Here’s
the
big
key
from
retailers
this
earnings
season:
Margins
are
holding
up
and
that’s
driving
earnings
beats
even
amid
more
tepid
sales
trends.
As
evident
over
the
last
couple
of
weeks,
consumer
spending
remains
rather
cautious
overall.
Shoppers
are
more
carefully
scrutinizing
purchases
of
discretionary
goods.
That’s
all
led
to
a
rather
lackluster
round
of
retail
sales
this
earnings
season.
Most
retailers
are
seeing
their
top
line
or
same-store
sales
figures
miss
or
meet
Wall
Street
expectations.
There
have
been
few
sales
beats.
Despite
sales
numbers
treading
water,
there
have
been
plenty
of
earnings
beats,
with
some
of
the
more
rather
shocking
surprises
coming
Wednesday
morning
from
Kohl’s
and
Abercrombie
&
Fitch
.
A
main
reason
for
strong
bottom-line
performance:
Retail
margins
have
been
holding
up.
There
are
a
few
factors
for
the
solid
margin
performance
this
season.
Retailers
have
avoided
heavy
discounting
We
haven’t
seen
many
mentions
this
season
of
retailers
resorting
to
steep
markdowns
despite
more
tepid
shopping
trends.
The
absence
of
those
discussions
has
been
striking.
Stores
have
avoided
fire-sale
clearance
situations.
Even
a
beleaguered
retailer
like
Kohl’s
gave
no
mention
of
extreme
promotions
in
its
earnings
release.
Some
retailers
have
actually
talked
about
lower
markdowns:
Target
cited
“lower
clearance
markdown
rates”
as
one
factor
that
benefited
gross
margin
.
Urban
Outfitters
saw
“a
significant
improvement
in
gross
margins.” That’s
a
result
of “lower
merchandise
markdowns
at
the
Anthropologie
Group
and
Free
People
Group
brands.”
Lower
freight
and
shipping
costs
Another
major
pandemic
cost
driver
was
elevated
transportation
costs
for
retailers.
Those
costs
seem
to
have
come
down
in
recent
months.
This
season’s
mentions
continue
what
we
heard
three
months
ago
from
the
retail
industry.
Urban
Outfitters
commented,
“The
increase
in
gross
profit
rate
was
primarily
due
to
higher
initial
merchandise
markups
at
all
three
brands
primarily
driven
by
lower
inbound
transportation
costs.”
Abercrombie
&
Fitch
saw
gross
margin
improvement
“primarily
driven
by
a
benefit
of
760
basis
points
from
lower
freight
costs
.”
TJX
said
its
profit
margin
was
“primarily
driven
by
a
larger
than
expected
benefit
from
freight”
and
an
increase
in
merchandise
margin
“was
driven
by
a
significant
benefit
from
lower
freight
costs.”
Solid
cost
controls
While
retailers
have
benefited
from
more
favorable
inventory
levels
and
freight
costs,
many
of
them
are
also
doing
a
decent
job
at
reducing
general
expenses
and
keeping
those
costs
under
control,
even
as
labor
wages
remain
elevated.
In
many
cases,
we’ve
seen
lower selling,
general
and
administrative
(SG
&
A)
expenses
helping
operating
profits.
Walmart
saw
better-than-expected
operating
margin
expansion,
buoyed
by
”
operating
expense
leverage
.”
Lowe’s
operating
margin
beat
as
SG
&
A
costs
dropped
11%.
Bath
&
Body
Works
saw
“early
benefits
from
our
cost
optimization
initiatives
.”
Kohl’s
saw
a
4.2%
drop
in
SG
&
A
expenses,
outpacing
the
3.3%
decline
in
net
sales.
VF
Corp
‘s
SG
&
A
expenses
fell
5%
year
over
year
,
outpacing
the
3%
drop
in
revenues.
There
are
still
plenty
more
important
retail
earnings
reports
to
come
over
the
next
week.
Thursday
features
Best
Buy
,
Dollar
Tree
,
Ralph
Lauren,
Costco
,
Gap
and
Ulta
.
Next
week,
we
get
the
department
store
behemoths
Macy’s
and
Nordstrom
.
Dollar
General
,
Lululemon
,
PVH
and
Michael
Kors’
parent
Capri
will
also
report.