3Q22 Preview: Earnings Visibility Improving for Fashion Brands
The author is an analyst of NH Investment & Securities. He can be reached at jooyh@nhqv.com. -- Ed.
With Chuseok falling early this year, both online and offline sales rose y-y in August. By business type, department stores maintained the highest growth rate, with the apparel category showing particularly strong growth. We expect to see higher visibility of fashion brand earnings in 3Q22.
In August, both online and offline sales grew by double digits
In August, sales at major retailers rose 15.4% y-y, with offline and online sales upping 14.5% y-y and 16.3% y-y, respectively. We attribute the solid results to strong gift set sales, with the Chuseok holiday falling early this year.
It is impressive that department store sales increased 24.8% y-y. Although September operations are ongoing, if the current trend continues, 3Q22 growth should exceed the 2Q22 level of 19.1% y-y. Profitability indicators are set to improve significantly on an increased sales portion for high-margin apparel.
Convenience store (CVS) sales upped 12.8% y-y in August. Despite concerns over sluggish results due to Typoon and heavy rain in August, it is positive that sales growth increased m-m. Purchase unit price (P) and the number of purchases (Q) both increased, and store additions remained steady despite controversy over the saturation of the CVS market.
Online sales saw record-high growth in August thanks to expanded delivery services tailored to Chuseok and special holiday events. However, the relative appeal of online players has decreased, as the growth rate gap with offline firms has narrowed. While re-opening likely had an impact, we also note that major online retailers are concentrating on improving profits, reducing marketing costs, and carrying out business restructuring.
3Q22 preview: Earnings visibility improving for fashion brands
In August, fashion sales at department stores upped 33.6% y-y on average. By apparel category, the y-y sales growth picture broke down as: women’s casual +41.9%; children’s/sports +33.8%; men’s clothing +31.2%; women’s suits +27.5%; and major overseas brands +26.4%.
We note that 3Q is usually an off-season for the fashion industry due to the changeover in seasons, and August weather was particularly unfriendly this year due to the timing of rainy season. Nevertheless, we expect brand companies to show overall favorable earnings for 3Q22, drawing attention to: 1) likely solid demand on increased outdoor activities, regular department store discount sales, and the lifting of social distancing rules; 2) several new brand launches; 3) better-than-feared online mall traffic; and 4) the start of F/W (autumn/winter) sales in September. We mainly attribute the likely sound earnings to robust pre-sales of seasonal products. Although the domestic fashion market is to experience some base burden effects towards 2H22, the current sales uptrend should sustain this half—we estimate that domestic fashion sales growth for 3Q22 and 4Q22 to clock at +10% y-y.