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DJ Holidays Sales Slumped, but Some Retailers Predict a Snapback

· 02/04/2021 14:20
By Suzanne Kapner

Fewer promotions helped the makers of Coach handbags, Versace dresses and Ralph Lauren polos boost profitability in the holiday quarter, even as online gains were unable to make up for pandemic-driven sales declines.

Faced with reduced demand as rising Covid-19 outbreaks forced shoppers to continue sequestering at home, many brands scaled back inventory, which helped them avoid the deep discounting of past holiday seasons.

At Tapestry Inc., which owns the Coach and Kate Spade brands, net income rose 4% to $311 million in the three months to Dec. 26 driven by reduced promotions and higher average prices. While year-over-year profit declined at Ralph Lauren Corp., the average price of items sold in the period rose 19% -- the third consecutive quarter of gains.

Kohl's Corp., which is scheduled to report results in March, said Thursday that it reached better-than-expected earnings for the holiday quarter, reflecting less inventory and fewer promotions, even as revenue fell about 10%.

And some retail chains are predicting that sales will snap back this year. Nordstrom Inc. said Thursday it expects sales to rise about 25% in the fiscal year that started this month. For the recently completed holiday quarter, sales fell about 20%, the company said.

"We continue to be disciplined in our approach to promotions," Tapestry CEO Joanne Crevoiserat told analysts on Thursday. Ms. Crevoiserat said average prices for Coach's handbags rose about 15% "during this traditionally promotional season."

Covid has created a divide among retailers, with those such as Walmart Inc., Target Corp., Home Depot Inc. and Amazon.com Inc. selling household essentials delivering strong sales gains, and others that sell apparel and accessories posting declines.

Some companies in the latter category have fared better than initially anticipated by holding the line on discounts. As a result, they have a chance to exit from the pandemic healthier than when it started.

"Covid was the catalyst that spurred companies to fix the problems that they had faced for decades," namely a cycle of overstocking and marking down excess goods, said Simeon Siegel, an analyst with BMO Capital Markets. "They learned they can sell less, charge more and earn more," he said.

It's unclear whether the newfound discipline will stick once life returns to normal.

Retail CEOs said they were hopeful that some semblance of normality would return this year as more people are vaccinated and the virus abates, but the recovery won't happen as quickly as some had expected.

"We now believe that the near term will be more challenging," John Idol, CEO of Michael Kors parent Capri Holdings Ltd., told analysts on Wednesday. "The resurgence of the virus has led to additional restrictions and store closures."

Mr. Idol said he expects the situation to improve later this year. "Starting in September, October or November, there could be a very strong rebound as people return to a different type of normal," he said.

"I don't think there is a normal," Tapestry's Ms. Crevoiserat said in an interview. "We expect that some of these shopping behaviors that have emerged during the pandemic will stick," including the shift to online shopping. As a result, she said, the physical store experience will need to evolve.

Ralph Lauren CEO Patrice Louvet said in an interview that assuming vaccinations stay on track, he is expecting the economic environment will improve this summer. "We really are working to make sure we came out of this stronger than we came into it," he said.

Canada Goose Holdings Inc. increased quarterly sales for the first time since the onset of the pandemic, as shoppers snapped up its down coats and other cold weather gear. Revenue totaled $474 million, up from $452 million a year ago, driven by a surge in e-commerce sales, which climbed 39%.

With depressed foot traffic to physical stores in the U.S. and renewed lockdowns in Europe, the companies are turning to their digital businesses to pick up the slack.

Tapestry added nearly 350,000 square feet of distribution center space heading into the holidays and diversified parcel carriers to avoid bottlenecks, which helped it fulfill online orders. In North America, e-commerce accounted for nearly half of holiday sales.

Tapestry's net sales fell 7% to $1.69 billion in the quarter. Tapestry expects sales to return to growth in its current quarter and for earnings to reach pre-Covid levels in the fiscal year that ends in June.

Ralph Lauren's revenue decreased 18% to $1.4 billion in the three months to Dec. 26. Revenue fell in North America and Europe, but increased 14% in Asia. Net income was $120 million, compared with $334 million a year ago.

Ralph Lauren expects revenue for its current quarter to fall by mid- to high single digits, but it plans to reinstate its dividend in the first half of the next fiscal year, which begins in April.

"We are pulling away from -- especially in North America -- those discount-oriented customers," Ralph Lauren finance chief Jane Nielsen said. "We're recruiting new customers at a higher gross margin."

Write to Suzanne Kapner at Suzanne.Kapner@wsj.com

(END) Dow Jones Newswires

February 04, 2021 14:20 ET (19:20 GMT)

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