Introduction Our weekly Earnings Insights reports look at key commentary from major US retailers and brand owners on the impact of the coronavirus crisis on 1Q20 performance (ending April 30 for most companies; some companies, such as Costco, have different reporting periods). Companies featured are those within our Coresight 100 coverage list, and in this report, we focus on those that reported in the week ended May 31. From February, US brands and retailers began to see negative impacts on sales due to the coronavirus outbreak—which also disrupted supply chains, with orders shifting and being delayed. In March, stores for nonessential and discretionary items were closed for the second half of the month, substantially impacting sales and earnings. April then proved to be the most challenging month for retail sales, as the coronavirus outbreak forced the total shutdown of nonessential commerce nationwide and the crisis depressed demand for discretionary goods. We assess the recent performance of retailers in more detail below.

Apparel Specialty Retail

	Burlington Stores (NYSE: BURL) 1Q20
Commentary	Revenues declined 51% in the quarter. Burlington estimated that the pandemic drove a cumulative miss of about $1 billion to its sales plan in the quarter. As of May 29, the company has reopened 332 stores, with most of the balance of stores expected to reopen by mid-June. For the stores it has reopened to date, Burlington is experiencing sales levels that are ahead of the same period last year for all its major businesses—footwear, apparel, accessories and home—mainly due to the release of pent-up demand.
Outlook	For the first few months of stores reopening, the retailer anticipates the need to make markdowns to reduce inventory. CEO Michael B. O’ Sullivan said, “We expect the next few months to be extremely promotional as retailers attempt to rebuild traffic to their stores and to turn their inventory. This is likely to be exacerbated by some struggling retailers closing large numbers of stores and liquidating their merchandise. We believe that the inventory reserve that we set up at the end of the first quarter will enable us to aggressively compete in this environment.” In fiscal year 2020, Burlington now expects to open 64 new stores, while relocating or closing 26 stores, for a total of 38 net new stores. This compares to a previous plan of 80 new stores and 54 net new stores.

Beauty Brands and Retailers

	Ulta Beauty (NasdaqGS: ULTA) 1Q20
Commentary	Ulta Beauty’s comparable sales decreased 35.3% in the quarter, but its e-commerce comp increased over 100%. CEO Mary Dillon said that as the quarantine became more pervasive, guests looked to self-care and wellness products to relieve stress, including skincare treatments, hair masks and bath products, home fragrance and others. Although comp sales after mid-March declined in all categories as a result of store closures, the skincare, haircare, bath and nail categories all increased as a percentage of sales. As stores reopen, Ulta Beauty is directing guests to its GLAM LAB tool, which is its live interactive virtual experience that lives within the Ulta Beauty app. GLAM LAB allows users to virtually discover and try thousands of beauty products. Since the crisis began, guest engagement with the tool has increased nearly fivefold, and more than 30 million shades have been tested virtually. The company has 333 stores—approximately one-quarter of its fleet—open for retail and 840 stores (about two-thirds) open for curbside pickup.
Outlook	Ulta Beauty withdrew its guidance and reduced its new-store-opening and relocation plans. The retailer now expects to open 30–40 new stores and execute approximately three relocation projects. The retailer is accelerating investments to expand its shipping capacity this year, including by pulling forward plans to open its Jacksonville fast-fulfillment center into 2020, expanding ship-from-store capabilities and increasing investments in existing buildings.

Department Stores

	Nordstrom (NYSE: JWN) 1Q20
Commentary	Nordstrom’s net sales declined 36.2% in its full-price business and 45.3% in the off-price business. While stores were temporarily closed, the company’s e-commerce business experienced growth in new digital customers of more than 50%. Nordstrom reported its digital sales as a percentage of total net sales were 54% in the first quarter, compared to 31% in the same quarter last year. In early May 2020, Nordstrom began reopening stores, applying a phased market-by-market approach. Approximately 40% of its stores have reopened to date. The retailer is also providing contactless curbside pickup services in most full-line stores.
Outlook	CFO Anne Bramman said, “As stores continue to reopen throughout our industry over the next several months, we expect to see an elevated promotional environment. Our favorable inventory position enables us to bring in newness, beginning in June, for full price. We're also able to leverage our off-price business to clear excess full-price merchandise while being opportunistic in the marketplace for fall closeouts.” Relative to the first quarter, management expects earnings, excluding coronavirus charges, to improve sequentially throughout the year.

