Introduction

Our weekly Earnings Insights reports look at key commentary and qualitative insights from major US retailers and brand owners on their recent performance, in terms of revenues and comps, and the impact of the Covid-19 pandemic on first-quarter 2021 performance (ended April 30, 2021 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 May 23, 2021. For most US retail companies, the quarter under review will be the first quarter of fiscal 2021 (1Q21), though some of the companies covered have different year ends (for example, Ralph Lauren). In February 2021, US retail sales saw strong growth of 7.2% year over year. Consumers continued to purchase goods rather than services but pulled back spending in a month that saw no stimulus checks and a nearly nationwide winter storm keep millions inside for almost one week. In March, US retail sales growth accelerated to 18.5%. Growth was inflated by low sales numbers in March 2020, when the Covid-19 pandemic first hit the US. However, even comparing sales to March 2019 paints a picture of strong sales growth in March 2021, with a two-year increase of 26.2%—up from the 15.8% two-year increase in February 2021. April’s year-over-year growth set a new high for retail sales growth since the start of the Covid-19 pandemic, in large part because of the very weak comparatives in April 2020, when the pandemic caused nationwide lockdowns and store closures in the US that resulted in a 4.9% year-over-year decline in retail sales that month. Comparing to 2019 values, April sales still grew by a very strong 22.2%. We assess the recent performance of selected retailers and brand owners below.

Apparel and Footwear Brand Owner

	Ralph Lauren (NYSE: RL) 4Q21
Commentary	Apparel and footwear brand owners are witnessing a mixed recovery, with Ralph Lauren reporting a double-digit sales decline on a two-year basis (versus the corresponding quarter in 2019). Last week, we saw Under Armour report positive sales growth, and Hanesbrands a mid-single-digit sales decline on a two-year basis. Guess? reported a double-digit decline in sales, while Levi Strauss saw a high-single-digit decline in sales compared to 2019. Ralph Lauren’s sales increased by 1% year over year but declined by 15% as compared to 2019. By geography, North America revenues decreased by 37% year over year; Europe revenues decreased by 29%; and Asia revenues increased by 1%. The company’s global digital commerce sales grew by 52% year over year. The company’s operating margin stood at (2)% compared to (22)% in 2020 and 2% in 2019. The year-over-year improvement in operating margin was driven by a 30% increase in average unit retail (AUR) and continued expense reductions. Management stated that the company has continued to deliver on its five core strategic priorities, which are as follows: 1. Win over a new generation of consumers: The company continued to drive digital campaigns and personalization. Ralph Lauren’s marketing costs increased to 6.0% of total revenues in fiscal 2021, up from 4.5% in the last year. The company also shifted investments toward its new digital campaigns, such as the Ralph Lauren x Bitmoji Collection, which allowed users to dress their personal avatars in the companies’ clothing and had more than 1 billion try-ons on Snapchat, and a virtual concert experience featuring Chance the Rapper. 2. Energize core products and accelerate under-developed categories: AUR across the direct-to-consumer network grew by 30% in 4Q and 26% for its full year. The company also expanded high-potential but underdeveloped categories such as outerwear and fleeces, and launched its first subscription apparel rental service. 3. Drive targeted expansion in different regions and channels: Ralph Lauren saw strong momentum in the Chinese mainland market. The company delivered sequential improvement across all geographies in 4Q, led by Asia and Europe. 4. Lead with digital: Total digital sales were up more than 60% in fiscal 2021, and the company continues to accelerate both owned and wholesale digital channel growth. 5. Operate with discipline to fuel growth: Ralph Lauren exceeded the company’s lead time targets with approximately two-thirds of its products on lead times of six months or less—versus its target of 50% by Fiscal 2023 and compared to 20% in Fiscal 2016. On May 13, Ralph Lauren announced the sale of Club Monaco to Regent, a global private equity firm, as part of the company’s “Next Great Chapter” strategy to focus on its core brands.
Outlook	For the fiscal year 2022, Ralph Lauren expects revenue growth of 20–25% year over year. The company expects an operating margin of about 11.0%, an increase of about 620 basis points year over year. For 1Q22, the company expects revenue growth of 140–150% year over year. For fiscal 2022, management forecasts a highly volatile and inflationary input cost environment but expects the company to mitigate this by continuing its discipline and through restructuring savings. Ralph Lauren noted that the company has confidence in a new post-pandemic fashion cycle based on the strong full-price performance of its Spring 2021 collections. Consumers are also beginning to gravitate back to color, newness and styles including its iconic mesh polos, blazers and denim.

