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3 Big Takeaways From a Strong Earnings Week in Footwear & Fashion

As retailers continue to report earnings for the third quarter, certain trends are dominating results this season.

This week, Under Armour, Capri Holdings, and Steve Madden posted results for the most recent quarter. They all revealed strong sales and earnings beats, despite global supply chain headwinds.

Overall, companies highlighted DTC strength, recovery from supply chain headwinds, and less promotional activity.

Here were the major trends we saw this week:

DTC is fueling growth

Focusing on DTC is nothing new. But in many ways, the pandemic helped fuel this transition, thanks to a general boom in e-commerce.

In its most recent quarter, executives highlighted Under Armour’s DTC business, which grew 12% to $604 million in Q3. Compared to 2019, DTC business was up 31% during the period. Executives attributed this growth to strong sales from Under Armour branded stores.

“We have been focusing a lot on DTC,” said Under Armour CFO David Bergman. “And we’re starting to see some of the benefits of that pay off.”

Steve Madden also posted growth in DTC, especially in the handbag category.

In a call with investors, chairman and CEO Edward Rosenfeld said that the company’s handbag category is set to increase about 20% for the full year compared with 2019, including more than 100% growth in DTC channels.

“Our handbag growth is pretty explosive,” said Rosenfeld. “It’s outpacing what we’re seeing in shoes, and we’re really excited about that momentum, particularly in direct-to-consumer channels.”

Fewer promotions are boosting margins

Thanks to supply chain slowdowns and port congestion, demand is outweighing supply across footwear. As a result, many companies are in a position where they can offer fewer discounts, which help improve margins across the board.

Capri Holdings chief John Idol said in the company’s most recent earnings calls that prices at Michael Kors will continue to go higher as promotions wane.

“We’ve shown that we make more on lower sales than we did on having higher sales and trying to chase our own selves or other competitors. So we’ve made the decision, prices are going higher, we’re going to have less promotional activities and we’re going to let the consumer respond to that,” Idol said.

Steve Madden and Under Armour also said they had less promotional activity this quarter, which contributed to higher margins over all.

“It doesn’t mean none because the consumer expects some level of promo activity during holiday,” Steve Madden’s Rosenfeld said. “But certainly, compared to where we were pre-pandemic, [there are fewer] promotions.”

Supply chain recovery is underway

Michael Kors is sitting on low inventory levels, due to a supply chain crunch that’s causing delays of between 45 and 60 days. Idol expects that to shift over the next two quarters, however, as the brand brings in more core products earlier to alleviate delays.

“We might hold a little more inventory, in particular, on basic product where we’re just running reorder businesses, and let that flow through as this supply chain issue kind of works itself out over what we think will be a 6 to 12-month period of time [starting in January]. We think it’s going to take most of next year for that to work itself out.”

To alleviate headwinds, Steve Madden shifted women’s production to Brazil and Mexico. And even though 70% of products come from China, the company still managed to pull off a quarter of record earnings.

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