Inventory levels were just as hot a topic as sales and margins on recent quarterly investor calls as delays caused by congestion at the nation’s ports risk restraining top-line growth in the months ahead.
The congestion results from the world’s supply chain continuing to play catch up after initial pandemic-driven lockdowns. Demand for imports remains elevated as money diverted from vacations, movies and dining out is heading toward furniture, appliances, exercise equipment, bicycles, and other home goods. A shortage of dock workers amid coronavirus outbreak threats further complicates port operations.
Port backups in Southern California and East Coast and European ports lead to a scarcity of empty containers, escalating freight prices. In the last week of March, a massive container ship blocked traffic for six days in the Suez Canal to potentially lead to further delays for goods in transit.
On recent earnings calls with analysts, most officials were optimistic that they would see minimal impact from the port disruptions but indicated they were taking steps to mitigate risks in an uncertain climate.
Here is a roundup of recent discussions on analyst calls regarding inventory flow.
Nike’s Inventory Climbs 15 Percent
Nike’s inventory was up 15 percent at the end of its third quarter ended February 28, primarily driven by higher in-transit inventory in North America due to U.S. port congestion and temporary store closures in the EMEA region. Nike expects a “more consistent” inventory for its fiscal fourth quarter.
Nike’s sales in the third quarter were below Wall Street’s targets as container shortages and port delays caused a decline of 11 percent in sales in the North American region on a currency-neutral basis. The sales shortfall also reflected a higher number of physical stores in the EMEA region to close and/or operate on reduced hours versus the prior quarter.
In North America, strong retail sales growth over the holiday, and efforts earlier last year to mitigate inventory risks, drove clean marketplace inventory. However, starting in late December, container shortages and West Coast port congestion began to increase inventory supply transit times by more than three weeks, CFO Matt Friend on Nike’s March 18 quarterly call noted.
The result was a lack of available supply, delayed shipments to wholesale partners and lower-than-expected quarterly revenue growth. Said Friend, “We expect to capture this delayed revenue in the fourth quarter.”
Inventory in North America grew 31 percent versus the prior year with “extraordinarily high levels” of in-transit inventory due to increased transit times. Inventory units in its distribution centers declined nearly 20 percent. Friend concluded, “With strong consumer demand continuing through the spring season and marketplace inventory down high-double-digits versus the prior year, we expect continued full price momentum despite the short-term supply disruption and elevated levels of in-transit inventory related to ongoing global supply chain dynamics.”
»Dick’s Sporting Goods’ Inventories Decline 11 Percent
Dick’s Sporting Goods’ inventories were down 11 percent in the fourth quarter ended January 30. Lee Belitsky, EVP and CFO, said on its March 9 call, “Looking ahead, our inventory is very clean, and we will continue to chase product to improve our in-stock positions in the most in-demand categories.”
Asked in the Q&A session about the impact of port bottlenecks, Belitsky said Dick’s had seen some delays across some product categories.
“Our inventories are a bit lower than we would like them to be,” he said, “We were constrained in the fourth quarter, not so much due to port delays but due to some categories of merchandise not being manufactured as highly as we would have liked. But we don’t anticipate that being a significant impediment to our business at this point now. That could change.”
Belitsky added, “It looks like the supply chain issues over the last couple of weeks have got better. They had been trending worse for a while, but it seems like what we see in Asia is catching up now. The ports are getting better in the U.S., and we’re in a good inventory position at this point. We don’t see that as an impediment to doing the business we need to do over the next couple of quarters.”
»Academy Sports’ Inventories Down 10 Percent
Academy Sports and Outdoors’ inventories were down 10 percent as strong full-price sell-throughs drove a 16.1 percent same-store gain in the quarter ended January 30. About half of the 10 percent decline in inventories was due to fewer clearance inventories.
Steve Lawrence, EVP and CMO, said on its March 30 call that the mix of strong regular price selling, coupled with less clearance, improved gross margins by 420 basis points year-over-year in the fourth quarter. Fewer clearance inventories are expected to have a positive impact on margins in early 2021.
Lawrence said to be in a strong inventory position for spring, Academy’s buying team pushed to accelerate receipts prior to Chinese New Year. Said Lawrence, “While there continue to be ongoing challenges in the supply chain in securing containers and cargo space, our strong vendor partnerships, both domestically and overseas, have allowed us to successfully navigate through all the challenges. As a result, we should be in the best inventory position we’ve been in over the past year by the end of Q2. This will position us well to drive business as we head into the summer months.”
