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). Companies featured are those within our Coresight 100 coverage list, and in this report, we focus on those that reported in the week ended June 14. Furthermore, we summarize key commentary and outlook indications from retailers that reported prior to the past week.

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 and Footwear Brands

	Guess? Inc (NYSE: GES) 1Q21
Commentary	Revenues were down 52% year over year. As of June 10, the company had reopened over 180 stores in the US and Canada, over 400 stores in Europe and all stores in Asia. For the second quarter to date, sales productivity for reopened stores has reached roughly 75% in the US and Canada and 70% in Europe compared to last year’s levels. Guess? remains focused on enhancing its omnichannel platform centered around the consumer and is rationalizing its store portfolio. The company is also launching a new Customer 360 project to optimize customer data integration, personalization, journey engagement and results analysis. Guess? ended the quarter with a clean inventory position,
Outlook	CEO Carlos Alberini said, “While we expect sales and profitability to be impacted in the second quarter due to the same forces [], we have great product coming for back-to-school that capitalizes on the current trends, and the holiday collection is also very strong.”
	PVH Corp. (NYSE: PVH) 1Q20
Commentary	Net sales were down 43% year over year. Revenues from the digital commerce grew 47% globally. By mid-June, the brand expects to reopen 85% of its stores globally, with most operating at reduced hours and at reduced occupancy levels. For the second quarter to date, sales productivity for reopened stores has reached 75% in North America, 80% in Europe and 75% in Asia compared to the prior year. The company said that traffic and sales trends are improving each week.
Outlook	PVH Corp. expects that the pandemic will continue to impact the second-quarter and full-year results. It expects the revenue decline to be more pronounced in the second quarter than in the first.

Apparel Specialty Retail

	Lululemon Athletica (NasdaqGS: LULU) 1Q20
Commentary	Revenues declined 17% year over year. Its direct-to-consumer revenues increased 68%, representing 54% of total revenues compared to 26.8% for the same period last year. As of June 10, Lululemon had reopened about 300 stores, approximately 60% of its stores globally—50% in North America, 60% in Europe, 95% in Asia and 100% in Australia and New Zealand. On average, the company is seeing sales productivity in the range of 75% to over 100% from the reopened stores compared to the same time last year. The company reported that early performance at its North American stores is exceeding expectations. In China, where stores have been open the longest, store comps have increased approximately 20% in recent weeks. The company noted that 40% of its overall inventory is seasonless, core product with a limited markdown risk.
Outlook	Lululemon expects second-quarter comps in its digital business to be relatively consistent with its April trend of approximately 125% growth. Management said that customers are interacting in new ways digitally, and the company expects this to continue; at-home, virtual workouts will be an additive component in the future even as studios reopen and return to normal operations.

Department Stores

	Macy’s (NYSE: M) 1Q20
Commentary	CEO Jeff Gennette said, “Our strong digital business sales trend continued throughout May, and it is encouraging to see that as we reopen a store, the digital business in that geography continues to be strong. By June 1, we had approximately 450 stores reopened, with the majority opened in their full format.” On average, the company is seeing sales productivity of 50% for reopened stores as compared to last year. Gennette further said, “51% of our stores and 65% of our sales are in all A malls of Green Street—and they are the best malls in the [US]. They will stand the test of time.”
Outlook	Gennette stated, “We are seeing strong sell-through of seasonal merchandise and anticipate that we will exit the second quarter in a clean inventory position. The holiday season will be crucial, and the team is working now to get the right merchandise and assortment in place.” CFO Felicia Williams said, “As we pivot to the second quarter and beyond, we continue to expect to see a very gradual recovery. Coming out of this pandemic, at least for the foreseeable future, we will be a smaller company, and we clearly need to right-size our cost base to properly align with that new reality.”

