Introduction

Our weekly Earnings Insights reports look at key commentary and qualitative insights from major US retailers and brand owners on their recent revenues and comps, and the impact of the Covid-19 pandemic on 1Q22 performance (ended April 30, 2022, for most companies). Companies featured are those on our Coresight 100 list, and we focus on those that reported in the week ended May 15, 2022. For most US retail companies covered in this series, the quarter under review will be the 1Q22. In January 2022, US retail sales increased by a revised 9.4% year over year, suggesting that the economy is continuing to grow despite inflation and concerns of a looming recession. In February 2022, US retail sales increased by a revised 13.1% year over year, boosted by another strong month of job creation, as average hourly wages continue to rise within the still-tight labor market. In March 2022, US retail sales increased by around 4% year over year, against strong 2021 comparatives. However, circa-4% growth amidst a backdrop of high inflation points to a real-terms slowdown in retail spending. April 2022 retail sales growth accelerated to 6.4%, but continued to trail retail inflation, reflecting a further erosion in total sales volumes, year over year. US retail traffic saw growth of 16.5% year over year in March 2022—lower than February’s growth of 31.9%, with trends affected by intense winter storms. We assess the recent performance of selected retailers below.

Apparel and Footwear Brand Owners

Most apparel and footwear brand owners continue to witness strong topline expansion in a context of rising prices: Inflation in apparel and footwear stood at 6.6% in February, rose to 6.8% in March and eased to 5.4% in April, per the Bureau of Labor Statistics. In the latest quarter, Under Armour reported single-digit sales growth year over year. Last week we saw Carter’s and Gildan Activewear report strong double-digit sales growth year over year, whereas Hanesbrands reported single-digit sales growth. However, Crocs reported a low-single-digit sales decline. In the week ended May 1, we saw Columbia Sportswear Company, Levi’s and Skechers report double-digit sales growth year over year.

	Under Armour (NYSE: UAA) Transition Quarter ended March 31, 2022
Commentary	Per a February 2021 announcement, Under Armour changed its fiscal year-end from December 31 to March 31. Following a three-month transition period (January 1, 2022–March 31, 2022), Under Armour’s fiscal year 2023 will run from April 1, 2022, through March 31, 2023. Consequently, there will be no fiscal year 2022. In its transition quarter ended March 31, 2022, Under Armour reported a 3.0% year-over-year increase in revenue versus 9.0% growth in the prior quarter. Due to elevated freight expenses, the company’s gross margin decreased by 350 basis points (bps) year over year to 46.5%. By distribution channel, wholesale revenue increased by 4.0% year over year, driven by an increase in the company’s distributor business and off-price sales growth. Direct-to-consumer (DTC) revenue increased by 1.0% year over year, driven by  2.0% year-over-year growth in e-commerce, with online sales representing 45.0% of the total DTC business during the quarter. By category, apparel revenue increased by 8.0%, year over year, driven by strong sales growth in the training and team sports categories. Footwear revenue decreased by 4.0% due to Covid-19 related supply constraints, and accessories revenue decreased by 18.0% due to lower sales of sports masks compared to last year. By geography, North America witnessed revenue growth of 4.0% year over year, driven by growth in the wholesale and DTC businesses. International revenue increased by 1.0% year over year. Within the international business, Europe, the Middle East and Africa’s (EMEA) revenue increased by 18.0% year over year, while the Asia-Pacific region (APAC) saw a 14.0% decline in revenue due to Covid-19-related inbound shipping delays and challenging market conditions amplified by retail store closures and restrictions in China. Latin America’s revenue declined by 6.0%, owing to changes in the company’s business model as the company transitioned certain countries in the region to a strategic distributor model.
Outlook	For fiscal 2023, Under Armour expects a revenue increase of 5.0%–7.0% year over year, reflecting a mid-single-digit sales growth rate in North America and a low-teens growth rate in its international business. It expects gross margin to be down 150­–200 bps due to expected inflationary pressures on freight and product costs. The company expects adjusted EPS to be between $0.63 and $0.68. For the first quarter of fiscal 2023, the company expects revenue to be flat to down slightly versus the prior-year quarter. Due to higher freight costs, the company expects its first-quarter gross margin to be down 250 bps compared to the prior year.

 

Beauty Brands and Retailers

Beauty brand owners are reporting solid sales recoveries. Coty reported double-digit sales growth year over year in its latest quarter. Last week, we saw Estée Lauder report double-digit sales growth year over year. Similarly, in the week ended May 1, L’Oréal reported double-digit year-over-year sales growth.

