For many retailers with a prominent presence in the active lifestyle space, the first quarter declined as the months passed, with a large part of the blame placed on inflationary and macroeconomic pressures.
Seven retailers, including Academy Sports, Hibbett, Foot Locker, Genesco, Shoe Carnival, Designer Brands, and Macy’s, reduced their outlook for the year, although three, Lululemon Athletica, TJX Cos. and Ross Stores, bucked the trend by raising guidance.
Unfavorable weather slowed the beginning of sandal season, and spring selling for other categories was noted as a factor in the top-line shortfall for several retailers.
Lower-than-expected tax returns following big tax breaks over the past two years due to COVID-19 debt relief put pressure on spending for lower-income households.
Many retail chains expected their numbers to be down in the quarters heading into the period against challenging comparisons to the 2022 first quarter when in-store shopping saw a strong recovery as pandemic conditions subsided.
The return of promotions in the latest quarter further pulled down gross margins and profitability for many retailers, with markdowns used to clear excess inventory in footwear and apparel tied to supply chain disruptions stemming from the pandemic.
The hands-down winner among retailers in the active lifestyle space was Lululemon, which stood out as one the few major retailers across channels to lift its outlook after reporting better-than-expected first-quarter results. In the first quarter, China stood out for LULU, with sales up 79 percent, but the company’s overall core business continued its momentum, with North American sales ahead 17 percent and its women’s leggings category increasing 22 percent. The sales growth was balanced across categories, channels and regions, and its earnings beat got a boost from lower air freight.
“We continue to engage with guests across the globe and drive our business with new and innovative technical products,” said Calvin McDonald, CEO of Lululemon on a call with analysts.
For 2023, revenues, Lululemon expects it to climb approximately 17 percent (roughly 15 percent previously). EPS is now expected in the range of $11.74 to $11.94 for the year, up 17.6 percent at the midpoint versus $10.07 a year ago. Previously, EPS had been expected in the range of $11.50 to $11.72, up 15.3 percent at the midpoint year-over-year.
Dick’s Sporting Goods reported first-quarter earnings that topped analyst expectations on healthy sales growth while reiterating its outlook for the year.
“Our compelling spring assortment allowed us to meet robust demand and deliver a fantastic athlete experience,” said Lauren Hobart, president and CEO, on a quarterly call. “We continue to gain market share and saw increases in both transactions and average ticket with strong transaction growth driving most of our comp gains.”
Dick’s “pandemic-surging categories”—bikes, fitness and golf—retrenched from pandemic peaks but were “well above where they were in 2019,” Hobart said. However, the market share gains were driven by core categories—footwear, team sports and apparel—with strength from entry-level to premium price points.
“While consumers face macroeconomic uncertainties, our athletes [customers] have continued to prioritize sports and rely on Dick’s to meet their needs,” said Hobart. “In fact, compared to the same period last year, more athletes purchased from us, purchased more frequently and spent more each trip. Our strategies are working and resonating with our athletes.”
For 2023, Dick’s continues to expect comparable store sales to be in the range of flat to positive 2 percent, with EPS in the range of $12.90 to $13.80, up 11 percent at the midpoint versus 2022.
Academy Sports and Outdoors trimmed its outlook for the year as first-quarter results missed plan; however, the company forecasted improving sales in the back half of the year on confidence that more favorable weather and strong injections of newness would help offset macroeconomic pressures.
On an analyst call, Steve Lawrence, CEO of Academy, identified several factors that contributed to the Q1 sales shortfall.
“We know that our customers are contending with ongoing macroeconomic headwinds, such as higher costs on virtually everything. The customer is being more careful how and when they spend, which has resulted in fewer transactions compared to last year,” said Lawrence. “As we previously called out, we’re still comping up against strong results from several big-ticket categories, such as hunting, camping, fitness and bikes. And as expected, these categories were some of the most challenged within the quarter. Another consideration is that a large chunk of our business is meant to be enjoyed outside. And with the unfavorable weather patterns in several of our major markets, we got off to a slower than anticipated start in many of the seasonal categories.”
On the positive side, seasonal categories outperformed in some areas of the country where the weather has been more normalized, such as Florida.
When looking ahead, Lawrence said, “We anticipate that the consumer will continue to remain thoughtful in their spending as they navigate the current economic environment. We have a couple of natural high-traffic time periods ahead of us in the near term, such as Father’s Day and Back To School, and the results from these events will inform our decision-making as we head into the back half of the year. We’ve increased our focus on positioning Academy as the everyday value leader in our space that can help customers have fun out there at affordable price.”
Academy now expects comparable sales in 2023 to decline in the range of 7.5 percent to 4.5 percent (2.0 percent decline to 1.0 percent gain previously). Adjusted EPS is now expected between $6.80 to $7.50 ($7.00 and $7.75 previously) and compared to $7.70 in 2022.