Food, Drug and Mass Retailers: Discount Stores

	Five Below (NasdaqGS: FIVE) 1Q20
Commentary	Comparable sales fell 51.8%. Five Below has reopened about 90% of its stores, with the first wave of reopening beginning on April 21. Comparable sales for reopened stores, including e-commerce, are up approximately 8% for the second quarter to date, with the contribution to comps split about evenly between stores and e-commerce. CEO Joel Anderson said, “While we are very encouraged by the strong early performance as stores have reopened, our enthusiasm is tempered by the acknowledgment that significant stimulus dollars began to hit bank accounts in mid-April, and there is likely some level of pent-up demand that is also being reflected in our current performance.” The first quarter saw a 47% reduction in comparable store operating days. CFO Kenneth Bull said, “In the stores, we are seeing higher average tickets, partially offset by lower transactions, as we believe customers are currently consolidating trips. While there may be temporary tailwinds influencing these results, including the government stimulus program and potential pent-up demand, we are encouraged by this early performance in the reopening phase and will continue to carefully monitor results.” At its height, e-commerce growth was over 400%.
Outlook	The company does not expect the current high rate of e-commerce growth (approximate four-percentage-point contribution to comp) to be maintained as it reopens all stores. Five Below expects to open 100–120 net new stores in 2020, versus prior expectations of around 180.

Below, we summarize the performance of retailers reported in prior weeks.  

Apparel and Footwear Brands

	VF Corporation (NYSE: VFC) 4Q20
Commentary	VF's fourth-quarter revenues declined 10%. Management said that VF’s total digital footprint—which comprises 20% of total revenues—has been critical in driving consumer engagement during the lockdown period.
Outlook	For the first quarter of fiscal year 2021, VF expects its revenues to decline by more than 50%. In the medium to long term, the brand believes the disruption across the sector will provide sufficient opportunities for M&A.

 

Apparel Specialty Retail

	American Eagle Outfitters (NYSE: AEO) 1Q20
Commentary	As of June 3, the retailer has reopened 556 stores. On average, its reopened stores have achieved 95% of last year’s sales productivity.
Outlook	The retailer said it will introduce new back-to-school (BTS) merchandise in July and said it believes its commitment to offering new collections will be a market differentiator. The company is still planning to open 25 Aerie stores this year.
	Burlington Stores (NYSE: BURL) 1Q20
Commentary	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.
Outlook	CEO Michael 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. 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, compared to a previous plan of 80 new stores and 54 net new stores.
	Gap Inc (NYSE: GPS) 1Q20
Commentary	Over 1,500 stores have reopened in North America. In May, reopened stores in North America are generating sales at nearly 70% on average across the company’s banners, compared to their performance last year—with particular strength at Old Navy. CFO Katrina O’Connell said: “Old Navy is positioned in off-mall locations, where the customer is likely more confident shopping as well as the curbside pickup capability is easier to activate, we're seeing a meaningfully better trend in productivity at our Old Navy stores.”
Outlook	Management expects total net sales to remain lower year over year with sequential improvement from first-quarter trends. Online is expected to continue to grow strongly, with some adjustments as customers orient to having an in-store option. The company expects fulfillment costs to be elevated in the second quarter.
	L Brands (NYSE: LB) 1Q20
Commentary	E-commerce sales were up 33% for the month of February, 60% for the month of March and 150% for the month of April.
Outlook	For fiscal year 2020, L Brands plans to close 250 Victoria’s Secret and Pink stores in the US and Canada.
	Ross Stores (NYSE: ROST) 1Q20
Commentary	On May 14, Ross Stores began a phased process of reopening stores on a market-by-market basis. Approximately 700 of the company’s 1,832 total stores have reopened till May 22, with the remaining stores expected to be reopened over the coming weeks.
Outlook	Ross Stores estimate that there will be a negative impact on consumer demand throughout the remainder of the year. However, management reported that it feels the company is well positioned in the off-price sector. Ross Stores will not open new stores in the current quarter and now expects to open about 39 stores this fall, for a total of 66 new stores for the full year 2020.
	The TJX Companies (NYSE: TJX) 1Q21
Commentary	As of May 21, TJX has reopened more than 1,600 of its stores worldwide; initial sales have been above last year's levels across all states and countries for the 1,100 stores that have been reopened for at least a week. The company is seeing strong demand at HomeGoods and in-home categories across all banners.
Outlook	The company emphasized that over 50% of 2019 revenues were from non-clothing categories, which speaks to its wide assortment. TJX expects most of its 4,500 stores to be reopened by the end of June.
	Urban Outfitters (NasdaqGS: URBN) 1Q20
Commentary	The retailer filled over 2 million digital shipments from its stores during the quarter. Management reported that the company’s overperforming categories were “home product and casual apparel,” while “dresser apparel and special occasion products” underperformed. As of May 19, Urban Outfitters’ stores in North America were down about 50% in sales and about 65% in traffic.
Outlook	For the second quarter, Urban Outfitters expects overall store sales to be down 25–30%, which could improve to 20% declines in the back half of the year. The retailer expects total comp store sales in the second quarter to be down by more than 60%. The company expects its direct business to continue to grow in the second half of the year, due to a rise in new customers.