 

Apparel Specialty Retailer

	L Brands (NYSE: LB) 1Q21
Commentary	Total sales increased by 83% year over year and grew 15% on a two-year basis (versus the corresponding quarter in 2019). By banner, Bath & Body Works’ (BBW) sales increased 93% year over year and 60% compared to 1Q19; while Victoria’s Secret’s sales increased 74% year over year but declined by 7% compared to 1Q19. The total company’s comps grew by 21% year over year. Comps grew by 16% year over year at BBW and 25% year over year at Victoria’s Secret. Victoria’s Secret’s total comparable sales increased by 9% compared to its first quarter of 2019. In the direct channel, BBW’s sales increased by 21% year over year and 123% compared to 2019, while Victoria’s Secret’s sales increased by 69% year over year and 44% compared to 2019. The company’s total operating margin stood at 19% in 1Q21 versus (13)% in the same quarter last year. During the quarter, L Brands opened 23 company-operated stores and closed 11 stores, with its total store count reaching 2,681. On May 19, 2021, L Brands announced the appointment of CFOs for both the standalone BBW and Victoria’s Secret businesses. Upon completing the spin-off of Victoria’s Secret, expected to occur in August 2021, Wendy Arlin, currently Senior Vice President of Finance and Controller for L Brands, will become BBW’s CFO, and Tim Johnson, previously CFO and Chief Administrative Officer for Big Lots, will join the company as Victoria’s Secret CFO. Current CFO of L Brands, Stuart Burgdoerfer, will retire upon the completion of the spin-off Victoria’s Secret.
Outlook	For its second quarter of fiscal 2021, the company expects sales growth of 10–15% compared to 2019. L Brands forecasts an adjusted EPS of $0.8–1.0 compared to $0.25 in 2020 and $0.24 in 2019. L Brands does not provide earnings guidance for its full year 2021 due to the continued uncertain environment amid the pandemic, as well as the impending separation of its BBW and Victoria’s Secret businesses, expected to occur in August 2021.

Off-Price Retailers (Apparel-Focused)

