Retailers detail staffing shortages as omicron rages, but investors see it as short-term hit

Retail executives presenting at the ICR conference this week are detailing how the highly contagious omicron variant is denting sales and leaving stores and distribution centers understaffed.

But investors seem to be shrugging off the bad news, seeing it as a short-term challenge. Abercrombie shares were climbing nearly 8% midday Tuesday, while American Eagle was up about 3%. Urban Outfitters rose almost 2%, and Lands’ End was up a little more than 2%.

For them, the silver lining is that consumer demand appears to be intact.

Lululemon said sales in the November-to-January quarter will come in on the low end of its previous expectations as it had to shorten hours at some locations due to labor constraints. Lands’ End said it’s had a difficult time hiring. Abercrombie & Fitch cut its fiscal fourth-quarter revenue estimates because it didn’t have enough merchandise in stock to meet consumer demand. While Urban Outfitters said shopper visits to its stores didn’t pick up in December like it had planned.

These are just a few examples of ways that the latest surge of Covid cases in the United States is sure to keep rattling the retail industry in the coming weeks. On Monday, roughly 1.5 million new cases of Covid-19 were reported, according to data compiled by Johns Hopkins University, pushing the seven-day average of daily new cases to 754,000. While many vaccinated individuals who are infected with the virus say its symptoms are mild, hospitalizations are starting to climb, particularly for those who become sick and are not fully vaccinated.

While these retailers may be weeks away from releasing complete results for the holiday quarter, the revised forecasts offer analysts and investors a preview of what’s to come, and shed light on how the companies are working through these obstacles.

Lands’ End Chief Financial Officer Jim Gooch said Tuesday some employees have stepped up to work extra hours in recent weeks.

“We recognize that a big problem is going to be labor. … We’re hoping that that’s going to normalize going forward, but this year was a challenge,” he said during an ICR presentation. “And so the teams are doing what they can to try to get out in front of that as we go into this year.”

Abercrombie & Fitch said Tuesday it has been able to pull workers from one of its brands to work at another brand’s stores to keep doors open when workers call out sick. The company also owns Hollister and Gilly Hicks.

“In a mall where we have several brands and we have a staffing issue because we have one store perhaps that gets caught up with Covid, we can borrow staff from the other stores and that has helped us out tremendously,” said Abercrombie Chief Executive Fran Horowitz, during an ICR presentation.

As a result, Horowitz said, Abercrombie has not had to fully close any stores due to Covid outbreaks. It has, however, temporarily reduced hours at some locations, she said. That’s an approach that companies from Macy’s to Gap to Nike have also taken recently.

“The first day of ICR 2022 was a bit of deja vu, with all of us hunkered down in front of our computers switching from meeting to meeting with the click of a button,” said Dana Telsey, CEO and chief research officer at Telsey Advisory Group.

“Unfortunately, the omicron variant of Covid-19 seems to be having the negative impact we have all feared on January sales and staffing,” she said in a note to clients.

Urban Outfitters reported Tuesday that its sales for the two-month period ended Dec. 31 rose 14.6% from 2019 levels. Digital sales during that period climbed double digits, while in-store sales fell a low-double-digit percentage on a two-year basis, the company said.

“We do believe that omicron is affecting our store sales. … It’s hard to know how much,” said CFO Melanie Marein-Efron, during an ICR presentation. “Once your stores are limiting their hours of operation of being open, clearly you’re limiting consumers’ ability to get into your store.”

American Eagle Outfitters, which also owns the Aerie lingerie brand, said it’s projecting fourth-quarter sales to be up a mid-to-high teens percentage versus last year. That’s below the 21.5% increase that analysts were forecasting, according to Refinitiv data.

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