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 30, 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, Capri Holdings and VF Corporation). 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 Owners

Apparel and footwear brand owners are witnessing a mixed recovery, with Guess? reporting a single-digit decline on a two-year basis, while VF Corporation (below) posting a double-digit sales increase on a two-year basis. Last week, Ralph Lauren reported a double-digit sales decline on a two-year basis (versus the corresponding quarter in 2019). Similarly, we saw Under Armour report positive sales growth, while Hanesbrands and Levi Strauss a single-digit sales decline on a two-year basis in the week ended May 16.

	Guess?, Inc (NYSE: GES) 1Q22
Commentary	Guess? reported revenue growth of 99.8% year over year but a decline of 3.1% on a two-year basis. The company noted that store traffic was down slightly compared to its 1Q20 but accelerated relative to 4Q21. Comparable sales grew by 13% year over year, driven by an increase in average basket size. During the quarter, the company’s home category was the best-performing key merchandise area in terms of sales growth, while the Midwest was the strongest region. The company noted that it is witnessing major improvement in apparel sales and believes the category will continue to strengthen as the economic environment improves. While the company’s athleisure and essential lines continue to perform well, it has seen a material uptick in sales in dressier products, including denim, dresses, high heels and the Marciano collection. By geography, Americas’ revenues increased by 108.5% year over year; Europe’s revenues grew 127.1%; and Asia’s revenues rose by 37.8%. The company’s e-commerce business in North America and Europe each grew 61% in the first quarter. In Asia, traffic is still under pressure as the consumer remains sensitive to the Covid-19 situation, especially in Japan, where there are still government-mandated lockdowns. The product categories that have performed better in this environment include dresses, outerwear and denim. Management said that the company had a healthier retail business during the quarter, with more full-price selling and less promotional activity, which is delivering higher product margins. Management said that Guess? is operating with a new occupancy model, under which the company has closed 140 retail locations and renegotiated over 340 store leases in the past 15 months. The company noted that this model is contributing to a lower occupancy cost structure across markets and is bringing profitability to the North American retail business for the first time in years.
Outlook	The company expects revenues in 2Q22 to be down mid-single digits versus 2Q20 (on a two-year basis) as pandemic-related shutdowns and traffic declines are partially offset by continued momentum in its global e-commerce business. For the full fiscal year 2022, assuming no Covid-related shutdowns past the second quarter, the company expects revenues to be down by mid-single digits versus fiscal 2020 and operating margin to reach approximately 8.6%.
	VF Corporation (NYSE: VFC) 4Q21
Commentary	Total sales increased by 23% year over year, or by 10% on a two-year basis. By segment, sales in the active segment increased by 22% year over year; by 25% in the outdoor segment and by 23% in the work segment. By geography, the APAC region reported the highest year-over-year sales growth, at 71%, led by sales growth in Greater China. The US saw sales growth of 25%, while the EMEA region reported sales growth of 11%. VF Corporation’s digital sales increased by 67% year over year. During the year, the company strengthened its omnichannel capabilities, including BOPIS (buy online, pick up in-store), ship from store, and “reserve online, buy in-store” programs. Management said that these offerings simplified the shopping experience for consumers and helped the company generate about $50 million of incremental revenue in fiscal 2021. The company noted that it is leveraging new technologies and processes to further digitize its go-to-market approach with advancements in 3D design and development, virtual product reviews and digital printing capabilities that shorten production calendars and accelerate innovation. The company’s gross margin decreased by 100 basis points year over year to 52.1%, primarily due to elevated promotional activity to clear excess inventory and the volatility in foreign exchange rates. In April 2021, the company entered into a definitive agreement to sell its Occupational Workwear businesses, with an aim to provide greater financial flexibility to fuel the long-term strategic growth initiatives for the company’s remaining portfolio.
Outlook	For fiscal 2022, VF Corporation expects sales growth of about 28% year over year, including an approximate $600 million contribution from the Supreme brand. By brand, the company expects Vans’ sales to increase by 26%–28% year over year, or by 7%–9% relative to pre-crisis levels; it expects brand sales of The North Face to increase by 25%–27% year over year, or by 14%–16% relative to fiscal 2020. The company expects Timberland’s sales to increase by 16%–18%, in line with prior peak levels. Lastly, the company expects continued strength from Dickies, with sales growth of between 10% and 12%. The company expects total digital penetration to exceed 30% in fiscal 2022. VF Corporation expects adjusted EPS to increase by 193% year over year. As part of its sustainability initiatives, the company announced its goal to eliminate all single-use plastic packaging, including poly bags, by 2025.