 

Beauty Brands and Retailers

	Ulta Beauty (NasdaqGS: ULTA) 1Q20
Commentary	CEO Mary Dillon said that 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. The company has 333 stores—approximately one-quarter of its fleet—open for retail and 840 stores (about two-thirds) open for curbside pickup. As stores reopen, Ulta Beauty is directing guests to its GLAM LAB tool, which allows users to virtually discover and try 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.
Outlook	Ulta Beauty 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

	Kohl's (NYSE: KSS) 1Q20
Commentary	CEO Michelle Gass said: “as the stores have been reopening, they've been doing 50% to 60% of productivity that we would typically see at this point in time” and that “where they started at 50% to 60%, we've actually seen them ramp up in their second week of reopening.” In the week ended June 14, Kohl’s noted that its sales productivity rates had risen to an average 75%.
Outlook	Management expects gross margin to be pressured due to lower sales volume as stores reopen—and the cost of shipping may increase, with digital penetration forecasted to remain elevated.
	Nordstrom (NYSE: JWN) 1Q20
Commentary	Digital sales as a percentage of total sales were 54%, compared to 31% in the same period last year. In early May 2020, Nordstrom began reopening stores, applying a phased market-by-market approach. Approximately 40% of its stores have reopened till May 29.
Outlook	Relative to the first quarter, management expects earnings, excluding coronavirus charges, to improve sequentially throughout the year. 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.”

E-Commerce

	Amazon (NasdaqGS: AMZN) 1Q20
Commentary	Online store sales grew 24%, while physical store sales (predominantly Whole Foods) were up 8%—the largest increase since Amazon bought the grocer in 2017. Amazon saw a huge surge in health and personal care, groceries and home office supplies categories, whereas it saw lower demand for discretionary items such as apparel, shoes and wireless products.
Outlook	For the second quarter, Amazon expects revenues to fall in the range of $75–81 billion, compared to a consensus estimate of $78 billion.
	eBay (NasdaqGS: EBAY) 1Q20
Commentary	At constant currency, gross merchandise volume was flat and Marketplace revenues were up 1%. The company noted that the net impact of coronavirus in the quarter was minimal, with strength in its Marketplace platform offset by a decline in Classifieds.
Outlook	eBay expects net revenue growth of 2–6% on a constant-dollar basis for the second quarter, given that Marketplace growth significantly accelerated in April, with Classifieds seeing near-term pressure. The company maintains its full-year guidance, under the assumption that Marketplace growth will return to pre-coronavirus levels by the end of second quarter and there will be 30–40% revenue pressure in Classifieds.

Electronics Retail

	Best Buy (NYSE: BBY) 1Q20
Commentary	In the middle of 1Q20, Best Buy pivoted its stores to a curbside-only operating model. During the last six weeks of the quarter, it was able to retain around 81% of sales versus the same period last year, despite having no store traffic. The company reported that domestic e-commerce sales grew 155% in 1Q20 and 300% year over year during the six weeks that it ran its curbside-only model.
Outlook	In the second quarter, Best Buy expects that e-commerce sales will remain high as a percentage of overall sales and that operating income will experience a year-over-year decline.

Food, Drug and Mass Retailers: Mass Merchandisers

	Target (NYSE: TGT) 1Q20
Commentary	Target saw the strongest growth in hardlines, which saw comps increase more than 20%. The retailer’s two highest-margin categories, home and apparel, saw slower trends. Home saw high single-digit comp growth, while in the apparel segment, comps declined by 20% due to softer sales from late March to early April, followed by a resumption of growth in the last two weeks of April.
Outlook	Management said that the company will pursue a strategy based on investments to enhance both physical and digital shopping. Target temporarily slowed plans for remodels and new stores.
	Walmart (NYSE: WMT) 1Q21
Commentary	There was an unfavorable shift in category mix that impacted gross margin—increased sales of lower-margin food and consumable categories and softer sales in higher-margin categories like apparel that saw sales decline of about 14% in the quarter.
Outlook	Management said that it is seeing uplift from US government stimulus spending, which it expects to continue through part of the second quarter. Walmart will discontinue Jet.com, as it struggles to grow its e-commerce-only operations.

