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 13, 2021. For most US retail companies covered in this series, the quarter under review will be the first quarter of fiscal 2021 (1Q21), although some companies may have different year ends (for example, Stitch Fix). 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 a 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, resulting 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.

Online Apparel Retailers

	Stitch Fix (NasdaqGS: SFIX) 3Q21
Commentary	Total sales at Stitch Fix grew 44% year over year or 31% on a two-year basis (versus the corresponding quarter in 2019, pre-pandemic). Management said that the company saw strong sales growth across all categories, with major success in women’s, men’s and kids’ apparel. The company’s active client base increased by 20% year over year or by 234,000 clients on a sequential basis (quarter over quarter), to 4.1 million. Management said that the company saw strong client demand from first-time and reactivated clients, resulting in its second-highest quarter-over-quarter client additions on record. During the quarter, the company expanded the rollout of Fix Preview across the US and the UK. Fix Preview allows clients to view the items that they are supposed to receive before they are shipped. Management said that about three-quarters of its clients in the US and the UK have opted to use Fix Preview as of June 7, 2021. The company expects the broader expansion of Fix Preview to improve client conversion and retention rates as well as increase average order values. In March 2021, Stitch Fix launched “Shop by Category” for existing clients, enabling them to shop by trend, department or their favorite brands and receive personalized recommendations within each category. Management said that following the launch of Shop by Category, the company saw a significant increase in client engagement and average weekly units ordered per client, which reached a record high in the third quarter. Stitch Fix reported a loss of $18.8 million, versus a loss of $33.9 million in the same quarter last year.
Outlook	For the next quarter, 4Q21, Stitch Fix expects year-over-year sales growth of 21.8%–24.0% and an adjusted EBITDA margin of 2.8%–3.6%. For fiscal 2021, the company forecasts sales growth of 20.9%–21.5% year over year and an adjusted EBITDA margin of 1.2%–1.4%.

Home and Home-Improvement Retailers

Furniture and furnishings retailer RH had an outstanding quarter, with sales having grown by more than 40% compared to the corresponding period two years ago, before the pandemic. ­In the week ended June 2, Williams-Sonoma posted a double-digit revenue increase on a two-year basis. Home Depot and Lowe’s also had a stellar quarter—both retailers reported quarterly sales growth of roughly 40% on a two-year basis in the week ended May 23. Similarly, in the week ended May 16, Tractor Supply and Wayfair posted outstanding sales growth compared to the corresponding period before the crisis.

	RH (NYSE: RH) 1Q21
Commentary	Total sales grew 78% year over year or by 44% on a two-year basis. The company’s adjusted operating margin increased by 1,260 basis points year over year to 22.6%, and RH management highlighted this margin as a record in the furniture and home-furnishings market, 25% higher than its closest competitor. The company noted that demand for its products had accelerated sharply, with core demand increasing by 109% year over year in the first quarter—the strongest demand trends in the furniture and home-furnishing industry. RH expects demand trends to maintain growth momentum through the remainder of the year.
Outlook	For 2Q21, RH forecasts sales growth of 35%–37% year over year and an adjusted operating margin of 25%–26%. The company has revised up its fiscal 2021 guidance and now expects sales growth of 25%–30% year over year versus its prior expectation of 15%–20%. RH now expects an adjusted operating margin of 23.5%–24.3%, an increase of 170–250 basis points year over year, versus its prior expectation of a 100–200-basis-point increase. CEO Gary Friedman said, “While fiscal 2021 will surely be a tale of two halves, there are many data points that lead us to feel optimistic that our strong performance will continue through the second half of 2021, with growth accelerating in fiscal 2022 and beyond. These include a strong housing and renovation market both with pent-up demand and a long tail, a record stock market, low interest rates and the reopening of several large parts of our economy.”

Looking Forward

Although consumers are increasingly returning to public places and social activities, the latest quarter saw household goods continue to perform extremely well: RH posted sales growth of over 40% compared to the corresponding period before the crisis. For fiscal 2021, RH expects double-digit sales growth and adjusted operating margin expansion year over year, driven by strong demand in the housing and renovation market, continued low interest rates, a bullish US stock market and the reopening of large parts of the US economy. In prior weeks, Williams-Sonoma, Home Depot, Lowe’s, Tractor Supply and Wayfair have posted outstanding sales growth on a two-year basis. Online apparel retailer Stitch Fix continued its growth momentum from last quarter, with double-digit sales growth compared to the corresponding quarter in 2019, driven by a 20% year-over-year increase in its active client base. The online retailer continues to ramp up its new offerings with the recent launch of Shop by Category and the ongoing rollout of its new Fix Preview feature. For fiscal 2021, Stitch Fix forecasts sales growth of more than 20% and adjusted operating margin expansion year over year.