Apparel Specialty Retailer

	American Eagle Outfitters (NYSE: AEO) 1Q21
Commentary	Total sales grew 88% year over year, or 17% on a two-year basis. By banner, Aerie’s sales grew 89% on a two-year basis, while American Eagle’s (AE) sales increased in the low-single-digit range. Digital sales grew 57% versus 2019. By banner, Aerie’s digital sales were up 158% and AE’s digital sales grew 20%. The company noted that strong full-price sales fueled gross margin expansion of 550 basis points on a two-year basis, to 42.2%. Adjusted operating margin expanded by 730 basis points compared to 2019 and reached 12.9%, the highest rate since 2007. By banner, Aerie’s operating income grew by triple-digits, while AE’s operating income rose by double digits. The company continued to expand its Aerie banner with the opening of six new Aerie stores in the quarter, including one OFFLINE by Aerie store, its activewear brand, bringing the total OFFLINE portfolio to five stores. The company’s Chief Creative Officer, Jennifer Foyle, said, “Across categories, we saw broad-based strength with all areas rising in the double digits. Intimates was terrific as was swimwear, where product innovation and newness are fueling demand. Aerie’s signature legging business is exceptional and continues to expand with the success of our new OFFLINE by Aerie activewear brand. Related categories such as fleece, tanks and sports bras are also tracking very well.”
Outlook	The company reiterated its target of achieving $5.5 billion in revenue and $550 million in operating profit by 2023. In 2021, the company plans to open about 60 Aerie stores and more than 30 OFFLINE by Aerie stores, which will be a mix of standalone and Aerie side-by-side locations. For 2021, the company expects capital expenditures of $250–275 million, with major investments in supply chain and customer-facing initiatives.
	Dick’s Sporting Goods (NYSE: DKS) 1Q21
Commentary	Total sales increased by 119% year over year, or 52% on a two-year basis. Total comps grew 115% year over year compared to flat comps in 1Q19. E-commerce penetration increased to 20% of total sales, from 13% in 1Q19. The company’s adjusted EPS grew by 521% on a two-year basis, driven by strong sales and gross margin expansion. CEO Lauren Hobart said, “The strength of our diverse category portfolio, supply chain, technology capabilities and omnichannel execution helped us continue to capitalize on strong consumer demand across golf, outdoor activities, home fitness and active lifestyle. We also saw a resurgence in our team sports business as kids began to get back out on the field after a year in which many youth sports activities were delayed or cancelled.”
Outlook	For the full year 2021, the company expects sales to be $10.5–10.8 billion, with the mid-point representing growth of 11% versus 2020 and 22% versus 2019. Dick’s expects comparable sales growth of 8%–11%. For 2021, the company expects adjusted EPS of $8.0–$8.7, with the mid-point being 36% above 2020 levels and 126% above 2019 levels. Dick’s plans to incur capital expenditure of $370–395 million. In 2021, the company plans to open six new Dick’s Sporting Goods stores and eight specialty concept stores, including its first two Public Lands stores—an outdoor concept that targets consumers involved in outdoor activities, including biking, camping, fishing, hiking and kayaking.
	Foot Locker (NYSE: FL) 1Q21
Commentary	Total sales increased by 83% year over year, or by 4% on a two-year basis. Comparable sales increased by 80% year over year, or by 3% on a two-year basis. The company’s digital comps were up 43% year over year and comprised 25% of its total sales, compared to 31% last year. Compared to 2019, digital comps were up by low single digits. Management said that the first quarter was strong for the company’s apparel business, which was up triple digits compared to the first quarter of 2020 and up double digits versus the first quarter of 2019. The Men’s and kids’ segments witnessed triple-digit year-over-year growth, while the women’s segment saw sales increase by strong double digits. The company noted that causal apparel remained the catalyst for its business, with shorts driving the largest gain in momentum across many brands, including private labels. The company’s footwear sales increased by 70% year over year. The strength in Foot Locker’s footwear business was broad-based, with gains across all regions, led by North America and Asia Pacific. Within the footwear category, the company saw strong double-digit growth across the men’s, women’s and kids’ segments, with the women’s business driving the largest gain. The men’s basketball category continued to see strong momentum, delivering high double-digit sales growth led by the Jordan, NIKE, Puma and Reebok brands. The company’s total operating margin stood at 13%, versus (9)% in 2020 and 11% in 2019. During the first quarter, the company opened 12 new stores, remodeled or relocated 15 stores and closed 58 stores. As of May 1, 2021, Foot Locker operates 2,952 stores across 27 countries in Asia, Australia, Europe, New Zealand and North America. In addition, the company operates 131 franchised stores in the Middle East.
