American Apparel is boosting Gildan, Ralph Lauren’s transformation sees early results, Carter’s stays ahead despite hurricane impact and Alibaba’s bottom and top lines score major gains.
In a Nutshell: Gildan Activewear said it continued to make good progress with its integration of the American Apparel brand it acquired for $88 million in February, including the continued ramp up of production, the successful launch of the American Apparel consumer e-commerce platform, and international distribution planned for 2018.
The Montreal-based company also saw a more favorable product mix in Printwear, earnings contribution from American Apparel and lower income taxes, partly offset by lower than expected Branded Apparel sales, reflecting the continuation of a challenging retail market.
Sales: Consolidated net sales of $716.4 million in the third quarter ended Oct. 1 were essentially flat compared to the prior year, as Printwear sales growth was offset by a decline in Branded Apparel sales compared to the third quarter of last year.
Printwear net sales for the third quarter increased 4.1% to $480.7 million, boosted by a sales contribution of $15.4 million from American Apparel, continued strong growth in fashion and performance basics, double digit unit sales growth in international markets, and higher net selling prices, partly offset by lower sales of basics.
Net sales for the Branded Apparel segment in the quarter fell 6.9% to $235.7 million, mainly due to weakness in the sock category, particularly in department stores and national chains, as well as the sporting goods channel. This was partly offset by higher sales of Gildan branded men’s underwear and strong performance of activewear.
Earnings: Net earnings for the period rose to $116.1 million from $114.4 million for the same period last year. Excluding the impact of after-tax restructuring and acquisition-related costs of $2.5 million in the quarter and $2 million in the prior year quarter, Gildan reported adjusted net earnings of $118.6 million, up from $116.4 million. The 6 percent increase in adjusted diluted EPS in the quarter was mainly driven by a higher gross margin, lower income taxes, and the benefit of share repurchases, partly offset by higher SG&A expenses due in part to the American Apparel acquisition.
Printwear segment operating income for the three months was up 3.3% to $127.5, while Branded Apparel generated operating income of $25.3 million compared to $29.5 million in the same quarter last year.
CEO’s Take: Glenn Chamandy, president and chief executive officer, said: “On American Apparel, we don’t how big is big and are in track with our goals. We launched over 700 styles and leveraged our supply chain to do it. Nobody else could have done that given our supply chain capabilities. We’re expanding as we go forward. The brand services both channels of distribution – direct-to-consumer and retail – and domestically and internationally. We’ve launched DTS in the U.S. in October and will go forward with DTS internationally in 2018. We have pretty good runway ahead of us and are pretty excited about it. I can’t tell you how big it’s going to be, but at the end of the day, we are on track for significant increases of 50 to 75 percent next year.”
Overall, he noted on a conference call with analysts that the company’s $400 million in investment in yarn capacity for fashion basics has resulted in “great returns on capital” and allowed for a “tactical acquisition strategy with high returns and very low risk.”
He said Gildan will continue to invest in technology and capacity in fabric, yarn and apparel manufacturing for “a unique supply chain,” with “state-of-the-art manufacturing.” Gildan owns and operates vertically integrated, large-scale manufacturing facilities in the U.S., Mexico, Central America, the Caribbean Basin and Bangladesh.
In a Nutshell: Ralph Lauren is pleased with the early signs that the company’s Way Forward transformation plan is gaining traction in the marketplace. The company outlined four areas of focus for the second quarter including, quality of sales and distribution; new product and marketing to appeal to new consumers; a digital and international push; and productivity and agility.
The company pointed to a more disciplined assortment that centers around updating its iconic styles and core items for today’s consumer along with limited editions to drive excitement. The results so far are increased full-price sell-throughs and a surge in new consumers who had never shopped the brand before. In particular, the company called out items like its varsity jacket, denim trucker jacket, novelty knits with colorblocking as top looks thus far this fall.
Ralph Lauren is also pushing into Asia, which is underrepresented at just 13 percent of the business, but where the brand is very well known. To grow there, the brand has Mainland China firmly in its sights.
The company’s full year guidance remains unchanged with a net revenue decrease between 8 percent to 9 percent, excluding restructuring charges and foreign currency impacts.
