Date: Thursday, September 23, 2021
Source: The Wall Street Journal
Finance executives in the retail industry continue to face a multitude of challenges as they plan for the fall and the holiday season despite being generally optimistic on their companies’ earnings outlook.
Retailers are grappling with ongoing supply-chain disruptions that are keeping inventory low and often causing delays, forcing companies to pay premiums to accelerate shipments. Deliveries from Vietnam and other Southeast Asian countries have slowed as local governments limit factories’ production capacity due to the Delta variant, potentially resulting in delays and shortages of certain products. Companies say they are experiencing a level of uncertainty not seen since the onset of the pandemic, putting their financial plans in doubt.
Despite these obstacles, U.S. finance chiefs have maintained a positive outlook on future profits and demand for their products, due in part to strong consumer spending. Sales at U.S. retailers climbed 0.7% in August, a rebound from a drop in July, the Commerce Department said.
About 30% of the 108 retailers in the S&P 1500 index revised their annual guidance through Aug. 31, nearly all upward except for discount retailer Dollar Tree Inc., according to data provider FactSet Research Systems Inc. That’s up 25 percentage points from the prior-year period, when 5% of the retailers updated their guidance. About 8% haven’t changed their annual guidance so far this year, while the remaining 62% didn’t provide such a forecast, with some—including Burlington Stores Inc. and Victoria’s Secret & Co.—citing uncertainty as a reason.
Chief financial officers are working to offset some of the hurdles, including ordering inventory earlier than usual, revising long-term contracts with ocean carriers, spending more on airfreight, increasing prices and moving their operations.
Chesapeake, Va.-based Dollar Tree, for example, signed a three-year contract for a dedicated charter vessel to make international shipments and pulled its orders for seasonal inventory forward by 30 days, executives said. The chain, which operated 15,865 stores in the U.S. and Canada as of July 31, said it expects to ship more goods than planned by purchasing transport capacity on the spot market, as the ocean carriers it has contracts with can only move 60% to 65% of the agreed volume for the year, down from the 85% Dollar Tree forecast in May.
In August, Dollar Tree said it cut its forecast for the fiscal year ending in January to earnings per share of $5.40 to $5.60, down from its May forecast of $5.80 to $6.05, driven by higher freight costs. The company booked revenue of $6.34 billion in the quarter ended July 31, up 1% from the prior-year period. Profit was $282.4 million, up 8%. Dollar Tree declined to comment further.
Macy’s Inc., which also operates the Bloomingdale’s and Bluemercury brands, forecasts supply constraints will be its biggest challenge in the fall and winter months, said CFO Adrian Mitchell, who has been in the role since November. However, the increase in Delta cases doesn’t pose a significant threat to the companies’ business because consumers are more experienced in dealing with Covid restrictions now and would likely be able to navigate new ones, he said.
The New York-based retailer has been ordering inventory four to six weeks in advance in an effort to secure products earlier, he said. Macy’s works with its vendors to confirm availability and the expected timing of deliveries when it submits orders as well as throughout the process, Mr. Mitchell said.
The company, which operated 726 stores at the end of the second quarter, declined to say how many weeks in advance it ordered inventory before the pandemic.