Outlook	Management said that some sales for 1Q had been shifted into 2Q due to delays in inventory receipts. As a result, the company expects 2Q sales to be relatively in line with last year’s sales. With respect to gross margin, Foot Locker expects less promotional pressure on merchandise margins in the second quarter compared to the same quarter last year. For the full year 2021, the company expects total sales to increase at a low-double-digit rate year over year. Foot Locker forecasts gross margin to expand meaningfully year over year, largely reflecting a more rational promotional environment. Compared to fiscal 2019, the company expects to see modest gross-margin improvement. Management said that the company will continue to have strong product tailwinds, led by footwear and the culture of basketball, ongoing comfort-wear trends in apparel and new strategic brands in Foot Locker’s portfolio. The company reiterated its 2021 capital expenditure guidance of $275 million. Management said that the company will convert about one-third of its Footaction stores into other existing banner concepts over the course of 2021 to focus growth on its iconic banners: Foot Locker, Kids Foot Locker, Champs Sports and Eastbay. Foot Locker will close the majority of the remaining Footaction stores as leases expire over the next two years and expects this strategic decision to better serve the company’s customers in a post-pandemic marketplace.
	Gap, Inc. (NYSE: GPS) 1Q22
Commentary	Total sales were up 89% versus 2020 and up 8% compared to 2019. Total comparable sales increased 28% year over year and 13% versus 2019. By brand, Athleta’s sales increased by 56%; Banana Republic’s sales declined by 29%; Gap’s sales declined by 16%; and Old Navy’s sales rose by 27%. In terms of comps, Athleta reported a 46% increase versus 2019; Banana Republic reported a 22% decline; Gap saw a decline of 1%; and Old Navy reported a 25% increase. CEO Sonia Syngal said, “Our Power Plan 2023 is taking hold. Investments in demand-generation, coupled with macro tailwinds, supercharged our brands, with particular strength at Old Navy and Athleta, a healthy and growing Gap business in North America and market share gains that outpaced the industry. As stores traffic came back, we sustained our digital dominance, with 82% online growth versus 2019. While Active and Fleece continue to soar, we saw a resurgence in summer fashion with dresses rebounding, showing that customers are emerging from the crisis wanting to express their style without sacrificing the comfort and digital convenience they have become accustomed to.” The company’s gross margin stood at 40.8%, an increase of 450 basis points from 2019. Its merchandise margins expanded by 20 basis points from 2019 as strong product acceptance resulted in lower discounting, which mitigated approximately 200 basis points of headwinds mainly from higher shipping costs linked with increased online sales. The company completed the sale of its Janie and Jack business in the first quarter and Intermix’s sale early in the second quarter. Combined, these brands contributed about 2% of the company’s sales. Management said that these moves will help the company to prioritize its strategic intent and commit resources behind the brands with the most potential, such as Athleta and Old Navy.
Outlook	The company has revised up its fiscal 2021 sales and operating-margin guidance. Gap now expects sales growth to be in the low- to mid-20s percentage range year over year, an increase versus the prior sales growth guidance of mid-to-high teens. The company noted that this guidance reflects lost sales attributable to the divestitures of Janie and Jack and Intermix. For fiscal 2021, the company now expects adjusted operating margin guidance of about 6%, up from prior guidance of about 5%, which reflects accelerated progress toward its goal of achieving a 10% operating margin by the end of 2023. The company reiterated its 2021 capital expenditure guidance of about $800 million.
	Urban Outfitters (NasdaqGS: URBN) 1Q21
Commentary	Total sales increased by 57.6% year over year, or by 7.3% on a two-year basis. Comparable sales increased 10% on a two-year basis, driven by strong double-digit growth in online channel sales, partially offset by a store sales decline owing to temporary store closures and occupancy restrictions in Europe and Canada. By brand, comparable sales increased by 44% on a two-year basis at the Free People Group, 9% at Urban Outfitters and 1% at the Anthropologie Group. The total Retail segment saw a sales increase of 10% compared to 2019. The Wholesale segment saw sales decline by 24%, due in part to realigning the Free People brand’s customer base to focus on more regular-price selling. The company’s gross profit margin increased to 32.4% from 31.1% in 2019, driven by record-low first-quarter merchandise markdown rates in the Retail segment and advantages related to negotiated rent concessions with mall landlords and international government assistance programs.
Outlook	For 2Q21, management said that comp sales growth in the Retail segment will be in the mid-teens range, driving total sales in the low-double-digit range. The company noted that Retail segment comps will be partially offset by negative Wholesale segment sales, due in part to the realignment of the Free People brand customer base to focus more on regular-price selling. The company expects its gross profit margin to expand by 100 basis points year over year, driven largely by lower markdown rates because of improving consumer demand, disciplined inventory control and strong product performance. Management said that the favorable markdowns could offset lower initial markups, which are being pressured by price increases in commodity and freight, along with deleveraging in delivery and logistics expenses due to the increased penetration of the e-commerce channel. In fiscal 2021, the company plans to incur a capital expenditure of about $250 million, primarily spending on increased distribution and fulfillment capacity to support its growing e-commerce business and opening new stores. This year, the company plans to open about 54 new stores and close 18 stores. Management said that the company’s new distribution facility in the UK is expected to go live in 2Q21. Furthermore, the company expects the new highly automated distribution facility in Kansas City, Kansas, to be opened for operation by the spring of 2023.

