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 June 6, 2021. For most US retail companies, the quarter under review will be the first quarter of fiscal 2021 (1Q21). 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 PVH Corp. reporting a double-digit percentage decline in revenues on a two-year basis. Last week, Guess? reported a single-digit revenue decline on a two-year basis, while VF Corporation posted a double-digit revenue increase on a two-year basis. Ralph Lauren reported a double-digit sales decline on a two-year basis (versus the corresponding quarter in 2019) in the week ended May 23. Similarly, we saw Under Armour report positive sales growth, while Hanesbrands and Levi Strauss reported a single-digit sales percentage decline on a two-year basis in the week ended May 16.

	PVH Corp. (NYSE: PVH) 1Q21
Commentary	PVH Corp. reported revenue growth of 55% year over year but a decline of 12% on a two-year basis. Management said that the dip in tourism in North America, which accounted for 30%–40% of PVH’s revenues prior to the pandemic, had negatively impacted the company’s sales in the first quarter. Revenue through digital channels grew by approximately 95% year over year, with sales through its directly operated digital commerce businesses up 66% year over year. Digital penetration as a percentage of total sales was approximately 25%, compared to 10% in the first quarter of fiscal 2019. By brand, Calvin Klein and Tommy Hilfiger posted strong double-digit sales growth year over year, while Heritage Brands reported high-single-digit sales growth. PVH continues to see strength for Tommy Hilfiger in both men’s and women’s businesses across multiple product categories, including a strong and rising trend for denim. For Calvin Klein, the company noted that underwear and casual essentials remain key performance drivers in addition to new denim sellers. Management said that PVH is witnessing signs of a real shift in consumer sentiment where people are excited to be released from pandemic-related restrictions, reflecting a new hybrid lifestyle in terms of clothing. The company noted that shoppers are evolving their casual and comfort focus to embrace more self-expression through bolder colors influenced by 1990’s pop culture. Management said that the combination of stay-at-home comfort and the delight of being able to socialize again is driving demand for denim, casual and intimate categories, including activewear, underwear and loungewear. PVH noted that footwear—the company’s newest category, only recently brought in-house—is finding strong consumer acceptance across all markets.
Outlook	For fiscal 2021, PVH expects sales growth of 21%–23% year over year. The company forecasts EPS to be $5.50 compared to $(16.0) in fiscal 2020. Management said that PVH continues to monitor industrywide supply chain headwinds. The company’s outlook considers delays on certain inventory items of four to six weeks on average and anticipates that additional air freight and other costs will be incurred if it is to maintain its sales plan for the second half of fiscal 2021.

Apparel Specialty Retailers

Apparel specialty retailers are reporting strong results, with Lululemon Athletica posting double-digit percentage sales growth on a two-year basis. Last week, we saw American Eagle Outfitters, Dick’s Sporting Goods, Foot Locker, Gap and Urban Outfitters reporting strong positive sales growth on a two-year basis.

	Lululemon Athletica (NYSE: AEO) 1Q21
Commentary	Total sales grew 88% year over year and increased by 57% on a two-year basis. The company’s direct-to-consumer (DTC) sales increased by 50% year over year, accounting for 44% of the company’s total revenues versus 54% in the year-ago quarter. Lululemon’s women’s apparel business grew 23% on a two-year basis, with strong performance across all categories. The company’s men’s apparel business also remained strong, with sales growing by 27% on a two-year basis. In the quarter, store productivity reached 88% of 1Q19’s volume, an improvement from 71% in 4Q20. Management said that the company continued to invest in product lines related to running, training and yoga. The company’s international revenues increased by 125% year over year. On a two-year basis, the company saw double-digit sales growth across all major regions—the standout being Mainland China, where Lululemon witnessed 90% sales growth compared to 1Q19. Lululemon’s gross margin increased by 320 basis points on a two-year basis to 57.1%, mainly driven by 220 basis points of leverage on occupancy, product team costs and depreciation, and an 80-basis point increase in product margin due to the decline in markdowns. During the quarter, Lululemon opened two net new company-operated stores, ending the quarter with 523 stores.
Outlook	For 2Q21, Lululemon forecasts sales growth of 66%–70% on a two-year basis and adjusted EPS growth of 49%–55% compared to 2Q19. For fiscal 2021, the company expects sales growth of 46–48% on a two-year basis and adjusted EPS growth of 37%–39% compared to 2019. Lululemon has revised up its store opening guidance for 2021: it now expects to open 45–55 net new company-operated stores, not 40–50 as it previously announced. The new guidance includes 35–40 store openings in Lululemon’s international markets, representing low-teen-percentage growth of its square footage.

