Apparel Retailers May Show Positive Updates Ahead of ICR Event

(Bloomberg) -- Investors, analysts, traders and executives will gather in Orlando, Fla., next week to hear presentations by more than 150 consumer-oriented public and private companies at the 21st annual ICR Conference. But before their appearance near Disney World, companies including Urban Outfitters Inc., American Eagle Outfitters Inc., Lululemon Athletica Inc., and Abercrombie & Fitch Co. are expected to issue pre-announcements.

The meeting runs Jan. 14 to Jan. 16. Public company presentations are scheduled for the first two days, and private-company talks will be held the final day. Company slide shows typically feature business updates and strategic plans for the coming year, or longer term. Pre-announcements have been known to happen at the conference, or ahead of company’s meetings.

Branded or specialty apparel companies are among various retail-related names that’ll speak at ICR. DA Davidson analyst John Morris expects investors to focus on company strategies in the event of a macro slowdown, including plans for cost cutting, according to a Jan. 9 note, before Macy’s Inc. and Kohl’s Corp. on Thursday disappointed investors with holiday sales updates.

In addition, buying plans for the second half of the year may also be high on investors’ minds. Here, Morris sees a risk “because most companies are likely extrapolating recent healthy Fall and Holiday demand into next year and if demand doesn’t follow through, margins could come under pressure from promotions.”

Rising labor costs will likely be a top issue this year, Morris said, citing retail industry sources. Early reads on Spring selling will also be of interest. In addition, he will be looking for any shift in the negative sentiment that has prevailed over the branded apparel sector.

Jefferies retail analysts don’t believe the conference will reverse the “challenged” sentiment around the specialty softline retailers, which stems from tough holiday and first- quarter comparisons and uncertainty around expenses. But they do think “a string of positive pre-announcements...could help partially re-assure the market,” they wrote in a note dated Jan. 8.

Potential 2019 expense headwinds (wages, freight, shipping, tariffs, investments in marketing and e-commerce) are likely to be other key topics of investor interest, outside of a read on sales trends, Jefferies said.

Elsewhere, Telsey Advisory Group’s Dana Telsey expects a “fairly positive tone” from specialty retailers at next week’s event. But, with 13 companies that Telsey covers falling an average of 23 percent in the fourth quarter of 2018, “clearly there are concerns,” she wrote.

Doubts revolve around whether sales strength in the fourth quarter and the new year can flow to the bottom line given labor, freight, and trade costs, as well as digital and marketing investments. Telsey also noted that sales and margin comparisons become more challenging through 2019 and investors will seek “color on the ability to drive leverage while e-commerce continues to grow as a percentage of the overall mix and as the one-time benefit of tax reform anniversaries in the new year.”

Here’s a list of some specialty apparel stocks to watch at the conference. They are listed by date and time for which the presentation is expected to begin, based on the ICR agenda.
Presentations are divided into 30-minute sessions, many of which are webcast. Some companies hold breakout sessions and are available for one-on-one meetings. (Note: All presentation times are ET and subject to change).

Monday, Jan. 14

  • Chico’s FAS (8am): Focus will fall on the Chico’s banner, Telsey says, where management is addressing merchandising and marketing issues, while searching for a new president to lead the business.
  • Ascena Retail Group (8:30am): Telsey views the inconsistency across its brands “as a central concern.” The acceleration in the Ann businesses and “continued strength at Justice are encouraging,” but fashion misses and sales and margin pressure at Lane Bryant are disappointing.
  • Abercrombie & Fitch (breakout sessions only at 11:30am, 2:30am): RBC’s Brian Tunick expects ANF to release a 4Q update in line with its low-single digit comparable sales outlook. Looks for commentary on the international (Brexit, China) environment and the ability ANF to reach 2020 targets if international stays volatile.
    • Telsey notes that while stability in the business has significantly improved, she expects investors to focus on the ability to grow the operating margin closer to peers in the coming years.
  • Zumiez (1:30pm): DA Davidson says key questions include management’s traffic-driving initiatives for 2019 when ZUMZ comes up against tougher first-half sales comparisons, plans to offset rising freight/labor expenses and inventory plans in the event of a consumer slowdown.
    • NOTE: Jan. 9, Zumiez boosted 4Q EPS and comp. sales forecasts
  • Boot Barn (2pm): Jefferies expects a 3Q pre-announcement. The recent 40% pullback in the stock shows investors expect weakness given the decline in oil prices and BOOT’s exposure to “commodity-sensitive regions.” Based on improving performance online, fewer promotions in stores and improving employment levels in the oil/gas industry, Jefferies believes the concerns are overblown.
  • Guess? Inc. (3:30pm): For GES, investors will look for management’s plan to continue to drive growth in Asia and Europe, while improving profitability in the Americas: Telsey.
  • Lululemon (holding 1-on-1 meetings both Monday and Tuesday): DA Davidson said recent channel checks indicated strong traffic (even post-Holiday), a better in-stock position, strong sell-throughs, and firmer pricing. Expects a positive 4Q pre-announcement.
    • Key questions for management include: performance in Europe and Asia, expansion plans for 2019, pricing and product innovation.
    • Telsey expects investors to ask how management plans to continue to support the strong momentum seen across the business into 2019.
    • RBC expects LULU to update its 4Q comparable sales forecast to mid-teens (the company had indicated that sales were running high-teens quarter to date) given harder January comparisons, and to boost the EPS view by 3 to 5 cents.
      • RBC will discuss with management product innovation and channel efforts into 2019, margin opportunities including supply chain/distribution work, early reads on loyalty efforts and its view on potential sales beyond 2020 and how international plays into that outlook.

Tuesday, Jan. 15

  • Urban Outfitters (8:30am): RBC expects URBN to report a holiday comp of ~5 percent vs its forecast for up 4 percent-5 percent, but with harder January comparisons ahead, the messaging for total 4Q may be for “a deceleration from the holiday results.”
    • Focus of RBC’s meeting with execs will be on 2019 product/channel opportunities in an effort to “comp the comp, particularly 1H18’s very strong 11.5%”; China exposure/tariff risk; gross margin opportunities/delivery expenses on a strong online business; visibility into SG&A in the new year
    • DA Davidson expects positive 4Q pre-announcement to highlight in line comparable sales, but expects upside EPS potential as better sell-through in core Urban Outfitters brand results in higher margins.
      • Interested to hear more about URBN’s private-label business, potential offsets to rising labor costs, performance in Europe/Asia and benefits from supply chain initiatives.
    • Telsey believes key areas of attention will be in URBN’s efforts to improve merchandise margins across the business (particularly at Anthro) as it begins to anniversary “a meaningfully improved performance in 2018.”
    • Jefferies expects no surprises in holiday sales against the company’s Dec. 10 report, when comps. were tracking up mid-single digits. Commentary regarding continued strength in sales and margins could help to ease concerns about the tough comparisons ahead. Doesn’t expect an EPS update.
  • American Eagle Outfitters (10am): RBC expects AEO to report a holiday comp. sales increase of 5%-6% compared to its mid-single digit growth forecast. Focus on China exposure, product opportunities to sustain growth, gross margin opportunities and SG&A leverage.
    • Telsey expects conversations to center around increases in field level payroll and marketing that have fueled strong comp. growth, and the ability for improved leverage in 2019.
    • Jefferies expects AEO to report holiday sales and update its 4Q forecast; looks for consolidated 4Q comps. up 6% vs the forecast for up mid-single digits; AEO is curtailing promotions, according to Jefferies’ analysis, which points to ”strong product acceptance and a more rational promo cadence across the industry”

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