Will shortages shortchange soft goods recovery?
Crocs, known for its squishy sandals, announced that its sales in the back half of 2020 will be held back, not due to COVID-19-related sales weaknesses, but because of likely inventory shortfalls.
“These inventory constraints are deliberate,” said Andrew Rees, president and CEO, last Thursday on a conference call with analysts. In March as the pandemic emerged, Crocs significantly canceled orders on summer deliveries to best manage working capital and preserve full holiday units.
Second-quarter revenues then came in better than expected. Sales in the quarter were down only six percent on a currency-neutral basis as strong online sales through crocs.com and third-party sites nearly offset the impact of store closures. Regionally, four-out-of-five key geographies — the U.S., Korea, China, and Germany — delivered revenue growth.
Despite sales growth accelerating as stores re-opened, Crocs is projecting flat sales in the second half due to the low inventory levels. Further, Crocs will not aggressively restock due to uncertainties created by the pandemic, the potential expiration of stimulus programs and high unemployment. Said Mr. Rees, “While we are reacting to shortages in core inventory, we feel it is more important to keep inventory lean and to turn up the majority of our focus to 2021.”
Crocs was among many apparel and footwear companies that canceled or deferred orders as stores temporarily closed, although the majority fared worse in the second quarter with quarterly declines in the 40 percent range.
Under Armour likewise said that because it significantly reduced planned inventory purchases in April and May, it “may not have adequate supply” should the second half recover better than expected.
The inventory constraints were part of the reason Under Armour’s is expecting sales in the second half to decline in the range of 20-to-25 percent. The athletic brand also cited an expected “highly promotional” environment as elevated industry-wide inventories tied to store closures are worked down as well as concerns over weak in-store traffic trends. CEO Patrik Frisk told CNBC on Friday, “The consumer is there, but they are still nowhere near pre-COVID levels … there is hesitancy there.”
- Crocs, Inc. Reports Fiscal 2020 Second Quarter Results – Crocs
- Crocs Q2 2020 Earnings Call Transcript – Motley Fool
- Under Armour Reports Second Quarter 2020 Results – Under Armor
- Under Armour Q2 2020 Earnings Call Transcript – Motley Fool
- Under Armour CEO Patrik Frisk says ‘tentative’ shoppers are here to stay thanks to pandemic – CNBC
DISCUSSION QUESTIONS: What’s the likelihood that inventory shortages in apparel and footwear will be a recurring theme in third and fourth quarter results? Were the moves by many to reduce orders prudent or overly cautious? Should soft foods vendors aggressively restock?