Off-Price Retailers (Apparel-Focused)

Off-price retailers are reporting strong results, with Burlington Stores posting triple-digit sales growth on a year-over-year basis and double-digit sales growth on a two-year basis. Last week, we saw both Ross Stores and TJX post triple-digit sales growth on a year-over-year basis and high-single-digit to double-digit sales growth compared to 2019.

	Burlington Stores (NYSE: BURL) 1Q21
Commentary	Burlington Stores’ sales increased by 174% year over year, or by 35% compared to 1Q19. Comparable store sales increased by 20% on a two-year basis. Management said that all major merchandise categories performed well in the quarter and comp-store sales in all regions were well ahead of the company’s expectations, driven by government stimulus checks, vaccine rollout and pent-up consumer demand. The company’s gross margin stood at 43.3%, up from 41% in 1Q19. During 1Q21, Burlington opened 23 net new stores, bringing its total store count to 784 stores. Management said that the company is proceeding with its Burlington 2.0 strategy, growing its merchandising organization and expanding its presence in New York and Los Angeles over the next few years. During 1Q21, Burlington signed a lease to double the square footage of its New York City inventory-buying office. Management cited industry-wide supply chain challenges as causing volatility and delays in receipt flow and driving higher freight and supply chain expenses.
Outlook	For 2Q21, the company is estimating baseline comps of 10%. For the second half of the year, the company is estimating flat comps and will update these plans as visibility improves. Management reported that the supply chain expense headwinds will likely weigh on the operating margin throughout the balance of the year. In fiscal 2021, Burlington expects to open 100 new stores while relocating or closing 25 stores for a total of 75 net new stores.

