The retail earnings season is about to kick off — and analysts still have their eyes fixed on the extended impact of the pandemic, a possible vaccine and the economy’s continued reopening.
Ahead of last quarter’s reports, much of Wall Street had lowered expectations for fashion and footwear companies’ financials in tandem with many retailers’ decision to slash their guidance due to potential coronavirus-related disruptions. A slew of retailers — particularly those that sold essential goods, established a solid digital presence and offered more leisurely wear as COVID-19 forced consumers to hunker down at home — had subsequently posted earnings and sales beats.
Amid a surge in new infections and hospitalizations, traders are closely watching the development of a COVID-19 vaccine, which hit a roadblock today when Johnson & Johnson announced it had paused the latest stage in clinical trials after a participant experienced an “unexplained illness.” What’s more, the wave of reopenings across the country could be threatened as temperatures drop in the months ahead and flu season picks up.
“COVID is still a very important part of the consumer mindset, particularly with cases rising,” said Camilo Lyon, managing director and lifestyle brands and wellness analyst at financial services firm BTIG. “There’s so much uncertainty, but we can take some cues from the summer — with people getting into outdoor activities and spending time indoors — and apply those to how the fall/winter might be expected to unfold.”
Over the past few months, market watchers have tracked the rise of the outdoor and athletic as well as casual categories. Nike, Lululemon, Crocs, Ugg parent Deckers Brands, Dick’s Sporting Goods and Shoe Carnival topped Susquehanna Financial Group’s list of winning brands. According to analyst Sam Poser, these top picks are not only entering the quarter with a direct-to-consumer or digital-first mindset, but also fit squarely into the flourishing comfort-driven market.
“The best companies, throughout the COVID-19 crisis, have focused on comfort and/or athletic footwear and apparel,” he wrote in a distribution note on Monday. “Our checks indicate that the companies that focus on comfort and athletic product in an authentic manner have improved their standing with consumers throughout the crisis. For the most part, consumers have stopped spending money on dining out and traveling, leaving funds available to shop for footwear and apparel.”
Lyon also touted the performances of Nike, Lululemon, Crocs and Deckers, as well as those of cork slipper label Birkenstock, plus boot maker Timberland and skate wear brand Vans, whose owner, VF Corp., reports earnings on Friday. In addition, he called out Steve Madden’s strength in the fashion footwear space — a segment that has suffered as more consumers favor athleisure options over dress, formal and special occasion shoes.
“By and large, I would say the trends in home, comfort and athletic will continue to be strong,” Lyon added. “COVID hasn’t changed anything; it’s accelerated everything. Digital capabilities, product innovation and a flexible supply chain are incredibly important, and if we can get another round of stimulus, that’ll obviously buoy consumption. All these things are creating that separation between the winners and the losers.”
As for the retailers that face challenges this quarter, Poser placed four footwear names at the bottom of Susquehanna’s rankings: Boot Barn, Under Armour, Caleres and DSW parent Designer Brands. He cited, among other things, their purported struggles with strategy execution, brand identity and lack of compelling merchandise.
“The overall retail environment is likely to continue to be challenging, but there is beginning to be a glimmer of light into 2021,” Poser added. “The best companies have taken to heart the following Winston Churchill quote: ‘Never let a good crisis go to waste.'”