	Coty (NYSE: COTY) 3Q22
Commentary	Coty reported a 15.0% year-over-year sales increase versus 12.0% growth in the prior quarter, while comparable-store sales increased by 13.0% year over year. Adjusted EPS increased by 200.0% year over year. Adjusted gross margin increased by 240 bps year over year to 64.6%, driven by a favorable product and category mix and pricing. By segment, prestige reported 21.0% year-over-year sales growth, driven by strength across all regions, including continued recovery in most EMEA markets, travel retail and the US. Prestige fragrance sales continued to grow at a double-digit pace in the third quarter, with nearly all brands—particularly Burberry, Chloe, Gucci and Hugo Boss—showing strong sales results. Prestige cosmetics sales nearly doubled during the quarter, driven by strong performances of Gucci Makeup, Kylie Cosmetics and Burberry Makeup. The consumer beauty segment saw 8.0% year-over-year sales growth, with strong performance across color cosmetics, mass fragrances and body care. By geography, the company saw sales growth across all regions and travel retail. The Americas’ sales grew 17.0% year over year, driven by strong growth in the prestige and consumer beauty segments. EMEA sales increased by 16.0% year over year, driven by a double-digit sales increase in the prestige and consumer beauty segments after Covid-19-related restrictions from the prior year were relaxed. APAC sales increased by 9.0% year over year, surpassing pre-Covid-19 levels, fueled by substantial expansion in regional travel retail. During the The customers can easily experiment with the wide shade variety Sally Hansen offers before purchasing without making a mess. This creates an entirely new shopping experience, whether buying online or in-person, that makes testing nail polish accessible, hygienic and easy.
Outlook	For fiscal 2022, Coty reiterated its comparable sales guidance, expecting growth at the upper end of the previously guided range of low-to-mid-teens percentage growth year over year. Based on current foreign exchange rates, Coty expects a 4.0%–5.0% headwind to its reported sales in the fourth quarter of 2022. Coty raised fiscal 2022 adjusted EPS guidance and now expects it between $0.23 and $0.27, up from the previously guided range of $0.22–$0.26. The company continues to expect adjusted EBITDA of $900 million for fiscal 2022 as it navigates the inflationary environment while intentionally reinvesting gross margin gains and cost savings in its brands to maximize value.

 

E-Commerce and Other Home-Shopping

E-commerce and other home-shopping players reported weak top-line performances during the quarter. Qurate Retail reported a double-digit year-over-year sales decline in its latest quarter. In the week ended May 1, we saw Amazon report high-single-digit year-over-year sales growth; however, at constant currency, first-party online sales turned negative with (1.0)% growth.

	Qurate Retail, Inc. (NasdaqGS: QRTE.A) 1Q22
Commentary	Qurate’s sales declined by 14.0% year over year, versus a 9.0% decline in the prior quarter. Adjusted EPS declined by 68.8% year over year. By banner, QxH’s sales declined by 13.0% year over year due to a 12.0% decrease in units shipped, reflecting supply chain constraints, product scarcity for home and electronics items, and weakened consumer sentiment due to inflation. QVC International’s sales declined by 13.0% due to a 6.0% decline in units shipped, supply chain constraints, product scarcity and weakened consumer sentiment driven by the Russian-Ukraine war, which particularly affected QVC International’s European markets. Zulily’s sales declined by 38.0%, reflecting supply-chain-drive product scarcity and marketing inefficiencies. Cost inflation and privacy changes on certain social media platforms caused Zulily to reduce its marketing spend, affecting customer acquisition and retention. Meanwhile, Cornerstone’s sales increased by 19.0%, driven by strong growth in its home brands (Ballard Design, Frontgate and Grandin Road) and increased demand for apparel and home products from Garnet Hill, Cornerstone’s clothing and home furnishings brand. During the quarter, the company experienced a “favorable category mix shift into apparel” and a reduction in electronics and home segments. Apparel’s revenue increased by 2.0% year over year, driven by The beauty segment’s sales declined by 9.0% year over year due to weakness in the bath and body, skinAccessories’ sales fell by 15.0% due to lower demand for leather handbags and casual and athletic footwear. The home segment’s sales declined by 16.0% as the demand was lower in the floor care, fitness, wellness, kitchen electrics and cookware categories. Electronics sales declined by 27.0%, with the computers, home office, smart home and tablets categories facing demand challenges. CEO David Rawlinson stated, “Our first quarter results reflect the continued challenges of operating amidst extreme supply chain disruptions. In addition, heightened inflationary pressure and the situation in Ukraine led to depressed consumer sentiment and we experienced a larger-than-expected operational disruption related to the December fire at our Rocky Mount, NC fulfillment center. While our turnaround will take time and progress may not be a straight line, we are starting from a position of strength with scale in our television and streaming reach, a strong financial profile and core competencies in building consumer engagement.”
Outlook	The company did not provide guidance; however, management stated that it is committed to maintaining cost discipline as an important driver of future value creation. The company is undergoing a significant turnaround, and it is working through the factors within its control to return the business to growth.

 

Food Retailers

Food retailers are witnessing strong sales growth in the quarter, amid high inflation: Food-at-home inflation escalated from 8.6% in February to 10.0% in March and 10.8% in April, per the Bureau of Labor Statistics. Weis Markets posted high-single-digit growth year over year in its latest quarter. Last week, we saw Sprouts Farmers Market report single-digit year-over-year sales growth. In the week ended May 1, we saw Albertsons Companies post double-digit year-over-year sales growth.