	Ross Stores (NYSE: ROST) 1Q21
Commentary	Off-price retailers reported a strong quarter, with both Ross Stores and TJX (below) posting triple-digit sales growth on a year-over-year basis and high-single-digit to double-digit sales growth on a two-year basis. Ross Stores’ sales climbed by 145.1% year over year and by 19% on a two-year basis. Sales significantly exceeded the company’s expectations and management reported that it benefited considerably from a combination of the easing of Covid-19 restrictions, government stimulus payments, ongoing vaccine rollout and pent-up consumer demand. Comparable sales increased by 13% year over year, driven by an increase in basket size. Its home category was the best-performing key merchandise area in terms of sales growth, while the Midwest was the strongest region. Management stated that store traffic was down slightly compared to its 1Q19 but accelerated relative to 4Q20. The company stated it is witnessing a major improvement in its apparel category’s sales and believes the category will continue to strengthen as the economy starts to open up.
Outlook	For its full year 2021, Ross Stores projects sales growth of 11–13% and comps of 7–9% versus 2019. The company expects an operating margin of 10.7–11.2% compared to 13.4% in 2019 due to continued high Covid-19, freight and wage cost headwinds during the remainder of the year. In its second quarter of fiscal 2021, the company plans to open 30 stores, consisting of 22 Ross stores and eight dd’s DISCOUNTS. For its full year 2021, Ross Stores reiterated plans to open 40 Ross stores and 20 dd’s DISCOUNTS. Looking forward to 2022, the company expects to return to its normal store opening program of approximately 100 annually.
	The TJX Companies (NYSE: TJX) 1Q22
Commentary	Total sales increased by 129% year over year and grew by 9% on a two-year basis. The company reported that its open-only store comps were up 16% on a two-year basis. By banner, Marmaxx’s (US—consisting of TJ Maxx, Marshalls, Sierra) comps grew by 12%; HomeGoods’ (US—including Homesense) comps were up 40%; TJX Canada’s comps increased by 9%; and TJX International’s (Europe and Australia) comps were up by 11%. The company noted that temporary store closures, mainly in Europe and Canada, negatively impacted its first quarter sales by $1.1–1.2 billion. By category, TJX saw improvement in apparel sales as consumers begin to resume more normal activities and are refreshing their wardrobes. Management stated that the company’s home banners sales “were remarkable across all major categories and geographic regions.” Additionally, home-goods sales benefitted from consumers spending large amounts of time at home. Management reported “terrific growth” in its e-commerce over its sales levels during the quarter in both the US and UK. The company stated that it is on track to launch homegoods.com later this year. During the quarter, TJX opened 67 stores, increasing its store count to 4,639. It expanded its square footage by 1% versus the previous quarter.
Outlook	Due to the continued uncertain environment caused by the pandemic, TJX did not provide financial guidance. However, the company noted that 2Q22 open-only comp-store sales trends will remain similar to 1Q22. In 2Q, management expects EPS, operating margins and sales to be negatively impacted by the temporary store closures during the beginning of the quarter. TJX sees the opportunity to grow its global store base in each of its divisions, planning to open more than 1,600 additional stores in the long term, with its store count growing to 6,275 stores. Management stated that the company is anticipating an incremental increase in store traffic, once consumers return to their workplaces and resume normal social activities.

Department Stores

	Kohl’s (NYSE: KSS) 1Q21