Beauty Brands and Retailers

The beauty category continues to see a strong recovery, with Ulta Beauty reporting a double-digit increase in sales on a two-year basis. In the week ended May 16, Estée Lauder and L’Oréal reported positive sales growth on a two-year basis, while Coty reported a double-digit sales decline.

	Ulta Beauty (NYSE: ULTA) 1Q21
Commentary	Ulta Beauty’s sales increased by 65.2% year over year, or by 11.2% on a two-year basis, driven by stimulus payments, relaxation of pandemic-related restrictions and increasing consumer confidence. Comparable sales increased by 65.9% year over year, or by 7.0% versus 1Q19. Average ticket value rose 8.8% year over year and average transactions spiked 52.2%. The company noted that both the brick-and-mortar and e-commerce channels contributed to strong comp performance in the quarter. E-commerce delivered mid-teen-percentage growth on top of last year’s 100% growth, with penetration in the mid-20s in percentage terms. BOPIS comprised 16% of total e-commerce sales compared to 4% in 1Q20. By category, skin care, fragrance, bath and hair care all recorded robust double-digit comp growth on a two-year stacked basis. Sales growth in skin care was fueled by newness, wellness and the self-care trend, as well as greater engagement in promotional events. Fragrance and bath comprised the strongest category in the quarter, boosted by Ulta Beauty’s monthly Fragrance Crush programs, Valentine’s Day and Spring Haul, and newness in offerings. Sales growth in hair care was driven by product newness, innovation and DIY trends. Comp sales in makeup were still negative compared to 2019, but the company has been seeing sequential improvement. Ulta Beauty is optimistic about the pace of recovery in the makeup category this year, citing the key drivers as increased travel, more occasions to wear makeup, high social media engagement and an expanded pipeline in the second half of 2021. The company’s sales from its service businesses rose almost 50% year over year but were still lower than 2019 levels. Ulta Beauty ended the quarter with 32.3 million loyalty members, down 2% from last year but 5% higher than the prior quarter.
Outlook	Encouraged by its 1Q21 performance, Ulta Beauty raised its fiscal 2021 guidance. The company now expects comp growth of 23%–25%, up from prior guidance of 15%–17%, and an operating margin of 11% versus prior guidance of 9%. In fiscal 2021, the company plans to open 40 net new stores and remodel or relocate 19 stores. Ulta Beauty plans to incur a capital expenditure of $225–250 million.

Department Stores

Department stores are witnessing a slower recovery, with Nordstrom reporting a double-digit sales decline on a two-year basis. Last week, we saw Kohl’s report a mid-single-digit sales decline and Macy’s a double-digit sales decline on a two-year basis.

	Nordstrom (NYSE: JWN) 1Q21
Commentary	Nordstrom’s sales increased by 44.4% year over year but declined by 12.8% compared to 1Q19. Sales trends improved from the prior quarter, with Nordstrom’s sales increasing by six percentage points sequentially and Nordstrom Rack’s sales increasing 10 percentage points sequentially. Digital sales grew 23% year over year and 28% compared with the same period in fiscal 2019. Management said that consumers are shopping “categories to get out,” including recovery categories such as denim, shorts, dresswear, makeup and handbags, with designer brands trending upward. During the quarter, Nordstrom expanded its personalized styling tools, with over 50% of its associates using the tools, up from 10% in the prior quarter. The company also introduced new livestream shopping events featuring some of its brands. Management said that Nordstrom is proceeding on its initiative to expand its assortment to 1.5 million choices over the next few years; in 1Q, the assortment choice count increased by approximately 20% versus 2019, primarily driven by an expanded dropship assortment in core categories and “in-demand” categories such as Home, Active and Kids.
Outlook	In 2021, the company expects to deliver sales growth of more than 25%, with digital representing approximately 50% of sales. Nordstrom expects digital penetration to vary over the course of the year, depending on the pace of store recovery. Management highlighted the continued cost pressure due to elevated labor and shipping costs as well as apparel-industry supply chain constraints.

