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 29, 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 revised 3.8% year over year, against strong 2021 comparatives. However, 3.8% growth amidst a backdrop of high inflation points to a slowdown in consumer spending. In April 2022, US retail sales grew 6.4% year over year, against strong 2021 comparatives, indicating that retail sales are healthy. US retail traffic increased by 20.9% year over year in April 2022—higher than March’s growth of 16.5% year over year, however, the average ticket size continues to be impacted by inflation. We assess the recent performance of selected retailers below.

Apparel and Footwear Brand Owners

Apparel and footwear brand owners continue to report strong sales growth. In the latest quarter, Guess and Ralph Lauren reported double-digit sales growth year over year. Last week, we saw Deckers report double-digit sales growth year over year, while VF Corporation reported high-single-digit sales growth. In the week ended May 15, we saw Under Armour report single-digit sales growth year over year. In the week ended May 8, we saw Carter’s and Gildan Activewear report strong double-digit sales growth year over year, while 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 all report double-digit sales growth year over year.

	Guess, Inc. (NYSE: GES) 1Q23
Commentary	Guess reported revenue growth of 14.0% year over year, versus 23.4% growth in the prior quarter. Its adjusted EPS increased by 14.3% year over year, while its e-commerce business was flat year over year. The company’s adjusted operating margin increased by 200 bps year over year to 7.0%, driven primarily by leveraging of expenses and partially offset by higher store labor costs in the Americas’ region and unfavorable currency impact. Guess saw strength in both the women’s and men’s apparel categories. According to management, dresses, pants, sweaters, and woven tops registered strong sales growth in the women’s segment. The company also stated that demand for handbags remained solid. In the men’s segment, blazers, pants, outerwear and woven shirts categories registered strong sales growth. By geography, the Americas’ retail revenues increased by 7.0% year over year, with retail comp sales, including e-commerce, increasing by 3.0%. Americas’ wholesale revenues increased by 50.0% year over year. The company experienced expense pressure in the Americas region due to increased wages and inflation. Altogether, this resulted in almost five percentage points of deleveraging in the quarter. Europe’s total revenues increased by 14.0% year over year, as the company enjoyed a full period with open stores compared to significant closures in the same year-ago quarter. Asia’s total revenues increased by 1.0%, impacted by Covid-19 related shutdowns in China. The company’s Marciano brand registered double-digit sales growth in every region.
Outlook	For fiscal 2023, assuming no meaningful Covid-19 related shutdowns in the US, the company expects revenues to be up around 4.0% in US dollars (10.0% in constant currency) versus fiscal 2022 and adjusted operating margins to reach approximately 10.3%. The company plans to open 60 new stores in North America and Europe and remodel 370 additional locations between the two regions by the end of calendar 2022. For 2Q23, Guess expects revenues to be up 1.0% in US dollars (8.0% in constant currency) versus 2Q22 and its operating margin to reach approximately 7.5%.
	Ralph Lauren (NYSE: RL) 4Q22
Commentary	In the fourth quarter of fiscal 2022, Ralph Lauren’s revenue increased by 18.0% year over year versus 27.0% growth in the prior quarter. Its adjusted EPS increased by 28.9% year over year. The company’s adjusted gross margin was up 40 bps year over year to 63.3%, driven by average unit retail (AUR) growth across all regions as well as favorable channel and geographic mix shifts, which more than offset increased freight, raw materials and labor input costs. By geography, North American total revenues increased by 19.0% year over year, and comparable store sales were up 21.0%, with a 19.0% increase in brick-and-mortar stores and a 27.0% increase in digital commerce. European revenues increased by 26.0%, and comps grew 77.0%, with a 145.0% increase in brick-and-mortar stores. The brick-and-mortar increase offset a 2.0% decrease in digital commerce compared to 79% growth in the prior year’s same quarter, when a significant portion of the stores were closed due to Covid-19. In Asia, revenues grew 20.0% while comps increased by 12.0%, with 10.0% growth in brick-and-mortar stores and a 46.0% increase in digital commerce. The company saw consumers gravitate back to more sophisticated luxury and formal wear looks. It continued to drive a mix of elevated but comfortable casual styles. Ralph Lauren continues to leverage the following strategies: Win over a new generation of consumers—Via diverse content and market investments, the company continued its momentum in global brand consideration and purchase intent by customers. Energize core products and accelerate under-developed categories—The company expanded high-potential categories to deliver compelling new assortments that resonate with post-pandemic consumer wardrobing. Special releases included Polo Color Shop, its Team USA Olympics line and Lunar New Year gifting collections. Drive targeted expansion in regions and channels—The company delivered growth across every region in the quarter. Lead with digital—Total Ralph Lauren digital ecosystem revenues grew by low-double-digits year over year. Operate with discipline to fuel growth—The company’s fourth-quarter adjusted operating margin was up 20 bps year over year to 3.6%. Inventories are healthy and well-positioned to support fiscal 2023 product elevation and growth plans by region, and the company deliberately shifted inventory receipts earlier to mitigate global supply chain disruptions.
Outlook	For fiscal 2023, Ralph Lauren expects its revenues to increase by a high-single-digit on a constant-currency basis, with its current outlook at around 8%. The company expects operating margin growth to increase by 90–140 bps year over year and its gross margin to increase by 30–50 bps year over year, with stronger AUR and favorable product and channel mix offsetting freight and product cost inflation. For 1Q23, the company expects revenue growth of around 8% in constant currency. It expects its operating margin to be approximately 13.5% in constant currency, reflecting increased headwinds from higher freight and marketing expenses, which are expected to normalize in the second half of the year. The first quarter outlook reflects confirmed government-mandated lockdowns and other Covid-19 related restrictions, notably in China.