Commentary	Department stores are witnessing a slower recovery than off-price retail, with Kohl’s reporting a mid-single-digit sales decline and Macy’s (below) a double-digit sales decline, both on a two-year basis. Kohl’s reported a year-over-year sales increase of 60% but a 5% decline on a two-year basis. Management stated that all lines of business exceeded expectations during its first quarter. The company’s best-performing areas were those most impacted by the pandemic last year, namely men’s and women’s apparel. Activewear sales nearly doubled year over year, reaching 23% of total sales, up 300 basis points from last year. On a two-year basis, home-goods sales were up low double-digits. Its women’s apparel and footwear business improved strongly, led by sales growth in activewear, increased demand for denim, intimates and shorts, and improving trends in casual dresses. Children’s segment sales returned to 2019 levels. This was driven by strong demand for activewear and toys, as well as increased boys’ and girls’ apparel sales, as more children returned to school in the spring. National brands that performed well at Kohl’s include Adidas, Champion, Nike and Under Armour. Digital sales increased by 14% year over year and accounted for 30% of the company’s total sales. About 40% of digital orders were fulfilled by stores. The company stated that it is navigating many supply chain challenges, through various initiatives including adding more drivers and carriers, increasing store delivery frequency, moving containers on shorter transit times, and prioritizing purchase orders. The company noted that wage inflation is a headwind going forward.
Outlook	The company raised its full-year 2021 sales guidance and now expects sales to increase in the mid-to-high teens percentage range year over year, versus the prior expectation of a mid-teens percentage rate growth. Kohl’s now expects an operating margin of 5.7–6.1% versus a prior expectation of 4.5–5.0%. The company is preparing for the Sephora at Kohl’s online launch on August 1 and the subsequent rollout to 200 stores this year. Management stated that recruitment of beauty associates has begun and that staffing and training will be completed by the end of July. At Sephora at Kohl’s stores, Kohl’s is prioritizing certain brands, such as Calvin Klein, and categories, including activewear, to capitalize on cross-selling opportunities. In terms of categories, Kohl’s plans to deliver “newness” in its men’s business in 2021, introducing Calvin Klein, Eddie Bauer, Hurley and Tommy Hilfiger, and offering men’s sportswear styles. Kohl’s plans to broaden the assortment of its successful new private-label athleisure brand, FLX, and expand it to 500 stores. Management stated that the company expects a more normal back-to-school season this year and is well-positioned with its inventory.
	Macy’s (NYSE: M) 1Q21
Commentary	Total sales increased by 55% year over year but declined by 14% on a two-year basis. Management stated that first-quarter sales were driven by the government stimulus package and vaccine rollout. By category, management reported renewed life in apparel—sales increased by about 8% from its fourth quarter of 2020. The company reported strong sales improvement in categories including denim, dresses (of all types), luggage, men’s clothing, sandals and swimwear. Going forward, Macy’s plans to enter emerging categories through its Vendor Direct program or through its owned inventory, including food and wine, health and fitness, pets, and toys. Digital sales saw strong growth and accounted for 37% of the company’s total, up from 24% in 2019. Macy’s is investing in the customer experience and aims to strengthen its digital platforms in three ways: 1.   “Double down” on the beauty category through immersive experiences, including virtual try-ons. 2.   Host live video shopping events. 3.   Redesign the company’s website to modernize its brands.
Outlook	Macy’s raised its full-year 2021 guidance and now expects sales growth of 19–23% versus the prior expectation of 9–15%. The company expects an adjusted operating margin of 9.0–9.5%, versus the prior expectation of 7.0–7.5%. Macy’s opened 33 Backstage locations in its first quarter, increasing its location count to 250. The company plans to open an additional 12 in the remainder of 2021. Macy’s is continuing to test and expand its off-mall presence. By the end of May 2021, the company aims to open a freestanding Backstage store in the Dallas–Fort Worth area, the first of two freestanding Backstage stores in 2021. In the second half of 2021, the company plans to open a total of three new off-mall Market by Macy’s locations in the Atlanta and Dallas areas. Macy’s-owned Bloomingdale’s will also open its first small-format Bloomies location in the Washington, DC metro area in the latter part of this year.