Discount Stores

	Dollar General (NYSE: DG) 1Q21
Commentary	Total sales decreased by 0.6% year over year but increased by 26.8% on a two-year basis. Comparable sales decreased by 4.6% year over year but increased by 17.1% on a two-year-stack basis. The company noted that its consumables category saw sales decline year over year, while the seasonal, apparel and home-product categories are witnessing positive trends. The company’s gross margin stood at 32.8%, up from 30.7% in 1Q20. During the quarter, the company opened 260 new stores, remodeled 543 stores and relocated 33 stores. Dollar General also opened three new Popshelf stores in the quarter, increasing the total count to eight. Launched in 2020, Popshelf is a new concept that aims to engage customers by offering a fun and differentiated experience through continually refreshed merchandise, with about 95% of items priced at $5 or below.
Outlook	For fiscal 2021, the company expects sales growth of (1)%–1% year over year, compared to the prior expectation of a 2% decline to flat growth. Dollar General forecasts comp growth of 11%–13% on a two-year-stack basis, compared to the prior expectation of a 6%–4% decline. The company expects EPS to grow 19%–23% compared to 2019. Dollar General reiterated its capital expenditure guidance of $1.05–1.15 billion, including investments in its strategic initiatives. Dollar General plans to open 1,050 new stores, remodel 1,750 stores and relocate 100 stores in 2021. The company also noted that it remains on track to have a total of 50 Popshelf stores by the end of the year.
	Dollar Tree (NYSE: DLTR) 1Q21
Commentary	Total sales increased by 3% year over year, or by 11.5% on a two-year basis. Total comparable sales increased by 0.8% year over year. Family Dollar’s comps declined by 2.8%, while Dollar Tree’s comps increased by 4.7%. During the quarter, the retailer’s strongest-performing categories were apparel, beauty care, home décor and floral. Total gross margin increased by 180 basis points year over year to 30.3%. In the first quarter, the company completed 575 real estate projects, including 106 new stores, 36 relocations, 414 Family Dollar renovations and 19 store closings, ending the quarter with 15,772 stores. Management said that its Combination Store concept, which leverages both Dollar Tree and Family Dollar brands to serve small towns across the US, is working remarkably well. As compared to other small Family Dollar stores, Combination Stores are reporting a comparable sales lift of more than 20% on average. At quarter-end, the company had 61 Combination Stores, of which 34 are new stores, 19 are remodeled stores and eight are relocated stores.
Outlook	For fiscal 2021, the company expects comparable sales growth to be in the low single digits. For fiscal 2021, the company reiterated its plans to open 600 new stores—400 Dollar Tree stores and 200 Family Dollar stores—and renovate 1,250 Family Dollar H2 format stores, which incorporate expanded cooler and freezer sections. The new Family Dollar stores will comprise H2 and Combination Store formats based upon market locations.
	Ollie’s Bargain Outlet (NasdaqGM: OLLI) 1Q21
Commentary	Total sales increased by 29.5% year over year, or by 39.3% on a two-year basis. Comparable store sales increased by 18.8% year over year. The company’s top-performing categories were housewares, bed and bath, health and beauty aids, flooring and food, electronics, books and toys. The company’s operating margin increased by 340 basis points year over year, to 15.7%. Adjusted EPS increased by 63.3% year over year. During the first quarter, the company opened 19 new stores, including two relocations, ending the quarter with 397 stores in 25 states, up 10.3% year over year.
Outlook	The company did not provide financial guidance. The company’s CFO, Jay Stasz, said, “Our second-quarter results are tracking better than expected as we lapped the highest-comp-sales weeks from all of last year. However, we are anticipating continued headwinds in gross margin due to ongoing supply chain pressures impacting all retailers, including increased transportation and labor costs. As such, we are sticking with our original gross margin plan of 39.7% to 39.8% for the year.” For fiscal 2021, the company plans to open 50 new stores, including two relocations, with a split of about 45% of openings in the first half and 55% in the second half.

