American Eagle suspended its dividend after echoing other retailer’s issues with excess inventory.
Other stores have employed significant markdowns to entice inflation-conscious customers.
The markdowns have harmed retailers’ bottom lines, prompting several to reduce their financial
projections.
This week, American Eagle joined the list of clothing shops reporting poor earnings as the sector tries to figure out what kind of products consumers want as a result of the pandemic, while also dealing with declining demand as inflation squeezes finances.
In the meanwhile, stores such as Macy’s and Nordstrom have used profit-cutting markdowns to clear stock from shelves.
The retail landscape isn’t pretty,” Corey Tarlowe, an analyst at Jeffries, told CNBC. “Inventories have increased. There are billions of dollars in surplus clothes inventory floating around right now, which is an issue.
On Wednesday, American Eagle announced the suspension of its dividend after comparable sales declined 6% year over year in the most recent quarter. The macroeconomic situation, according to Chief Operating Officer Mike Mathias, has produced a “slowdown in demand.” The company’s goals, according to Jen Foyle, chief merchandising officer, include “changing our assortments and rightsizing inventory.”
The requirement for inventory markdowns affected American Eagle’s bottom line, with the company earning 4 cents per share for the quarter ending July 30. This fell short of analysts’ expectations of 13 cents per share.
On Wednesday, American Eagle announced the suspension of its dividend after comparable sales declined 6% year over year in the most recent quarter. The macroeconomic situation, according to Chief Operating Officer Mike Mathias, has produced a “slowdown in demand.” The company’s goals, according to Jen Foyle, chief merchandising officer, include “changing our assortments and rightsizing inventory.”
The requirement for inventory markdowns affected American Eagle’s bottom line, with the company earning 4 cents per share for the quarter ending July 30. This fell short of analysts’ expectations of 13 cents per share.
Nordstrom Chief Financial Officer Anne Bramman also stated on Thursday at the Goldman Sachs Global Retailing Conference that discounts have been “a lot deeper” than expected and that it may take “a couple quarters” to properly readjust. The department store operator reported higher second-quarter sales in August, but lowered its financial estimate for the year, citing a glut of inventory and declining demand later in the year.
Macy’s also reduced its revenue and earnings projection for the year last month, citing “weakening apparel sales over the quarter as the customer faces greater costs on critical goods, particularly groceries.” Mitchell stated at the Goldman Sachs conference on Thursday that the company has “made the required markdowns” to assist clear inventories.
Other companies, including as Wal-Mart, Target, Gap, and Kohl’s, have experienced similar issues with bloated inventory. When Target announced a 90% drop in quarterly profit in August, it cited extreme discounting to get rid of surplus inventory. According to Chief Financial Officer Michael Fiddelke, there is “softness” in clothes and other discretionary categories, as well as slower demand later in the quarter.
Recognizing an inflation-conscious consumer, Wal-Mart used similarly extreme markdowns to move things like apparel out of shops, resulting in a considerable reduction in profit estimates.
Meanwhile, Gap and Kohl’s are attempting to prevent some markdowns with a “pack-and-hold” strategy for specific categories, which allows them to reserve extra inventory until demand increases.
According to Tarlowe, the analyst, merchants may be able to respond to demand more swiftly by 2023 as the supply chain normalises. However, he stated that corporations are currently battling to alter their services.
Everything that was originally purchased for soft and cuddly themes is finally arriving. These merchants have persisted with it. They are compelled to clear it out. “It isn’t in the correct categories,” Tarlowe explained.