In the Q&A session, Lawrence said the company was comfortable with its current inventory position and was not impacted by the Suez Canal blockage. Lawrence said, “We feel like by the end of Q1, we should be in good shape across the board, except for maybe the firearms and ammo categories. In terms of the Suez Canal, I looked at a recap this morning. It’s minimal for us in terms of what’s caught up in that.”
»Hibbett Sports’ Inventories Decline 30 Percent
At Hibbett Sports, inventories were down 29.9 percent at the close of its fourth quarter ended January 30 due to continued strong sales in both the brick & mortar and online channels in addition to ongoing constraints in the supply chain. Comparable sales increased 21.9 percent in the fourth quarter.
Jared Briskin, SVP and chief merchant, said on the retailer’s Mar 5th call, “Increased demand and supply chain disruption continued to put pressure on our inventory. Age levels at the end of the quarter are at historical lows. As we move throughout this fiscal year, year-over-year inventory compares will be very inconsistent due to the prior year disruption. Our expectation is inventory decrease will moderate during Q1 and will be positive at the end of Q2 with inventory closer to fiscal ’20 levels.”
In the Q&A section, Briskin said the retailer was seeing improvement in recent weeks. It seems to get a little bit better every day, but certainly still a challenge. I would agree and do you feel that as the marketplace does get caught up based off the demand that we’re seeing, there could be some pent-up demand for the products that we sell.”
»Kohl’s Inventories Decline 27 Percent
Kohl’s Inc.’s inventories were down 27 percent in the fourth quarter ended January 30 as the chain has heightened its focus on inventory management. The year marked a 10-year high in inventory turnover and the retailer has established an inventory turn goal of 4 times or higher. The inventory turn improvement is expected to come from reduced choice counts, a pivot toward more productive categories like active and beauty, and leveraging technology to improve inventory allocation to drive regular sell-through and reduce clearance levels.
Jill Timm, CFO, said on Kohl’s March 2nd quarter call, “We feel good about the composition of our inventory entering 2021.”
Michelle Gass, CEO, in the Q&A session also Kohl’s also expected to be able to rebuild inventories in categories that have been outperforming, citing active and home. She said, “We have fantastic relationships with our brand partners. So they are doing everything they can to support us. But I will tell you, even as we chase, we are going to maintain this discipline and that our sales will run ahead of our inventory levels. And there’s no question about that.”
»Big 5’s Inventories Decline 19 Percent
Big 5 Sporting Goods’ inventories were down 19.2 percent in its year ended January 3. The decline reflected a 10.5 percent same-store gain in the fourth quarter and a strong winter season that led to “very positive” sell-through of winter stock.
Barry Emerson, CFO, said on the retailer’s March 2nd call, “This reduction in inventory reflects a strong sell-through of summer products combined with the dynamic that demand continues to outpace supply for many of our high-performing product categories. Our buying team works closely with our vendors to obtain key merchandise, but like many other retailers, we are managing through widely reported disruptions in the supply chain.”
Steve Miller, president and CEO, said the retailer is still chasing inventory in hot categories with the efforts slowed by significant supply chain disruptions.
“We’re getting the inventory. We couldn’t be generating positive sales without it,” Miller said. “But it’s been an uneven flow in several categories. Whether it’s factory issues, raw materials shortages, vessel issues, or certainly significant issues getting products through the port, we see deliveries that are later than ideal. We’re working hard with our vendors and managing through this and optimistic that conditions will improve over the coming months.”
»Foot Locker’s Inventories Decline 24 Percent
Foot Locker Inc.’s inventories were down 23.6 percent at the close of the quarter ended January 30 compared to a low-single-digit sales decline. The levels were less than planned due to delays due to congestion at the domestic ports. Foot Locker officials also noted that inventory pressures prevented the retailer from maximizing opportunities filling strong demand in fleece and some footwear categories in the fourth quarter.
Dick Johnson, CEO, told analysts on its February 26 call, “The bottleneck situation at the ports remains in flux. Our merchant teams are working hard to maximize productivity and full-price sell-through. We should gradually begin to see receipt flows and inventory levels normalize.”