Hibbett reduced its full-year guidance as first-quarter sales missed plan and sales weaknesses continued into May. Promotions are expected at least through the third quarter to rebalance inventories.
“Our financial and operating results for the first quarter reflect the challenging retail environment,” Mike Longo, president and CEO, said on an analyst call. “Our consumers face difficulties ranging from inflation to fears over job loss; this and other factors have combined to lower consumer sentiment, and we think that adversely affects sales. Also, the important tax season in the first quarter was negatively affected by lower tax returns versus last year and caused sales to come in lower than our expectations.”
Jared Briskin, EVP of merchandising at Hibbett, said estimating an outlook remained challenging as the retail is still trying to understand “what our new normal is” from a post-pandemic perspective.
“Understanding how that looks quarter over quarter, period over period, it’s become quite a forecasting challenge,” said Briskin. “Then you add in the volatility of the consumer and the volatility of our back-to-school business, which always crosses between the second and third quarter. So, all of those things are causing us to be very conservative.”
Hibbett’s updated guidance calls for same-store sales in 2023 to be down low-single digit (up low-single-digits previously); and EPS in the range of $7.00 to $7.75 ($9.50 to $10.00 previously) against $9.62 in 2022.
Big 5 Sporting Goods Corp. reported that first-quarter earnings arrived near its guidance range’s midpoint. Same-store sales declined 7.1 percent in the quarter, with cold and rainy weather stalling the start of baseball, softball and other spring sports seasons.
President and CEO of Big 5, Steve Miller, told analysts the performance came despite a “very challenging operating environment.” He elaborated, “Not only did macroeconomic headwind accelerate over the course of the quarter, but the persistence of the cold and wet weather that started as a tailwind in the first half of the quarter turned into a headwind over the back half of the quarter.”
Due to ongoing macro pressures, same-store sales are forecasted to decline in the high-single-digit range in the second quarter.
Sportsman’s Warehouse reported first-quarter results in line with guidance. although same-store sales fell 17.8 percent in the period and are expected to slide in the range of 17 percent to 9 percent in the second quarter. Second-quarter EPS is expected in the range of 2 cents to 15 cents, down from 36 cents a year ago.
Jeff White, CFO of Sportsman’s Warehouse, told analysts, “Sales from our typical spring fishing, camping and shooting seasons were significantly impacted in the quarter due to the persistent consumer inflationary pressures and the excessively wet and cold weather in the Western United States, where a large portion of our stores are located. These pressures on the business have continued into the second quarter. In response, we are currently implementing a company-wide plan to reduce expenses, with an increased focus on financial discipline and rigor throughout the organization.”
Foot Locker axed its guidance for the year and indicated it would miss medium-term targets only set in March as sales dropped sharply below expectations.
Mary Dillon, CEO and president, told analysts, “Since our Investor Day in the face of increasing macro headwinds, our sales trends have slowed significantly, just in the past month and a half, which will have an impact on our near-term results.”
Dillon said that following a better-than-expected holiday season, Foot Locker has seen a consumer retrench attributed in part to inflationary pressures that are impacting discretionary spend, including on athletic footwear. Foot Locker also believes that spending dollars are being directed more towards services and away from products “as consumers are forced to be more choiceful on how to spend their money,” she added.
Dillon noted that Foot Locker had predicted comps this year and would be impacted by several headwinds, including the reset of its partnership with Nike, the transition of the Champs banner to focus more on the active athletes’ segment, and the shutdown of Eastbay. Also impacting sales in the near term was expected to be a 10 percent decline in average tax refunds that has an outsized impact on Foot Locker’s business given that the company over-indexes to a lower-income consumer.
Same-store sales for 2023 at Foot Locker are now expected to be down between 7.5 percent to 9.0 percent, down between 3.5 percent to 5.5 percent previously. Adjusted EPS is now expected to range between $2.00 to $2.25 (between $3.35 and $3.65 previously) against $4.95 in 2022.
Genesco slashed its outlook for the year as weak demand and heavy discounts in the marketplace for athletic footwear pulled down sales at Journeys.
Mimi Vaughn, the CEO of Genesco, told analysts that even as spring assortments arrived in stores, Journeys’ consumers continued “to trade down to lower price points and take advantage of the abundance of discounted athletic products elsewhere in the market.”
Vaughn added that the weaker demand and store traffic reflects the squeeze Journey’s younger consumers are feeling from inflation and lower tax refund dollars this year, as well as due to many having stocked up on athletic footwear in the earlier stages of the pandemic.
“With closets already full, we saw lower store traffic and demand for a number of key styles this year,” said Vaughn. “As a result, Journeys did not see the desired sell-through in some of its core fashion athletic and casual products. Journeys countered with reduced receipts of core items and increased promotions and markdowns to clear slower moving non-core goods, taking these actions, along with others, like returns to vendors to rationalize inventory.”