Electronics Retail

	Best Buy (NYSE: BBY) 1Q22
Commentary	Best Buy’s sales increased by 36% year over year, or by 27% on a two-year basis. Comparable sales increased by 37% year over year, with domestic comp growing 38% and international comp rising 28%. In terms of product categories, appliances, computing and home theater were the biggest contributors to the strong comp sales growth in the quarter. US e-commerce sales grew about 7.6% year over year and constituted 33% of Best Buy’s total domestic sales, versus 42% last year. Best Buy’s CEO, Corie Barry, said, “Customer demand for technology products and services during the quarter was extraordinarily high. This demand is being driven by continued focus on the home. The demand was also bolstered by government stimulus programs and the strong housing environment.” The company’s adjusted operating margin stood at 6.4%, up from 2.9% in 1Q21.
Outlook	For fiscal 2022, Best Buy expects comp growth of 3%–6%, versus prior growth guidance of (2)% to 1%. For 2Q22, the company expects comp growth of about 17%.

Home and Home-Improvement Retailers

Home-improvement retailer Williams-Sonoma had a stellar quarter, with sales growing by over 40% compared to the corresponding period two years ago, before the pandemic. Last week, Home Depot and Lowe’s reported sales growth of nearly 40% on a two-year basis. Similarly, Tractor Supply and Wayfair also posted outstanding sales growth in the week ended May 16.

	Williams-Sonoma (NYSE: WSM) 1Q21
Commentary	Williams-Sonoma’s sales increased by 41.6% year over year, or by 40.9% on a two-year basis. The company’s comps grew 40.4% year over year, with all brands accelerating sequentially, including Pottery Barn at 41.3%, Pottery Barn Kids and Teen at 27.6%, West Elm at 50.9% and Williams Sonoma at 35.3%. Management said that e-commerce continued to drive strong growth and comprised over 65% of the company’s total sales in the quarter. The company’s gross margin expanded by 850 basis points year over year to 43%, driven by higher merchandise margins and occupancy leverage of about 410 basis points.
Outlook	For fiscal 2021, the company expects sales growth to be in the low-double-digit percentage range and adjusted operating margin to expand year over year. For the long term, the company forecasts sales growth of mid-to-high single digits and adjusted operating margin expansion.

Luxury

Overall, the luxury category is seeing a substantial recovery. However, this week, we saw Capri Holdings reporting a double-digit sales decline on a two-year basis. In the week ended May 16, luxury companies Canada Goose and Tapestry and luxury e-commerce platforms Farfetch and The RealReal posted strong sales growth.

	Capri Holdings (NYSE: CPRI) 4Q21
Commentary	Capri Holdings’ sales increased by 0.4% year over year but declined by 10.9% on a two-year basis. During the quarter, the company temporarily closed stores in locations impacted by pandemic-related lockdowns. By brand, Versace’s revenues were up 10.3% year over year and Jimmy Choo’s revenues were up 15.9%, while Michael Kors’ revenues dropped by 3.9%. During the quarter, approximately 60% of the company’s retail stores in the EMEA region were closed, driving a year-over-year revenue decline in the region, but trends improved sequentially due to triple-digit increases in e-commerce. In the Americas, retail revenues increased in the double digits despite approximately 40% of the company’s stores in Canada being closed during the quarter. Asia continues to be the fastest recovering region, with sales up by double digits year over year.
Outlook	For fiscal 2022, Capri Holdings expects total revenues to rise approximately 26% year over year to $5.1 billion. The company forecast a gross margin expansion of about 50 basis points year over year, reflecting higher full-price sell-throughs, select price increases at Jimmy Choo and Michael Kors, and increased penetration of accessories at Versace and Jimmy Choo. Management noted that ongoing higher transportation costs could offset the benefits of these strategic initiatives. For fiscal 2022, the company expects an operating margin of about 14% and EPS of approximately $3.70–$3.80.