Food, Drug and Mass Retailers: Discount Stores

	Dollar General (NYSE: DG) 1Q20
Commentary	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.”
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	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.” 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

	BJ’s (NYSE: BJ) 1Q20
Commentary	Management noted that grocery goods, which represent roughly 85% of BJ's merchandise sales, were in extremely high demand from February and through the quarter. Management said that it has not yet seen a meaningful deceleration in sales, pointing to strong food demand as consumers are unable to dine in restaurants, as well as the widespread shift to working at home.
Outlook	BJ’s exited 1Q20 with a merchandise comp (ex gas) above 20%, which has not slowed in May. Full-year comp growth will not be as strong, but previous annual guidance of low-single-digit comps is now considered to be “considerably low.” EVP and Chief Financial and Administrative Officer Robert Eddy said that BJ's expects to see strong growth in memberships as “new members will be easier to acquire in this environment.”
	Costco (NYSE: COST) 3Q20
Commentary	CFO Richard Galanti said, “foods, fresh produce and other essentials saw strong demand. 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.
Outlook	N/A

Home and Home-Improvement Retailers

	Lowe’s (NYSE: LOW) 1Q20
Commentary	The company estimates that coronavirus-related sales accounted for 850 basis points in total comps growth, with 700 basis points attributed to acceleration of projects mainly among DIY customers, 80 basis points of cleaning product sales and 70 basis points of refrigerator and freezer sales.
Outlook	N/A
	Home Depot (NYSE: HD) 1Q20
Commentary	In the three-week period between late March and early April, it saw a double-digit comp decline as a result of measures to curb store traffic, with higher-volume stores underperforming lower-volume stores by more than 30 percentage points in some areas. However, as customers turned to repairs and home improvement projects, the last three weeks of April and the first two weeks of the second quarter saw a significant acceleration, resulting in double-digit comp growth.
Outlook	N/A
	RH (NYSE: RH) 1Q20
Commentary	Total company demand, which includes restaurants and outlets that do not have an online segment, declined by approximately 17%, while core business demand, which includes Baby & Child plus Teen, declined by approximately 11%. RH’s business trends have seen improvement week over week from late March through the end of the quarter.
Outlook	In May, RH’s core business demand increased by 7% with considerably higher product margins. Demand growth accelerated to 11% in the first week of June. As of June 3, RH has reopened about 74% of its galleries, 68% of its outlets and 50% of its restaurants. The company said that the business trends will continue to improve during the second quarter as the rest of its galleries reopen. CEO Gary Friedman said that demand growth could accelerate up to 25% as RH reopens more galleries. However, the retailer forecasts revenue growth to lag demand growth by 10–12 percentage points in the second quarter. The spread between demand and revenues is mainly due to dislocation of the supply chain. RH expects a positive impact to its revenues in the second half of the year as production recovers and inventory receipts catch up to demand.
	Tractor Supply (NasdaqGS: TSCO) 1Q20
Commentary	Comparable sales increased 4.3%, with all geographic regions reporting positive growth. The company opened 20 new Tractor Supply stores and closed one Del’s store during the quarter.
Outlook	In the second quarter, Tractor Supply expects total revenue growth to be 24–29% and comp growth to be 20–25%. The company said that some of its new store openings may get delayed, but it remains confident of its 2,500 store target.
	Williams-Sonoma (NYSE: WSM) 1Q20
Commentary	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% and West Elm's comps grew 3.3%.
Outlook	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

While growth in the e-commerce channel has helped retailers to offset some of the lost sales from brick-and-mortar closures and reduce in-store inventory, gross margin will be pressured, as the cost of shipping will increase in line with digital penetration.

Many retailers did not provide or withdrew their full-year financial guidance, reflecting 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.

As stores have reopened, we are seeing a significant return to in-store shopping, apparently supported by pent-up demand, and this is reflected in the higher-than-anticipated sales productivity of reopened stores (especially for apparel) as compared to last year’s levels. Some retailers such as Guess? have noted that they exited the first quarter with clean inventory positions, while others are likely to implement substantial markdowns to clear inventory—leading to a period of heightened promotions, especially in the apparel and department-store sectors.