Genesco’s sales for 2023 are now projected to be down 4 percent to 5 percent (flat to up 2 percent previously). EPS is now projected in the range of $2.00 to $2.50 ($5.10 to $5.90 previously) compared with $5.59 in 2022.
Among action sports-themed chains, Tilly’s earnings and sales came in at the lower end of guidance. Ed Thomas, president and CEO, told analysts, “We believe the combination of an uncertain and inflationary economic environment for our teen, young adult, young family customer demographic and prolonged unseasonable weather in California during February and March, along with certain assortment issues resulted in a weak quarter overall. Not surprisingly, considering the cold, wet weather in the West, in particular, our spring/summer product categories were more challenged than our winter product categories during the first quarter.”
Zumiez reported first-quarter results aligned with guidance, although they were well below year-ago levels. On an analyst call, Rick Brooks, CEO said, “The continued effects of inflation weighing on consumer discretionary spending combined with heightened promotional activity across the industry to clear excess inventory levels our full-price selling model has been under pressure.”
Both forecasted another challenging second quarter, with net sales expected to decline between 15 percent to 12.7 percent at Zumiez and between 12.1 percent to 6.1 percent at Tilly’s.
Among department stores, Kohl’s reported a surprise profit in the first quarter due to margin improvement and tight cost controls despite aggressive moves to reduce inventory levels, but it still maintained its outlook for the year.
Nordstrom reaffirmed its full-year outlook while reporting first-quarter results topped expectations despite showing a drop in spending across most categories. Erik Nordstrom, CEO of Nordstrom, told analysts, “As we’ve seen since June of last year, customer demand continued to be pressured given the current macroeconomic backdrop, which impacted our top-line results across both banners. By comparison, the first quarter of 2022 benefited from strong pent-up demand for a return to occasions as the pandemic receded.”
Macy’s revised its guidance for the year downward as it reported first-quarter results that topped analyst expectations on earnings but came in short from a sales standpoint.
Jeff Gennette, Macy’s CEO, told analysts, “We expected pressure to be more intense in 2023 compared to 2022. Subsequently, demand trends began to worsen in mid-March and further decelerated in April. We believe cooler temperatures and headlines surrounding layoffs and the banking crisis were factors, but so were the compounding effect of some previously identified macro headwinds. The US consumer, particularly at Macy’s, pulled back more than we anticipated as they reallocated spend to food, essentials, and services.”
Among family footwear chains, Shoe Carnival lowered its full-year guidance as the first quarter was impacted by consumers pulling back due to inflation and lower federal tax refunds.
“The biggest headwinds that our customer faced in Q1 were persistent inflation across everyday expenses they need to spend on, interest rates continuing to climb and unexpectedly federal tax refunds ended the quarter with a nearly 10 percent reduction versus the prior year,” Mark Worden, president and CEO of Shoe Carnival, told analysts.
Worden noted that unseasonably cold, wet conditions persisted across most markets in the second half of the quarter, delaying the start of sandal season during March and April. He noted that the reduced tax refund particularly impacted lower-income customers.
Worden said, “We saw a segment of customers from lower-income households who had stretched disposable income they delayed their shopping trips for footwear, apparel and accessories.”
Caleres reported earnings in the first quarter arrived at the high end of guidance as a better-than-expected performance from its Branded Portfolio segment offset a weak performance at Famous Footwear. The company lowered its sales outlook for the year due to the weak trends at Famous but kept its earnings guidance.
Designer Brands, the parent of DSW, lowered its full-year outlook after its first-quarter results missed plan.
Doug Howe, who assumed the role of Designer Brands’ CEO on April 1, told analysts that “several dynamics” supported a more cautious outlook for the year. He said, “First, we continue to see a consumer pressured by a macroeconomic environment, a factor that is now expected to be more impactful than originally anticipated. Second, the first quarter is a critical timeframe for our business as Marpril [March/April] is one of our two biggest selling periods of the year. Given that we’ve seen weakness across our original expectations, coupled with a consumer continuing to lean into value, we will continue to leverage and increase the promotional and clearance strategy in the second quarter.”
Barbara Rentler, Ross Stores’s CEO, told analysts, “As a result of today’s uncertain external landscape, especially the prolonged inflationary pressures negatively impacting our customers’ discretionary spend, shoppers are seeking even stronger values when visiting our stores.
On a quarterly call, Ernie Herrman, TJX’s CEO and president said, “We feel great about our plans for the remainder of the year. While our business is not immune to macro factors, I am convinced that the characteristics and flexibility of our off-price business model and the depth of our organization’s expertise will remain important advantages.”
Photo courtesy Lululemon