Retailers see sales rebounding, eventually. But outlooks remain murky.

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A person walks into the Nordstrom store open for business as New York City moves into Phase 2 of re-opening following restrictions imposed to curb the coronavirus pandemic on June 29, 2020 in New York, New York.

Rob Kim | Getty Images

Retailers including Nordstrom, Coach owner Tapestry and Michael Kors parent Capri Holdings are beginning to give investors a glimpse into when their sales might start to grow again from pandemic lows.

These businesses will soon lap a period during the Covid crisis when stores were shut for months and shoppers retreated to their homes, only rarely venturing out to buy groceries and other essentials. But most outlooks remain murky, at best.

Many apparel, footwear and accessories brands are reporting a strong rebound in China, and are starting to see the same trends emerge in North America. But Europe remains a trouble spot, with renewed lockdowns in the region still hampering shopper demand and threatening forecasts. The rollout of the Covid vaccine is a hopeful development, but companies are reticent to provide specific financial estimates.

“They’re still being guarded,” said Craig Johnson, founder and president of retail research firm CGP. “Few retailers are putting out any kind of guidance at all, maybe real long-term guidance. … It’s like aiming at a dart board. Who really knows?”

‘Normal’ isn’t going to be the same

Department store operator Nordstrom said Thursday it expects revenue to rise about 25% this fiscal year, which came in below analysts’ estimates, sending shares tumbling more than 8%. During its recent holiday quarter, it said sales fell roughly 20%. Despite healthy growth online, shopper visits to its stores in malls remain suppressed.

“We don’t think normal is going back to pre-pandemic levels,” Nordstrom Chief Executive Erik Nordstrom told CNBC. “But this is a strange time, particularly [in] big urban centers, you don’t have office workers. … For what we sell, there’s headwinds that the pandemic has brought for a lot of fashion.”

Nordstrom shares are down about 14% over the past 12 months. The company has a market cap of $5.37 billion, which is bigger than rival department store Macy’s, but smaller than that of Kohl’s.

Tapestry also saw its sales decline over the holiday quarter, even as its online business grew by triple digits. Earlier this week, the company said it expects sales growth to return in its current quarter. And it anticipates earnings will approach pre-Covid levels this fiscal year, which ends in June.

It has seen a strong resurgence in China, with sales in the region climbing 35% in the latest quarter, driving much of its momentum into the new year. But Europe, though it makes up a smaller percentage of sales, is experiencing a slowdown, the company said.

“We expected that China would recover the fastest,” Tapestry CEO Joanne Crevoiserat said in an interview. “It was the market that was growing the fastest on the way into the pandemic, and so we expected that as we came out of the pandemic we would see more traction there, followed by North America, followed by Europe.”

Tapestry shares are up more than 29% from a year ago.

Capri, another house of high-end brands, has a bigger exposure to Europe. BMO Capital Markets analyst Simeon Siegel estimated the region accounts for almost 25% of Capri’s sales, compared with Tapestry, at about 16%.

Capri CEO John Idol said this week that the company expects to see a strong rebound from consumers in North America as soon as September, due to a faster vaccine rollout. But in Europe, he said, “I think we’re less optimistic … and we actually believe that will stay true through most of the first half of the calendar of 2021.”

Capri has not offered a full-year outlook. But it said it expects revenue and earnings to exceed pre-pandemic levels by fiscal 2023. Capri shares have rallied nearly 47% over the past 12 months. Its market cap of almost $7 billion is smaller than Tapestry’s, at $10.42 billion.

Looking for a recovery

“We’re seeing great signs in Asia, and we’re seeing encouraging signs of stabilization working toward the arc of recovery in North America, but Europe is still challenging,” Siegel said. “The overarching theme is, companies are now starting to talk about the recovery path back to pre-Covid.”

Ralph Lauren is, like many other retailers, optimistic that a broader vaccine rollout will boost its business, as it will allow consumers to return to more normal activities. The company does, however, have a bigger exposure to Europe than Capri and Tapestry.

“While we’re very clear that there is some near-term disruption, which likely could last into fiscal 2022, from Covid, our long-term optimism, and especially in the second half of our fiscal year, is high,” Ralph Lauren CFO and COO Jane Hamilton Nielsen said during an earnings conference call.

“And that’s really contingent on the vaccine, and some of the abatement in the virus, which we believe in,” she said. Ralph Lauren predicts its same-store sales will turn positive as it works through its upcoming fiscal year.

When it reported fiscal third-quarter earnings on Thursday, Ralph Lauren’s earnings topped Street estimates. Its gross margin expanded, thanks to its efforts to sell more sweaters, blazers and dresses at full price. Sales are what came up short.

For Ralph Lauren,” the revenue question remains, even as the margin opportunity abounds,” Siegel said.

Ralph Lauren shares are down about 11% from a year ago, putting its market value just under $8 billion

Kohl’s, which will report fourth-quarter results next month, said Thursday it expects revenue to be down 10% during the holiday period. But it anticipates fourth-quarter earnings will top expectations, thanks to slimmer inventories and fewer markdowns. CEO Michelle Gass also told CNBC that sales strengthened into January, in part due to more shoppers visiting its stores to make Amazon returns after exchanging holiday gifts.

Victoria’s Secret owner L Brands upped its fourth-quarter earnings outlook, sending the stock soaring Thursday. Like Kohl’s, it has benefitted from selling more items at full price and pulling back on promotions.

Analysts and investors will be watching this year to see if the slimmed-down inventories become a permanent fixture at places like Kohl’s, Ralph Lauren and L Brands. Or if these retailers slip back into bad habits of overbuying and employing markdowns, which will pressure earnings again.

Kohl’s shares are up 10% over the past 12 months, while L Brands stock has more than doubled, and is trading near its 52-week high.

“This is a moment in time,” Erik Nordstrom said. “People will return to getting out … and [being] interested in getting something new. And that day looks more sure than ever with the vaccine rolling out.”



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