The decrease in net sales compared to the third quarter of 2022 was primarily due to the impact of the continued slowdown in consumer demand resulting from the unprecedented inflation impacting our customer and from other domestic and geo-political concerns weighing on consumer confidence, an increase in promotional activity across the sector, and the impact of permanent store closures. Comparable retail sales decreased 7.3 per cent for the quarter.
US retailer The Children’s Place reports a 5.7 per cent decline in the third quarter net sales to $480.2 million, citing weakened consumer demand, increased promotional activity, and geopolitical concerns.
Gross profit and adjusted gross profit decreased, with adjusted gross margin at 33.7 per cent, impacted by higher distribution expenses.
In the third quarter of fiscal 2023, gross profit and adjusted gross profit decreased by $14.8 million to $162.1 million, compared to $176.9 million in the three months ended October 29, 2022. Adjusted gross margin deleveraged 110 basis points to 33.7 per cent of net sales versus 34.8 per cent in the third quarter of 2022. This decrease reflects the largely unplanned but addressable impact of higher distribution and fulfilment expenses stemming from incremental shipping and processing costs, partially offset by decreases in supply chain and cotton costs.
Jane Elfers, president and chief executive officer, said: “Our Q3 results exceeded our expectations on the top line. The top line beat was driven by another quarter of industry-leading digital performance, fueled by a double digit increase in ecommerce traffic, with strong Back-to-School results in August and the success of our seasonal categories in September and October. And, our wholesale channel, led by Amazon, delivered another outstanding quarter. Importantly, our Q3 ending inventories were down 16 per cent, exceeding our expectations.
“Our bottom-line results were negatively impacted in the third quarter by higher than planned distribution costs driven by a combination of largely unplanned but addressable factors. First, higher fulfilment costs, including the increased utilisation of third party fulfilment services, stemming from shipping significantly more ecommerce units than planned due to higher volumes coupled with an outsized increase in packages resulting from lower transaction size as our consumer remains under pressure in the current environment. Second, significantly higher labour costs than planned due to the increased e-commerce demand and a very tight labour market. Third, a delay of certain planned freight and fulfilment savings. Looking ahead, we are planning for these increased distribution costs to continue in the fourth quarter.”
The increases in distribution costs were driven by higher e-commerce volumes than anticipated, which resulted in higher compensation expense to fulfil orders as the company incurred significant overtime premiums to process orders, increased wage rates to retain talent and added incentives to attract new associates. In addition, the company also increased the utilisation of our third-party fulfilment partner which operates at higher rates.
Selling, general, and administrative expenses were $104.8 million in the three months ended October 28, 2023, compared to $106.6 million in the three months ended October 29, 2022. Adjusted SG&A was $102.9 million in the three months ended October 28, 2023, compared to $105.4 million in the comparable period last year. Adjusted SG&A deleveraged by 70 basis points to 21.4 per cent of net sales versus the third quarter of 2022, primarily as a result of reductions in store expenses, home office payroll, incentive compensation and equity compensation expense, partially offset by the deleverage of fixed expenses resulting from the decline in net sales and higher planned marketing spend.
“While our core customer remains under significant pressure, we were pleased with our ability to drive top-line above our expectations throughout the third quarter. Our top-line momentum from Q3 has accelerated into Q4 as our customer is responding to our trend-right assortments and our enhanced marketing tactics. November is off to a strong start with consolidated retail sales running up low single digits quarter to date versus last year, driven by the continued strength of our digital business. Our accelerated digital transformation and fleet optimisation strategies have positioned us to operate the company with less resources, including less stores, less inventory, less people, and less expense, allowing us to better service our customer on-line, where she prefers to shop, resulting in what we believe will translate into more consistent and sustainable results over time,” Elfers concluded.
The company now expects net sales for the full year 2023, to be in the range of $1.605 billion to $1.610 billion, adjusted operating profit is estimated to be in the low single digit percentage range of net sales and adjusted net loss per diluted share is estimated to be in the range of ($0.59) to ($0.39) based upon an anticipated weighted average number of shares of 12.5 million.
Fibre2Fashion News Desk (RR)