Retailers Navigate Freight Costs, Scarce Inventory and Uncertain Future

Despite these obstacles, U.S. finance chiefs have maintained a positive outlook on future profits and demand for their products, due in part to strong consumer spending. Sales at U.S. retailers climbed 0.7% in August, a rebound from a drop in July, the Commerce Department said.

About 30% of the 108 retailers in the S&P 1500 index revised their annual guidance through Aug. 31, nearly all upward except for discount retailer Dollar Tree Inc., according to data provider FactSet Research Systems Inc. That’s up 25 percentage points from the prior-year period, when 5% of the retailers updated their guidance. About 8% haven’t changed their annual guidance so far this year, while the remaining 62% didn’t provide such a forecast, with some—including Burlington Stores Inc. and Victoria’s Secret & Co.—citing uncertainty as a reason.

Chief financial officers are working to offset some of the hurdles, including ordering inventory earlier than usual, revising long-term contracts with ocean carriers, spending more on airfreight, increasing prices and moving their operations.

Chesapeake, Va.-based Dollar Tree, for example, signed a three-year contract for a dedicated charter vessel to make international shipments and pulled its orders for seasonal inventory forward by 30 days, executives said. The chain, which operated 15,865 stores in the U.S. and Canada as of July 31, said it expects to ship more goods than planned by purchasing transport capacity on the spot market, as the ocean carriers it has contracts with can only move 60% to 65% of the agreed volume for the year, down from the 85% Dollar Tree forecast in May.

In August, Dollar Tree said it cut its forecast for the fiscal year ending in January to earnings per share of $5.40 to $5.60, down from its May forecast of $5.80 to $6.05, driven by higher freight costs. The company booked revenue of $6.34 billion in the quarter ended July 31, up 1% from the prior-year period. Profit was $282.4 million, up 8%. Dollar Tree declined to comment further.

Macy’s Inc., which also operates the Bloomingdale’s and Bluemercury brands, forecasts supply constraints will be its biggest challenge in the fall and winter months, said CFO Adrian Mitchell, who has been in the role since November. However, the increase in Delta cases doesn’t pose a significant threat to the companies’ business because consumers are more experienced in dealing with Covid restrictions now and would likely be able to navigate new ones, he said.

The New York-based retailer has been ordering inventory four to six weeks in advance in an effort to secure products earlier, he said. Macy’s works with its vendors to confirm availability and the expected timing of deliveries when it submits orders as well as throughout the process, Mr. Mitchell said.

The company, which operated 726 stores at the end of the second quarter, declined to say how many weeks in advance it ordered inventory before the pandemic. 

“Let’s get ahead of the curve,” Mr. Mitchell said. “Otherwise we will be quite lean.”

Macy’s reported $5.65 billion in revenue during its latest quarter, up 58.7%. Its profit was $345 million, compared with a $431 million net loss a year before.

Sporting-goods retailer Academy Sports & Outdoors Inc. is making long-term plans to  manage supply-chain challenges on the assumption those problems will last till the end of the year or even longer, Finance Chief Michael Mullican said. The Katy, Texas-based chain has agreed to ship bigger volumes over the next two years with its existing ocean freight partners than it had planned, he said. Academy Sports declined to provide more details on those volumes.

In recent weeks, the company has also booked freight further in advance, Mr. Mullican said. “We’re in a position where we’re looking to obtain more inventory than we have,” he said.

Academy’s inventory totaled $1.12 billion for the quarter ended July 31, up 24% from the prior-year period and down 7% from the 2019 period, the company said.

“We’re about $100 million light of where we want to be,” Mr. Mullican said, adding that customers might have three or four treadmills to choose from in a store instead of six. The company had 259 stores across 16 U.S. states as of July 31.

While some retailers want as much inventory in their stories as they can get, other businesses, typically apparel sellers, are looking to reduce inventory to boost profit margins. Companies including Abercrombie & Fitch Co. , Guess Inc. and Gap Inc. in recent weeks said they are closely monitoring stock levels as they look to market apparel at full price.

Companies clamoring for inventory might run into trouble if products that are seasonal or part of a collection arrive late, potentially resulting in big markdowns, said Janine Stichter, a senior vice president at investment firm Jefferies Financial Group Inc.

“Lead times to get products are so long that if we do see a slowdown in demand, the wheels will already be in motion on securing inventory and retailers won’t be able to hit the brakes fast enough,” Ms. Stichter said.

Write to Mark Maurer at [email protected] and Nina Trentmann at [email protected]