Apparel Specialty Retailers

	American Eagle Outfitters (NYSE: AEO) 1Q23
Commentary	American Eagle Outfitters’ total revenues increased by 2.0% year over year, missing the company’s estimates and decelerating from 14.7% growth in the prior quarter. Comparable sales increased by 2.0%, versus 14.8% growth in the prior quarter. The company’s digital revenues declined by 6% year over year against strong comparatives. By banner, Aerie’s sales grew by 8.0% year over year versus 27.0% growth in the prior quarter, and American Eagle’s sales declined by 6.0% versus 11.0% growth in the prior quarter. The company’s gross margin contracted by 540 bps year over year to 36.8%, mainly caused by high freight costs, which impacted its gross margin by 340 bps, and disruption in its supply chain business, which impacted its gross margin by 120 bps. Its operating margin was 4.0%, down 890 bps year over year, and its adjusted EPS declined by 65.2% year over year. Management stated that accessories, apparel, beauty, intimates and leggings categories saw strong momentum in the quarter, but the demand for swimwear was weak due to cold weather. The company also stated it will continue to expand its Aerie banner, opening 12 new stores in the quarter, including a mix of stand-alone and side-by-side formats with its brand OFFLINE.
Outlook	The company revised down its revenue and operating income outlook for fiscal 2022 due to shifts in the macro-economic environment. For 2022, the company expects year-over-year revenue growth to be in the low single digits versus its prior expectations of growth in mid-teen percentages. It now expects its operating income to be above $314 million, versus its previous guidance of $550–600 million, a 47.9% decline year over year. For 2Q22, the company expects revenue growth to be in-line with 1Q22 and gross margin to be about 33%, reflecting elevated freight costs, higher markdowns to clear spring inventory and the impact of supply chain acquisitions. Management said that the company will enter the second half of the year with a more balanced inventory position and leaner expense base, driving improved operating margins and net income relative to the first half.
	Dick’s Sporting Goods (NYSE: DKS) 1Q22
Commentary	Dick’s Sporting Goods’ total revenues declined by 7.5% year over year versus 7.3% growth in the prior quarter. Total comparable sales declined by 8.4% year over year versus 5.9% growth in the prior quarter. Management said that the negative comps reflect the “anniversary” (cycling) of notable stimulus payments in the same quarter last year, along with sales normalization in certain categories that surged amid the pandemic, such as fitness and outdoor equipment. The company witnessed a 2.0% decline in average ticket price and a 6.4% decrease in transactions. Management stated that its private-label brands, including CALIA, DSG and VRST, continued to perform well. These private labels represent the company’s largest brands in the fitness, golf, team sports and outdoor equipment categories. The company’s gross profit margin declined by 83 bps to 36.7% due to a 103 bps increase in supply chain-related costs and a “leverage on fixed occupancy cost of approximately 1,000 basis points from the significant sales increase,” partially offset by continued merchandise margin rate expansion. Adjusted EPS declined by 24.8% year over year versus 49.8% growth in the prior quarter. CEO Lauren Hobart said, “Our new concepts, including DICK'S House of Sport, Golf Galaxy Performance Center, Public Lands and Going, Going, Gone!, are delivering promising early results. Today, we are really excited to open our third House of Sport store in Minnetonka, Minnesota. House of Sport has exceeded our expectations and has been a great example of the power of elevated service, community engagement and merchandise presentations. We look forward to continuing to refine and grow these concepts.”