 

E-Commerce

	JD.com (NasdaqGS: JD) 1Q21
Commentary	E-commerce players continued to perform strongly amid the pandemic, with JD.com posting sales growth of over 60% versus the corresponding quarter in 2019. Last week, Alibaba, Amazon and eBay reported strong sales growth on a two-year basis and expected year-over-year sales growth to exceed 20% in their next quarters. JD.com reported a sales increase of 39.0% year over year and grew by 68% on a two-year basis (versus its first quarter of fiscal 2019). In its first quarter, net service revenues grew 73.1% year over year, while net product revenues increased by 34.7% year over year. In the twelve months ended March 31, 2021, annual active customer accounts increased by 29.0%, reaching around 500 million.
Outlook	JD Logistics published its prospectus in Hong Kong on May 17, 2021 and expects to list on the Main Board of the Hong Kong Stock Exchange on May 28, 2021.

Home and Home-Improvement Retailers

	Home Depot (NYSE: HD) 1Q21
Commentary	Home-improvement retailers Home Depot and Lowe’s (below) had stellar quarters—both have grown their quarterly sales by roughly 40% compared to the corresponding period two years ago, before the pandemic. Last week, we saw Tractor Supply and Wayfair also posting outstanding sales growth on a two-year basis. Home Depot’s revenues climbed by 32.7% year over year, or by 42.1% versus two years earlier. US comparable sales growth reached 29.9%, compared to 25.0% in the prior quarter and 7.5% in the same quarter one year earlier. Digital sales were up 27% year over year. Some 13 of the company’s 14 merchandising departments saw comp growth at or above 20% in the quarter, led by lumber and kitchen. On a comparable basis, the average ticket was up 10.3% year over year, supported by inflation pass-through in categories including lumber. Management pointed to double-digit growth in both its pro and DIY segments, with pro slightly higher. Edward Decker, President and COO commented, “People are engaged in projects, and they’re engaged in projects across the whole store. So with projects comes basket and ticket, and we’re certainly enjoying that.” CFO Richard McPhail noted: “We’re very pleased with the operating expense leverage and earnings flow-through that we drove.”
Outlook	For fiscal 2021, management did not update its sales guidance which is flat to up slightly. McPhail stated: “We continue to believe that the environment and the consumer response to it is difficult to predict.” At the end of its fourth quarter, the company guided: “If the demand environment during the back half of fiscal 2020 were to persist through fiscal 2021, it would imply flat to slightly positive comparable sales growth. In this demand environment, we calculate our fiscal 2021 operating margin would be at least 14%.”
	Lowe’s (NYSE: LOW) 1Q21
Commentary	Total revenues climbed by 24.1% year over year and by 37.7% compared to two years earlier. US comparable sales increased by 24.4% year over year, versus 28.6% in the prior quarter and 12.3% one year earlier. First-quarter online sales were up 36.5% year over year. CEO Marvin Ellison commented, “We delivered over 30% growth in Pro, over 18% growth in all 15 US regions, and growth in Canada that outpaced the US.” Management estimated that March 2021 stimulus checks drove 300 basis points of growth, while commodity inflation benefited comp growth by 460 basis points. Like Home Depot, Lowe’s pointed to inflation, including “unprecedented” inflation in lumber, as being a key reason that average ticket size increased by 14.1% year over year. Net earnings grew to $2.3 billion, from $1.3 billion one year earlier.
Outlook	Management did not provide updated financial guidance. In December 2020, management guided that fiscal 2021 sales could be down 2% and adjusted EPS up 14% versus the prior year. It expected to report a 12% operating margin. Ellison stated: “While the near-term macro-outlook remains uncertain, we’re confident that we will continue to outperform the market, driving both market share gains and improved operating efficiency.”

Mass Merchandisers

	Target (NYSE: TGT) 1Q21
Commentary	Total revenues climbed by 23% year over year and by 37% on a two-year basis. Comparable sales grew 23% year over year and by 36% versus two years earlier. Digital comps grew 50% year over year, on top of 141% growth quarter the year prior. Same-day services, including order pickup, drive-up, and Shipt, grew over 90% year over year, led by growth of more than 123% in its drive-up collection service. More than 95% of Target’s customer orders were fulfilled in stores in 4Q20. In terms of category, apparel is growing most strongly, with sales increasing 29% on a two-year basis. Its home category reported year-over-year sales growth in the mid-30% range, on top of high-single-digit growth during the quarter one year before. Within the home category, Target saw robust performances from its decorative home and seasonal businesses. Hardlines delivered comp growth of above 30% year over year—on top of a 20% increase in the same quarter last year. Growth was driven by sporting goods and toys, which both saw comparable sales growth of over 40% year over year. Beauty’s comps were in the high teens, on top of high single-digit growth in the quarter the year prior. Within Beauty, the bath, skincare and sun-care categories delivered comp growth in the mid-30% range, with cosmetics growing low 20%. Target’s essentials and food categories both delivered comps in the low to mid-single-digits year over year. The company stated it gained a market share of over $1 billion in sales in 1Q, on top of $1 billion in share gains a year ago.
Outlook	For 2Q21, Target expects mid-to-high single-digit year-over-year growth in comparable sales. The company expects its operating margin to be well above the 2019 rate of 7.2% but slightly below the 2020 rate of 10%. For its second half of fiscal 2021, the company expects positive single-digit comps. For the full year, Target expects an operating margin of 7–8%, well above the 2020 rate.
	Walmart (NYSE: WMT) 1Q22
Commentary	On a constant-currency basis, total revenues grew by 2.1% year over year and  11.0% compared to the same period in 2019. The company saw broad-based sales growth across categories, including apparel, hardlines, homes and seasonal. The Walmart US segment (which excludes Sam’s Club) reported comp growth of 6% year over year (excluding fuel), with market share gains in the grocery category. Its e-commerce sales grew 37%. Sam’s Club posted comp growth of 7.2% (excluding fuel and tobacco), driven by an increase in transactions and average ticket size. Sam’s Club membership increased by 12.7% and its member count reached an all-time high. The company continues to invest in renewable energy. In partnership with power generator and service provider company ENGIE North America, Walmart is adding over 500 megawatts to the US renewable grid. It will do so through three wind projects, which are expected to supply renewable energy to hundreds of stores and distribution centers annually. On May 13, Walmart announced the acquisition of Zeekit, an Israel-based artificial intelligence (AI) sizing technology firm, as part of its broader plan to increase the assortment, brands and capabilities of its e-commerce. On May 6, Walmart announced it is acquiring telehealth service provider MeMD, as part of its plans to expand its health and wellness business.
Outlook	Walmart has increased its sales expectation for fiscal 2022 and now expects sales growth, excluding divestitures, to be up low to mid-single-digits versus prior expectations of low single-digits. The company expects operating income to increase by high single-digits for the year, rising from prior guidance of being flat to up slightly. The company reiterated its fiscal 2022 capital expenditure guidance of about $14 billion, with spending focused on automation, customer-facing initiatives, supply chain and technology.