	Weis Markets, Inc. (NYSE: WMK) 1Q22
Commentary	Weis Markets reported 9.7% sales growth year over year, versus 8.0% growth in the prior quarter, while comp sales increased by 9.4% year over year, accelerating sequentially from the fourth quarter of 2021’s year-over-year increase of 6.9%. Diluted EPS increased by 30.0% year over year. CEO Jonathan Weis said, “We continued to build on our momentum in the first quarter, when we generated strong comparable store sales and net income increases. Despite significant inflationary pressures, we were able to maintain stable gross profit margins and effectively manage expenses.”
Outlook	The company did not provide financial guidance.

 

Luxury Companies

	Tapestry (NYSE: TPR) 3Q22
Commentary	Tapestry reported 12.9% year-over-year growth in its second quarter, versus 27.0% growth in the prior quarter, reflecting strong double-digit growth across all three brands. Adjusted EPS increased by 15.7% year over year. Digital sales increased by 20.0% year over year. Gross margin declined by 160 bps year over year to 69.9% due to an incremental impact of 440 bps from higher freight costs. By brand, Stuart Weitzman’s revenues were up 11.0% year over year. Kate Spade’s revenues were up 19.0% year over year, including a 25.0% increase in North American business. Coach revenues were up 11.0% year over year, including a nearly 20% gain in North America. By geography, North American revenues were up 22.0% year over year, reflecting growing demand for all brands. In Mainland China, sales were down in the mid-teens year over year, as close to 40% of its store network in China was closed (or open modified hours) due to Covid-19-related lockdowns. In Europe, sales were up 60.0% year over year, reflecting improving trends related to local demand. In Japan, sales were up in the mid-single-digits versus last year, as Covid-19 lockdowns and cases eased in the region. During the quarter, the company acquired over 1.4 million new customers who transacted with its brands across channels in North America, representing a mid-teens increase compared to the prior year, with continued sales growth in both stores and online.
Outlook	Tapestry maintained its full-year fiscal 2022 revenue guidance of $6.7 billion, representing annual sales growth of 20.0% year over year. It lowered its diluted EPS guidance to $3.50 from the previous guidance of $3.60–$3.70, representing year-over-year growth of 20.0%. It expects a gross margin decline compared to the prior year due to a $175 million headwind (or 260 bps of margin) from high freight expenses and “geographic mix pressure” from ongoing disruptions in China, which is a high-margin business. CEO Joanne Crevoiserat remarked on an earnings call that the company strategically raised prices over the last quarter and plans further price increases to mitigate inflationary pressures. In the fourth quarter, the company expects continued revenue growth in North America and Europe, and accelerating growth in the rest of Asia, to partly offset the near-term disruption in China, where it expects revenues to decline by 35.0%.

 

Looking Forward

Apparel and footwear brand owners continue to witness strong sales growth, with Under Armour reporting single-digit year-over-year sales growth in its transition quarter. For fiscal 2023, the company expects mid-to-high-single-digit year-over-year sales growth. Last week, Carter’s and Hanesbrands reported that they expect positive sales growth for fiscal 2022, while Gildan’s three-year CAGR outlook (between 2021 and 2024) reflects net sales growth of high-single-digit to double-digits. In the week ended May 1, we saw Columbia Sportwear Company, Levi’s and Skechers report that they expect double-digit net sales growth for fiscal 2022. However, these companies also expect supply chain headwinds and Covid-19-related impacts in China to affect their businesses in the near term. Beauty brand owners are reporting solid sales growth, with Coty posting strong double-digit sales year-over-year growth in its latest quarter. For fiscal 2022, Coty raised adjusted EPS guidance and reiterated its comparable sales guidance, expecting growth at the upper end of the previously guided range. Last week, Estée Lauder revised down its revenue growth guidance for fiscal 2022 and now expects high-single-digit growth year over year. In the week ended May 1, L’Oréal did not provide financial guidance for fiscal 2022; however, it remains optimistic about the outlook for the beauty market in the coming months. Beauty brand owners are witnessing consumer demand for the makeup category return as more consumers continue to return to workplaces and social outings. Home-shopping platform Qurate Retail reported a double-digit year-over-year sales decline in its latest quarter. The company did not provide financial guidance for fiscal 2022; however, management stated that it is committed to maintaining cost discipline as an important driver of future value creation. In the week ended May 1, we witnessed Amazon report that it expects revenue growth of low-to-high-single-digit in the second quarter of fiscal 2022. Food retailers are witnessing strong sales growth in the quarter, with Weis Markets posting high-single-digit year-over-year sales growth in its latest quarter. The company did not provide financial guidance. Last week, Sprouts Farmers Market reported that it expects sales growth, comparable store sales growth and EPS to be at the lower end of the previously provided guidance. Meanwhile, in the week ended May 1, we saw Albertsons raise its comp sales guidance. Luxury company Tapestry posted strong double-digit year-over-year sales growth in its latest quarter. For fiscal 2022, the company revised down its diluted EPS guidance and now expects mid-teens sales growth year over year. Tapestry plans to increase merchandise prices further in the coming quarter to mitigate inflationary pressures.