Outlook	For fiscal 2022, Dick’s has revised down its comp and adjusted EPS guidance. The company now expects its adjusted EPS to be down by 25.5%–41.7% year over year versus its prior guidance of 16.6%–25.5% decline, and it forecasts comps to be (2.0)%–(8.0)% versus prior guidance of flat to (4.0)%. It reiterated its plans to spend $400–425 million on capital expenditure on a gross basis in 2022, compared to $308 million on capital expenditure in 2021.
	Foot Locker (NYSE: FL) 1Q22
Commentary	Foot Locker’s total revenues increased by 1.0% year over year, decelerating from 6.9% growth in the prior quarter. Comparable sales decreased by 1.9% versus an 0.8% increase in the prior quarter. The company’s digital penetration stood at 18.3% at the end of 1Q22, compared to 24.8% in 1Q21. While overall comps were down 1.9%, comp growth from non-NIKE vendors was in the high teens as the company continues its efforts to rebalance its assortment to promote vendor diversity. Management stated that the strong momentum of brands including Adidas, Converse Crocs, New Balance and PUMA during the first quarter showcased the expanding breadth of its consumer sneaker offerings, which now cover athletic, outdoor and seasonal categories. The company’s gross margin declined by 80 bps year over year to 34.0% due to elevated supply chain costs and slightly higher markdowns, while its adjusted EPS declined by 18.4% year over year. Foot Locker continued to expand its apparel category in the quarter. CEO Richard Johnson stated, “Our efforts to grow our apparel and accessories business continue to yield results with the categories well outpacing footwear once again, comping up over 10% despite difficult year-over-year comparisons. Private label continues to be an important driver of our apparel business with Locker and Cozi continuing to gain traction in their early days and co-created brands like All City and Melody Ehsani performing well with new drops in March and April.” During the first quarter, Foot Locker opened 24 new stores, remodeled or relocated 23 stores and closed 67 stores.
Outlook	Foot Locker updated its financial guidance for fiscal 2022. The company now expects total sales change to be at the “upper end of down 4%–6%” and comparable sales growth to be at the “upper end of down 8%–10%.” The company now forecasts a gross margin of 30.6%–30.8% versus its prior guidance of 30.1%–30.3%, and adjusted EPS at the upper end of $4.25–$4.60 versus its previous guidance of $4.30–$4.60. In fiscal 2022, the company plans to open about 100 new stores, including 40 power and community stores, 27 WSS (a US-based apparel and footwear company acquired by Foot Locker in 2021) stores and nine Atmos (a Japan-based apparel and footwear company acquired in 2021) stores, while also closing a total of 190 stores. Foot Locker stated that it expects to increase WSS’s sales to $1 billion by 2024, at a sales CAGR of 20% between 2022 and 2024, supported by accelerated store openings and strong same-store sales growth. Foot Locker also reiterated its plan to expand Atmos’s sales by about 50% annually to nearly $300 million by 2024 by expanding internationally and scaling up in the company’s existing markets.
	Gap (NYSE: GPS) 1Q22
