t in any other brick-and-mortar retail channel.
WWD: Considering Nashville is booming, you’ve got to be pretty excited about the Tanger outlet center under development there.
S.Y.: There’s a great fashion and hotel scene in Nashville popping up. The restaurant scene that’s popped up is world-class, and retailing is upgrading with better brands, luxury and full price. People moving into the community with the growth of Amazon and Oracle taking place and Vanderbilt University has been a great feeder of well-educated folks staying in the community. Tech is booming there. SoHo House just opened. The 12 South retail [stretch] has completely reinvented itself in the last 18 months. Nashville is just firing on all cylinders. And we’re extremely fortunate that we’ve had this land for quite some time and waited for the right time to commence construction. The leasing has been fantastic. In fact, we have brands that will have their first ever entry into an outlet center when we open in September 2023.
WWD: How is Tanger spending more efficiently?
S.Y.: We are doing more performance marketing as opposed to the broadcast marketing which we’ve done in years past. Broadcast marketing involves billboards, signage, newspaper advertising. But for us, performance marketing is more targeted, where not only do we go after specific customers, but we also immediately get the data on where they consumed an advertisement or communication. And we get notified when they’ve actually acted on that advertisement or communication so we understand our spend, and our return on that spend in real time. That’s a huge paradigm change with regard to how we’ve done marketing in years past and how we’re doing it today.
WWD: What are the priorities going forward?
S.Y.: It’s my job as CEO of this company to pound the drumbeat on outlet retail in this country. We’re going to continue to elevate the brand offering. We’re going to continue to elevate the experience offering. We’re going to continue to give the customer amenities, and the opportunity to shop online, if they choose to do, through out Tanger web initiatives. So we’re going to continue to elevate our game and make sure that we bring the brands people love at the price they can afford to as many consumers across the country as we can.
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