Sales: Revenue declined by 9 percent to $1.7 billion, placing it within the company’s 9 percent to 10 percent guidance for the second quarter of FY 2018. The results reflect Ralph Lauren’s focus on improving quality of sales and distribution by exiting underperforming businesses, reducing off-price shipments and pulling back from department stores. Thus far, the company has seen a lower rate of discounts across retail and a 5 percent increase in average unit retail in its direct to consumer business.
The North American market saw the biggest decline at 16 percent, while Europe was up 4 percent and Asia flat, compared to the same period last year.
Earnings: Net income for the second quarter was $144 million or $1.75 per diluted share, compared to $46 million, and 55 cents per diluted share in the same period of fiscal year 2017.
CEO’s Take: “We’re putting a lot of emphasis culturally on empowerment and enablement and driving a sense of urgency, putting decisions on the clock so that we move with pace because that’s what the retail landscape and consumers demand if we’re going to get back to winning,” president and CEO Patrice Louvet said.
In a Nutshell: Despite the negative affects of the hurricanes across Texas, the Southeast and Puerto Rico as well as warmer temperatures throughout much of the country, comp sales for the third quarter in the U.S. retail segment, which includes both Carter’s and OshKosh, was up 2.6% thanks to a boost by e-commerce, which increased by 20.9%. At the same time, the company experienced weak demand for Carter’s and OshKosh at wholesale, bringing those net sales down by 1.1% to $369.6 million.
The company also acquired its licensee in Mexico, which reported net sales in 2016 of 525 million Mexican pesos ($28 million) and helped boost its international business.
Carter’s expects net sales to increase by 6 percent for the full year compared to fiscal year 2016 with adjusted earnings per diluted share to be up by 9 percent, excluding specific expenses and benefits from its acquisitions.
Sales: Carter’s U.S. retail operations plus its newly acquired Skip Hop business, which accounted for $27.9 million, led to a reported $46.8 million net sales increase, boosting the company’s numbers by 5.2% to $948.2 million. The new Mexican acquisition contributed $4.5 million to consolidated net sales.
Earnings: Net income for the quarter reached $82.5 million, up 2.1% or $1.71 per diluted share, compared to $80.8 million and $1.60 in the same period of 2016.
CEO’s Take: Michael D. Casey, chairman and CEO, said, “We achieved our third quarter sales and earnings objectives, despite the significant impact of hurricanes in Texas, Florida and Puerto Rico. Our growth was led by our U.S. retail and international businesses, including the contribution of our Skip Hop brand which we acquired earlier this year. Given the strength of our fall and holiday product offerings, together with the contribution of our new opportunities with Skip Hop, Amazon, China, and Mexico, we believe we are on track to achieve our growth objectives this year, our 29th consecutive year of sales growth.”
In a Nutshell: Alibaba said its Taobao App’s personal recommendations and content continue to drive robust growth in active users and engagement. In September, user activities on the Taobao App led to a quarterly net increase of 20 million mobile monthly active users on its China retail marketplaces to a total of 549 million mobile monthly active users.
[Read more about Alibaba: Alibaba’s 11.11 Festival Focused on Omnichannel, International Gains]
During the quarter, the company launched a unified rewards-based loyalty program called 88 Loyalty Membership across its Tmall and Taobao marketplaces to enhance consumer engagement and loyalty. Tmall recorded 49 percent year-over-year growth for physical goods gross merchandise volume in the quarter, with robust growth across all major categories.
Sales: Revenue for the third quarter ended Sept. 30 increased 61 percent to $8.29 billion, compared to $5.189 billion a year earlier, which the company said helped in, “demonstrating the robust momentum in our core commerce business and across the Alibaba economy.” Revenue from core commerce increased 63 percent year-over-year to $6.98 billion.
Earnings: Net income jumped 146 percent to $2.62 billion from $1.07 billion in the year-ago period, while adjusted earnings before interest, taxes, depreciation and amortization increased 58 percent to $3.76 billion from $2.21 billion last year.
CEO’s Take: Daniel Zhang, CEO, said: “Our consumer insights and technology innovation were the key drivers behind our customer value proposition across the Alibaba economy. We are seeing the early results from our efforts to integrate online and offline with our ‘New Retail’ strategy, and consumers have benefited from access to high quality products, improved customer experience and the tremendous convenience of shopping anytime, anywhere.”
Reporting by Arthur Friedman and Caletha Crawford
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