Commentary	Gap’s total revenues declined by 13.0% year over year, compared to a 2.0% increase in the prior quarter. Comparable sales were down 14.0% versus a 3.0% increase in the previous quarter, while digital sales were down 17.0% year over year, representing 39% of the total business. By brand, Athleta’s sales increased by 4.0% year over year, Banana Republic’s sales increased by 24.0%, Gap’s sales decreased by 11.0% and Old Navy’s sales declined by 19%. In terms of comps, Athleta reported a 7.0% decline year over year, Banana Republic reported a 27.0% increase, Gap saw a decline of 11.0% and Old Navy reported a 22.0% decline. The company’s gross margin stood at 31.5%, down 930 bps year over year due to incremental transitory air freight costs, higher discounting at Old Navy and inflationary commodity price increases; however, the company partially offset these issues with lower discounting at Banana Republic banner. CEO Sonia Syngal stated, “We expected tough first half compares driven by moderate product delays due to supply chain disruptions last year as well as lapping the brand's disproportionate benefit from last year's stimulus. In addition, we also expected continued assortment imbalances given the numerous pivots to fashion, such as dresses, pants and tops, which were underrepresented in Old Navy's women's product mix. Old Navy was especially disadvantaged given their leadership in fleece, active and kids and baby, categories that grew significantly during the height of the pandemic and experienced lower-than-expected demand during the first quarter.”
Outlook	Gap lowered its financial guidance for fiscal 2022. The company now expects sales to decline low- to mid-single-digit year over year versus its prior guidance of low-single-digit sales growth. The company issued a new adjusted operating margin guidance of 1.5%–2.5%, versus its previous guidance of 6.0%–6.5%, and now forecasts adjusted EPS to be $0.30–$0.60 versus the prior guidance of $1.85–$2.05. Syngal said, “The majority of the sales and earnings reduction from our prior guidance stems from Old Navy, primarily assortment imbalances and lower-than-anticipated demand in key categories like active, fleece and kids and baby. While the primary impact of soft demand in active, fleece and kids and baby is being felt at Old Navy, our Gap and Athleta brands are not immune to this customer shift.” For fiscal 2022, Gap reiterated its capital expenditure guidance of about $700 million, primarily to support growth investments, including digital and supply chain capacity projects and store growth for its Athleta and Old Navy banners. In fiscal 2022, Gap plans to open 30–40 stores each for Old Navy and Athleta, and close about 50 Gap and Banana Republic stores in North America.
	Urban Outfitters (NasdaqGS: URBN) 1Q23
Commentary	Urban Outfitters reported a revenue increase of 13.4% year over year, versus 22.4% growth in the prior quarter. At the same time, comparable sales increased by 11.0% year over year, decelerating from 14.0% in the previous quarter. By brand, Anthropologie led the way, with comps of 18% year over year—followed by Free People and Urban Outfitters, which posted comp growth of 15.0% and 1.0%, respectively. By segment, retail saw total sales growth of 12.0% year over year, while wholesale’s net sales increased by 6.0%. The company’s gross margin declined by 168 bps year over year to 30.7% due to supply chain disruptions and continued elevated inbound freight costs. The company witnessed strong demand across all categories during the first quarter, with women’s apparel and home furniture performing the strongest. Urban Outfitters stated that demand for dresses and occasion wear is growing substantially as weddings and events are once again occurring.
Outlook	Urban Outfitters did not provide financial guidance, but management anticipates sales growth to decelerate sequentially in the second quarter. CFO Melanie Marein-Efron said, “We believe our Retail segment comp sales growth could land in the low single-digit range and Wholesale segment sales could grow in the mid-single digits. Together, this would result in total company sales growth in the low single-digit range.” Furthermore, the company forecasts that its gross margins for 2Q22 will be down by about 500 bps year over year due to ongoing supply chain challenges and increased inbound product transportation costs.