Johnson elaborated in the Q&A session, “The port has slowed down due to COVID precautions, and workflow has slowed down. Once the product gets into our portion of the supply chain, I feel confident that our team can move through the inventory quickly and get it in the right place. We think that it will start to normalize over the quarter. But we felt good about it going into last week, and then we saw a snowstorm that threw off the intermodals, sort of, transportation that slowed things down. There are a lot of variables out there.”
»Shoe Carnival’s Inventory Drops 8 Percent
Shoe Carnival ended its quarter ended January 30 with inventories down 8 percent on a per-store basis.
“The industry is currently experiencing major supply chain issues from the factories to the ports and the ports to our D.C.,” said Carl Scibetta, senior EVP and CMO, on its March 24 call. “At Shoe Carnival, we have built an outstanding merchant team. Their experience with our company and their position in the marketplace with our vendors is second to none. We believe in the strength of this team and the fact that we did not furlough our buying staff has given us an advantage with the supply chain. We continue to work closely with our vendor partners to deliver fresh new products and replenish key categories and classifications. We are monitoring our supply chain very closely and reacting when needed.”
Scibetta said the chain faces the same supply chain issues as other retailers and is in constant communication with vendors. He said, “We certainly had a slow start to deliver spring, but the flow of product has ramped up. It is consistent with the previous years at this point. We hope to get closure each quarter-end as we move through each month.”
»Lululemon’s Inventories Expand 25 Percent
Lululemon Athleta’s inventory was up 25 percent at the end of its fourth-quarter ended January 31. The yoga-themed retailer predicted sales would grow about 70 percent in the first quarter and indicated gross margin guidance reflects pressure from air freight costs due to port congestion and capacity constraints. By the end of the first quarter, inventories are expected to be up 15 percent.
Meghan Frank, CFO, said on its March 31 call, “While we see some delayed inventory receipts due to the issues at the ports, we are comfortable with the level and composition of our inventory, and we are positioned well as we enter the spring season.”
»Designer Brands’ Inventory Declines 25 Percent
Designer Brands, which owns the DSW off-price footwear chain and several wholesale brands through its Camuto Group division, ended the fourth quarter ended February 1 with inventory down 25.2 percent, which officials noted was generally in line with the sales decline of 26.6 percent seen in the fourth quarter. The lean inventories are largely due to planned reduced buys in its soft dressier footwear categories.
Jared Poff, EVP and CFO, told analysts on March 16, “With the continued lack of visibility to COVID-19 recovery, we have initially postured our inventories such that Spring 2021 will look similar to fall 2020. We are not planning for materially increased demand in dress or seasonal footwear but have taken the necessary steps to ensure we have maximum flexibility to lean into those categories if demands return earlier, especially with our Camuto Group being at the ready.”
Roger Rawlins, CEO, also noted that the ports backup wasn’t having any “material impact” on delivery so far. Rawlins said, “I’m proud of our team in how we’ve responded, whether it was pulling up orders and, to date, we haven’t felt any significant pain, but we’re also monitoring every single day.”
»Caleres’ Inventory Declines 21 Percent
Caleres Inc.’s inventories were down 21 percent at the close of the fourth quarter ended January 30 with a 15 percent decline at Famous Footwear inventory and a 29 percent decline at its Brand Portfolio segment, including Sam Edelman, Allen Edmonds and Naturalizer.
Caleres officials said on its March 16 call that it is currently facing between $60 million and $70 million of delayed receipts due to supply chain disruptions and the ongoing port congestion that is not expected to be resolved in the first quarter.
Diane Sullivan, chairman and CEO, said it represents about $50 million of receipts delayed for Famous Footwear and the remainder for its Brand Portfolio segment. She said, “It’s hard to tell yet exactly when we’re going to be caught up fully concerning all of those receipts. We don’t have the visibility yet of what that looks like. There are a number of actions that we’re taking, and we are obviously taking a look at this week-to-week.”
She noted that Famous Footwear has focused on operating on leaner inventory levels in 2020, expecting that inventories will be down 5 percent to 10 percent for 2021. Sullivan added, “The good news and the silver lining is that it allows you to manage your pricing, manage your promotional cadence and hopefully take advantage of what margin improvement we might see. But it’s unclear what the opportunity cost is going to look like in the short term.”
Sullivan added, “We are actively managing this and making sure that we get ourselves in a position to take advantage of what we expect is going to be a good rebound as we move into the second quarter and then more so even into the back half of the year.”