Warehouse Clubs

Warehouse clubs continue to post strong performance, with Costco reporting double-digit sales growth compared to 2019. Last week, we saw BJ’s Wholesale Club post a double-digit sales increase on a two-year basis.

	Costco Wholesale Corporation (NYSE: COST) 3Q21
Commentary	Costco’s total sales increased by 21.5% year over year, or by 30.3% on a two-year basis. Comparable sales, excluding fuel, grew 15.1% year over year. US comps, excluding fuel, grew 15.2%. The company reported that its average transaction size grew 7.3%, with 5.7% growth in the US. This was driven by strong sales of food and sundries, home-related merchandise, sporting goods and jewelry. E-commerce sales, excluding foreign-currency impact, grew by 38.2% year over year. During the quarter, Costco opened six new warehouses: one in the US, three in Canada and two internationally.
Outlook	In 4Q21, Costco plans to open seven additional warehouses—five in the US and two internationally—with total of 21 net new warehouses opening for the fiscal year. In addition, Costco plans to open 25 new units in each of the next two fiscal years, including a second warehouse in China in fiscal 2022 and a third warehouse in fiscal 2023.

Looking Forward

Although consumers are increasingly returning to public places and social activities, the latest quarter continued to see home-related merchandise perform well: Williams-Sonoma posted sales growth of over 40% on a two-year basis. Last week, we saw Home Depot and Lowe’s report sales growth of nearly 40% on a two-year basis. Similarly, Tractor Supply and Wayfair also posted outstanding sales growth in the week ended May 16. Discount stores continued their solid run in the quarter, attracting a broad base of budget-conscious customers. Dollar General, Dollar Tree and Ollie’s Bargain Outlets noted strong discretionary momentum driven by seasonal and home products. Unlike most retailers, which are shrinking their physical footprints, discounters’ real estate plans remain firmly in place, including new store expansions. Like discount stores, warehouse clubs continue to be a major beneficiary of the Covid-19 pandemic, with Costco reporting double-digit sales growth compared to 2019. Last week, we saw BJ’s Wholesale Club post a double-digit sales increase on a two-year basis. These retailers are continuing to expand their store estate. Overall, the luxury category is seeing a substantial recovery, with luxury companies Canada Goose and Tapestry and luxury e-commerce platforms Farfetch and The RealReal posting strong sales growth in the week ended May 16. However, this week, we saw Capri Holdings report a double-digit sales decline on a two-year basis. We believe that the luxury category will see strong growth in the next quarter with the further easing of pandemic-related restrictions around the world. The beauty category continues to see a strong recovery, with Ulta Beauty reporting a double-digit increase in sales on a two-year basis. In the week ended May 16, Estée Lauder and L’Oréal reported positive sales growth on a two-year basis, while Coty reported a double-digit sales decline. Within the beauty category, skin care, bath, fragrance and hair care are trending, while demand for makeup remains weak. While apparel and footwear brand owners are posting mixed results, apparel specialists reported a strong quarter, with American Eagle Outfitters, Dick’s Sporting Goods, Foot Locker, Gap and Urban Outfitters reporting strong positive sales growth on a two-year basis. While athleisure, casualwear and intimates remained strong catalysts for these retailers, they are also witnessing a rebound in demand for dresswear as consumers are emerging from the crisis and looking to express their style in clothing and footwear. Off-price retailers witness a strong quarter, with Burlington Stores posting double-digit sales growth on a two-year basis. Last week, we saw Ross Stores and TJX posting high-single-digit to double-digit sales growth compared to 2019. While the home category continues to outperform at these retailers, they also are seeing strong trends in apparel categories, as consumers begin to resume social activities and refresh their wardrobes. Department stores are witnessing a slower recovery than off-price retail, with Nordstrom reporting a double-digit sales decline on a two-year basis. Last week, we saw Kohl’s report a mid-single-digit sales decline and Macy’s a double-digit sales decline on a two-year basis. However, these retailers see strong trends in various apparel and footwear categories, such as activewear, denim, dresses and shorts.