Retailers detail staff shortages as omicron rages, but investors see short-term blow

A “Now Hire” sign is displayed in an Urban Outfitters store in San Francisco.

David Paul Morris | Bloomberg | Getty Images

Retail executives attending the ICR Virtual Conference this week explain in detail how the highly contagious variant of omicron is hurting sales and leaving stores and distribution centers understaffed.

But investors seem to ignore the bad news, seeing it as a short-term challenge. For many retailers, the silver lining is that consumer demand appears to be intact.

Lululemon said sales for the November-January quarter will be lower than previous expectations as it had to shorten hours in some locations due to labor constraints. Lands’ End said they were struggling to hire. Abercrombie & Fitch reduced its revenue estimates for the fourth quarter because it did not have enough merchandise in stock to meet consumer demand. While Urban Outfitters said shoppers’ visits to its stores did not resume in December as expected, and people were shopping on its websites instead.

Still, shares of Abercrombie were up nearly 8% as of noon Tuesday, while rival American Eagle Outfitters rose about 3%. Urban Outfitters’ inventory grew by almost 2% and Lands End’s by just over 2%.

And these are just a few examples of how the latest wave of Covid cases in the United States is sure to rock the retail industry in the weeks to come. As of Monday, around 1.5 million new cases of Covid-19 were reported, according to data compiled by Johns Hopkins University, bringing the seven-day average of new daily cases to 754,000. While many vaccinated people infected by the virus say its symptoms are mild, hospitalizations are starting to increase, especially for those who become ill and are not fully vaccinated.

While these retailers may be weeks away from releasing full holiday quarter results, the revised forecast and commentary gives analysts and investors a glimpse of what to expect. Companies from Lululemon to American Eagle are also shedding light on how they are responding to the impact of omicron.

Overtime hours

Lands’ End chief financial officer Jim Gooch said on Tuesday that some employees had stepped up efforts to work overtime in recent weeks.

“We recognize that a big problem is going to be work … We hope it will normalize in the future, but this year has been a challenge,” he said during an ICR presentation. . . “And so the teams are doing what they can to try to get out of this as we move into this year.”

Abercrombie & Fitch said on Tuesday it was able to remove workers from one of its brands to work in stores of another brand to keep the doors open when workers report illness. The company also owns Hollister and Gilly Hicks.

“In a mall where we have multiple brands and we have a staffing issue because we have a store that can be overtaken by Covid, we can borrow staff from other stores and that has helped us tremendously,” said Fran, Managing Director of Abercrombie. Horowitz, during an ICR presentation.

As a result, Horowitz said, Abercrombie has not had to completely close any stores due to the Covid outbreaks. However, he has temporarily reduced his hours in some places, she said. It’s an approach companies from Macy’s to Gap to Nike have also taken recently.

“A bit of déjà vu”

“Day one of ICR 2022 was a bit of deja vu, with all of us squatting in front of our computers, going from meeting to meeting at the click of a button,” said Dana Telsey, CEO and Director of Research at Telsey Advisory . . Group.

“Unfortunately, the omicron variant of Covid-19 appears to have the negative impact we all fear on January sales and staff,” she said in a note to customers.

Urban Outfitters announced on Tuesday that its sales for the two-month period ended Dec.31 were up 14.6% from 2019 levels. Digital sales during that period soared to double digits, while Stores sales fell a low double-digit percentage on a two-year basis, the company said.

“We think omicron is affecting our store sales… It’s hard to know how much,” CFO Melanie Marein-Efron said during an ICR presentation. “Once your stores limit their hours of operation, you clearly limit the ability of consumers to enter your store. ”

American Eagle, which also owns the Aerie lingerie brand, said it expects fourth-quarter sales to increase by an average to high percentage among teens compared to last year. That’s below the 21.5% increase that analysts were forecasting, according to data from Refinitiv.

American Eagle, however, raised its 2023 revenue expectations to $ 5.8 billion, from $ 5.5 billion, signaling that the impact of Covid will only be temporary.