Warehouse Clubs

	BJ’s Wholesale Club (NYSE: BJ) 1Q21
Commentary	Total revenues grew 1.7% year over, or 23% on a two-year basis. Comparable sales (excluding gasoline) decreased by 5% year over year but increased by 22% compared to 2019. Digital sales surged by 31% year over year, reflecting two-year stacked comp growth of 381%. Buy online, pick up in club (BOPIC), curbside pickup and same-day delivery were the most popular channels during the quarter. Its operating margin stood at 3.3%, down from 3.8% in its same quarter last year. Income from continuing operations decreased 14.8% year over year. The total number of members grew to 6 million at the end of its first quarter, a growth of 8% year over year and 20% on a two-year basis.
Outlook	For the remainder of fiscal 2021, the company expects comps to be around (10)%, implying a two-year stacked comp in the low teens. This guidance is based on the assumption that food-at-home consumption will decelerate as consumer spending reverts back to normalized levels. For full-year 2021, the company expects its member count to be flat or higher than 2020. In fiscal 2021, BJ’s plans to open six new clubs. It expects to open 10 more clubs in fiscal 2022.

Looking Forward

While consumers are increasingly returning to public places and social activities, the latest quarter continued to see home-related merchandise perform well: Home Depot and Lowe’s posted sales growth of about 40% on a two-year basis. Last week, we saw Tractor Supply and Wayfair posting outstanding sales growth on a two-year basis. Mass merchandisers sustained their growth momentum in their latest quarter, with both Target and Walmart reporting double-digit sales growth on a two-year basis. These retailers are witnessing strong trends in apparel, beauty, essentials, food and home-goods categories. Apparel and footwear brand owners are posting mixed results: Ralph Lauren posted a double-digit decline in sales on a two-year basis. Last week, we saw Guess?, Hanesbrands, Levi Strauss and Under Armour report sales growth between (23)% and 4%, versus the corresponding quarter in 2019. Off-price retailers witness a strong quarter, with Ross Stores and TJX posting high-single-digit to double-digit sales growth on a two-year basis. While home continues to outperform at these retailers, they also are seeing strong trends in apparel categories, as consumers begin to resume more normal social activities and refresh their wardrobes. Department stores saw slower recovery in their latest quarter, with Kohl’s reporting a mid-single-digit sales decline on a two-year basis and Macy’s a double-digit decline. However, these retailers are seeing strong trends in various apparel and footwear categories, such as activewear, denim, dresses, intimates and shorts. Kohl’s expects a more normal back-to-school season this year and is well positioned with its inventory. E-commerce continued to perform well amid the Covid-19 crisis, with JD.com posting sales growth of over 60% versus the corresponding quarter in 2019. Last week, Alibaba, Amazon and eBay reported strong sales growth on a two-year basis and expected year-over-year sales growth to exceed 20% in the next quarter. These retailers continue to invest in consumer engagement and the transformation of their businesses, including delivery capabilities and payment infrastructure. We expect e-commerce retailers to maintain their winning streak in their next quarter as the consumer shift toward online retail continues.