Food, Drug and Mass Retailers: Discount Stores

	Dollar General (NYSE: DG) 1Q20
Commentary	Dollar General’s first-quarter comparable sales were up 21.7%, with April comps up 21.5%. Beginning in March, the company witnessed a surge in demand for consumables. During April, Dollar General saw a surge in nonconsumable categories, which in aggregate reported a stronger comp than consumables in that month. CEO Todd Vasos said, “Once stimulus started to rollout, we saw a surge in our discretionary-type categories." Buy online, pick up in store also accelerated; Vasos said, "Our spending against it as well as the rollout into our stores will be vastly different than what we had thought.”
Outlook	Vasos reported that although the “Dollar General shopper has a lot more trepidation,” the company is seeing consumers spending in the off-price market, driven by stimulus from the middle of April. “We do very good in good times, and we do fabulous in bad times,” he added.
	Dollar Tree (NasdaqGS: DLTR) 1Q20
Commentary	The group’s comparable sales increased 7.0%: Family Dollar comps increased 15.5%; and Dollar Tree comps decreased 0.9% (hit by lower discretionary sales). At Family Dollar, consumables saw a 17-plus percentage comp; discretionary comps were positive up to Easter with a subsequent acceleration through the end of the quarter, resulting in a discretionary comp of just under 9% for the first quarter. President Michael Witynski said, “In March, seemingly overnight, there was a hyper focus on stocking up consumables” and noted a correlation between stimulus payments and basket size. Post Easter, consumer demand in rural locations grew more strongly than in urban centers.
Outlook	CEO Gary Philbin said, “At Dollar Tree, we have seen an improvement on the discretionary side of the business. In fact, with the exception of party pay-for-all, discretionary categories are comping positive in the second quarter. Discretionary momentum that we saw late in the first quarter has certainly continued into the second quarter as well. The second quarter is off to a very good start in Family Dollar.” Management cited strong demand in apparel, soft home housewares, home decor, toys and hardware in the first few weeks of the second quarter.

Food, Drug and Mass Retailers: Warehouse Clubs

	Costco (NYSE: COST) 3Q20
Commentary	US comps excluding the impact of gas prices were up 8.0% with global e-commerce up 66.1%. Shopping frequency decreased 4.1% worldwide and 2.0% in the US, while average transaction (worldwide) was up 9.3%, including negative impacts from gas deflation and FX. CFO Richard Galanti said strong demand “started actually in the fourth week of February and into the first two and a half weeks of March, with very strong sales as people were stocking up" and that "the middle of the quarter was weaker" due to stay-at-home mandates. Foods, fresh produce and other essentials saw strong demand. Galanti said, “Office and majors were also strong during the quarter driven by work-from-home initiatives, while most other discretionary categories were a little weaker during the quarter, such as jewelry, luggage and third-party gift cards.” Other weak categories, which include sporting goods, garden and patio products and apparel, rebounded somewhat towards the end of the quarter. Stronger departments in e-commerce included health and beauty aids, office, majors, housewares and small electrics, and Galanti said that online grocery “grew at an incredible rate.”
Outlook	N/A. Costco reports May sales on June 3.

Home and Home-Improvement Retailers

	Williams-Sonoma (NYSE: WSM) 1Q20
Commentary	Management expressed satisfaction with having reported overall comp growth of 2.6% in spite of all its 616 stores being shuttered for over half of the quarter. Direct-to-consumer (DTC) comps grew 31.2%, capitalizing on the surge in online demand. By banner, Williams Sonoma reported comp growth of 5.4% despite having the largest store base, whereas the Pottery Barn children's home-furnishings business registered comp growth of 8.5%. West Elm's comps grew 3.3%, and although Pottery Barn recorded a comp decline of 1.1%, its e-commerce business accelerated significantly, leading to a positive comp in 2Q20 to date. Within the Williams Sonoma banner, there was significant growth across nearly all categories, with electrics, cookware, food and houseware being particularly strong.
Outlook	Williams-Sonoma did not provide full-year guidance given the uncertainty on future economic activity on account of the global health crisis, but the company gave an update on the second quarter to date, stating that it continues to see strong trends in e-commerce acceleration across all brands. The retailer said that its multibrand, multichannel model with a strong e-commerce presence positions it well for the future. Williams-Sonoma added that it will continue to invest in strengthening its digital-first model and prioritize cross-brand initiatives and growing its West Elm brand.

Key Insights

With the e-commerce channel helping retailers to offset some of the lost sales from brick-and-mortar store closures and reduce in-store inventory, some retailers are looking to strengthen their digital model, including through the expansion of ship-from-store capabilities. However, rising digital penetration will pressurize gross margins. Discount stores and warehouse clubs have seen improvements in their discretionary businesses, supported by stimulus measures. Apparel specialty and beauty retailers have reduced their new-store-opening and relocation plans. Many retailers did not provide, or withdrew, full-year financial guidance owing to the uncertainty around several key factors, including the duration and intensity of the coronavirus crisis, consumer confidence, employment trends, the scale and duration of economic stimulus and the length and impact of stay-at-home orders. April can be expected to be the trough in consumption, with lockdowns easing and stores reopening in May. However, we expect that the future recovery of retail sales will be slow and gradual as reopenings occur in phases and consumers return to spending with caution. We believe that the retail environment will witness substantial markdowns to reduce inventory and see a period of heightened promotions as the industry addresses the repercussions of closed stores during the Covid-19 crisis.