Discount Stores

Discount stores reported another solid quarter, with both Big Lots and Five Below posting strong double-digit sales growth on a two-year basis. Similarly, last week saw Dollar General, Dollar Tree and Ollie’s Bargain Outlet report double-digit sales growth versus the corresponding quarter in 2019.

	Big Lots (NYSE: BIG) 1Q21
Commentary	Total sales increased by 13% year over year or grew by 25% on a two-year basis. Comparable sales increased by 11% year over year. Except for food and consumables, the company witnessed double-digit comp growth year-over-year across all its categories, with home-related merchandise performing extremely well. Apparel, now included in Big Lots’ Soft Home category, reported comp growth of 90%. Management said that the company is experiencing strong sell-through of women’s fashion tops, graphic tees, jogger apparel and sweatshirts. Total digital sales grew 30% year over year or increased by nearly five times compared to the first quarter of fiscal 2019. The company noted that its omnichannel initiatives—such as buy online, pick up in-store (BOPIS), ship-from-store and same-day delivery with Instacart and curbside pickup—accounted for around 60% of the company’s digital order fulfillment during the quarter. The company opened 13 new stores and closed eight stores during the quarter, ending with 1,413 stores and a total selling space of 32.2 million square feet.
Outlook	For the second quarter of fiscal 2021, Big Lots expects comparable sales growth of 20% on a two-year basis. The company forecasts adjusted EPS growth of 89%–117% on a two-year basis and expects the gross margin rate to be flat versus 2019. For 2021, the company now plans to incur capital expenditures of $200–210 million, an increase from its prior guidance of $180–190 million. This will include investments in omnichannel capabilities, store space–planning technology and customer analytics capabilities. Big Lots continues to expect to open 50–60 stores this year, of which about 20 will be relocations.
	Five Below (NasdaqGS: FIVE) 1Q21
Commentary	Total sales increased by 198% year over year or grew by 64% on a two-year basis. Comparable sales increased by 162% year over year or 23% compared to 2019. Growth was driven by a double-digit increase (on a two-year basis) in average ticket value, partially offset by a single-digit decline in comp transactions. Management said that online sales saw a double-digit increase from 1Q20, while e-commerce sales grew by four times year over year. The company is continuing its same-day delivery trial with Instacart, which is currently operational in one-third of Five Below’s chain. The company’s EPS increased by 91% on a two-year basis. During the first quarter, Five Below opened 67 net new stores, ending the quarter with 1,087 stores, representing an increase of 18.2% year over year.
Outlook	For 2Q21, Five Below expects sales growth of 53%–58% on a two-year basis and EPS growth of 98%–122% versus 2Q19. The company plans to open 30 net new stores in 2Q21. For fiscal 2021, the company reiterated capital expenditure guidance of $315 million, with investments in the opening of new distribution centers and new stores, as well as spending on technology and infrastructure. In 2021, Five Below plans to open 170–180 stores and remodel about 30 stores.

Looking Forward Discount stores continued their solid run in the quarter, attracting a broad base of budget-conscious customers: Big Lots and Five Below posted strong double-digit sales growth on a two-year basis. Last week, we saw Dollar General, Dollar Tree and Ollie’s Bargain Outlets report outstanding results; these retailers 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. While apparel and footwear brand owners are posting mixed results, apparel specialists reported a strong quarter, with Lululemon reporting double-digit sales growth on a two-year basis. Last week, we saw American Eagle Outfitters, Dick’s Sporting Goods, Foot Locker, Gap and Urban Outfitters post 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. This impressive growth supports our expectation that apparel specialty retailers will see post-crisis recoveries in 2021.