Mixed performance by fashion and apparel retailers City Chic, Universal Store, Peter Alexander and Kathmandu: Macquarie
Macquarie has issued its report card on the fashion and apparel sector, with a mixed performance from brands such as City Chic, Universal Store, Peter Alexander and Kathmandu.
Trading conditions for the nation’s smaller fashion and apparel retailers are showing signs of moderation as shoppers cycle the spending boom of this time last year, although early signs are of a strong Black Friday sale period last month, with that sales event now starting to eclipse the Boxing Day sales.
There is a mixed performance however from some of the country’s best known apparel retailers, according to the latest report from Macquarie.
Plus-sized women’s fashion chain City Chic, whose shares have collapsed this year, is facing falling traffic numbers to its stores, Premier Investments star performer sleepwear brand Peter Alexander hitting moderating website traffic, according to Macquarie.
But on the flip side, Macquarie believes spending trends support upgraded earnings for outdoor adventure retailer Kathmandu, and it has also pencilled in better trading from Super Retail Group, jewellery store Lovisa and clothing chain Universal Store.
In the final spring to Christmas and Boxing Day sales, analysts are pouring over key data such as website traffic, store traffic, as well as any retailers that might be pushing the ‘discount and promotion’ button early to clear unwanted stock.
With Christmas being the busiest and most crucial time of year for many retailers – and a time when many retailers make the bulk of their profit for the year – the next month will be key for company results when the earning season kicks off in early 2023.
Macquarie has said in a note to clients that its range of proxies it uses to gauge spending suggest ongoing moderation in activity. It said Black Friday sales overall were strong despite strong comparative sales cycled for the same time last year when many Covid-19 restrictions helped fuel heavy spending.
The bank has rated outdoor retail categories as strong for the December half to date. This drives earnings upgrades for Super Retail Group (Supercheap Auto, Rebel, BCF and MacPac) and Kathmandu (Kathmandu, Rip Curl).
“November data indicates ongoing moderation. Our preference remains for retailers with scale, market-leading and competitive brands, strong balance sheets and exposure to low price points and youth consumer groups arguably best positioned in the current climate. This continues to support our ‘outperform’ ratings on Lovisa and Premier Investments.”
Macquarie has also downgraded some earnings outlook in the sector. Struggling plus-sized women’s fashion chain City Chic, whose shares are down almost 90 per cent since the beginning of the year, is one retailer the bank has in its sites with a similar chain in the US called Torrid, a possible litmus test of the category.
“Lowered assigned multiple to account for any risks to the downside in light of ongoing pressures across the sector,” it said about City Chic. “This scope for further downside risk has been amplified by ongoing weakness in the data, along with US peer Torrid recently downgrading its outlook again.
“Avenue (a City Chic brand) is continuing to cycle difficult comparative sales and it also has a skew to casualwear and loungewear. These categories are less in demand with reopening. For the first half of fiscal 2023 Avenue visitation is down around 13 per cent.
“We have allowed for moderation in Avenue’s performance over the first half in our forecasts. We expect Avenue’s sales down 30 per cent in the first half.
“City Chic Australia visitation is down around 5 per cent in the first half year to date. This compares to our forecasts of an around 18 per cent decline in sales for the first half.”
Over at billionaire Solomon Lew’s Premier Investments, Macquarie said website traffic for its sleepwear brand Peter Alexander continued to moderate off Covid-19 comparatives.
“Peter Alexander represented around 30 per cent of fiscal 2022 sales. The website trends are consistent with our expectations of online sales and thus margins moderating overall for Premier Retail in the first half of fiscal 2023. Despite this, we are reassured by Premier Investments’ recent trading update and it suggesting good performance in other brands and other channels.”
Macquarie said website visitations at Premier Investments’ Smiggle chain had been mixed.
“The trends are broadly consistent with our expectations of mid-single digit percentage decline in Smiggle’s online sales over the first half as it cycles lockdowns in Australia and New Zealand.”
Among some of the better performers, Macquarie said website visitation at fashion and apparel chain Universal Store for the December half to date remained elevated, up 29 per cent.
“Interestingly, visitation of key competitors, Culture Kings, General Pants Co and Glue Store, have underperformed as a group relative to Universal Store in November. These peers are still under new ownership.”
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