Beauty Brands and Retailers

Ulta Beauty posted double-digit year-over-year sales growth. Last week, we saw Bath & Body Works report low-single-digit sales growth year over year, while, in the week ended May 15, Coty reported strong double-digit sales growth year over year. Similarly, in the week ended May 8, we saw Estée Lauder report double-digit sales growth year over year. In the week ended May 1, L’Oréal reported double-digit year-over-year sales growth.

	Ulta Beauty (NasdaqGS: ULTA) 1Q22
Commentary	Ulta Beauty’s total revenues increased by 21.0% year over year versus 24.1% in the prior quarter, while its comp sales increased by 18.0% year over year and its EPS increased by 53.7% year over year. The sales growth was driven by the favorable impact of fewer Covid-19 restrictions compared to 1Q21. The company’s gross margin increased by 120 bps year over year to 40.1%, driven by leveraging fixed costs and favorable channel mix shifts, but partially offset by lower merchandise margin. By category, bath and fragrance, haircare, makeup and skincare all delivered double-digit comp growth year over year. Sales of makeup exceeded pre-pandemic levels in both mass and prestige cosmetics. Compared to 1Q21, prestige cosmetics outperformed mass cosmetics, driven by new and expanding brands and the strong 21 Days of Beauty event. According to the company, store traffic trends were strong in the quarter as guests capitalized on their preference for in-store shopping, with store capacity returning to normal levels. In April 2022, as guests started returning to stores, the company relaunched makeup services in all stores, just in time to support special events such as proms, graduations and weddings. The company also expanded and enhanced its digital experiences by launching two virtual try-on tools, each powered by technology developed by companies Ulta Beauty invested in via its digital innovation fund. First, it launched GLAMlab Skin Advisor 2.0, powered by global artificial intelligence startup pot.ai., a skin analysis technology that provides guests with a more accurate skin diagnosis. Secondly, it launched GLAMlab Hairstyle Try-On powered by Restyle, a beauty tech startup that uses artificial intelligence and machine learning to enable virtual try-on of more than 50 different hairstyles. The company continued to enhance and expand its partnership with Target, opening 26 Ulta Beauty locations in Target shops, ending the quarter with 127 locations. The company opened 10 and relocated six standalone stores during the quarter.
Outlook	For fiscal 2022, Ulta Beauty raised its sales, comp sales, operating margin and EPS guidance. It now expects sales of $9.4–9.6 billion, compared to its prior guidance of $9.1–9.2 billion, representing growth of 9.3%– 11.6% year over year. It expects year-over-year comp sales growth of 6.0%–8.0%, compared to its previous guidance of 3.0%–4.0%, and an operating margin of 14.1%–14.4%, compared to its prior guidance of 13.7%–14.0%. The company expects EPS of $19.20–$20.10, compared to the previous guidance of $18.20–$18.70, representing 6.8%-11.8% year-over-year growth. This updated outlook reflects year-to-date trends while considering uncertainties that could impact the second half of the year, including inflation and the impact of increased points of distribution for prestige beauty. Ulta Beauty expects a stronger first half and weaker second half, when comps growth is projected to be at a low-single-digit rate. In fiscal 2022, Ulta Beauty plans to open 50 new stores and remodel or relocate 35.

Department Stores

Macy’s and Nordstrom reported double-digit sales growth. Last week, however, we saw Kohl’s report a single-digit sales revenue decline year over year.

	Macy’s (NYSE: M) 1Q22
Commentary	Macy’s reported total sales growth of 13.6% year over year, versus 27.8% growth in the prior quarter. Comparable sales increased by 12.8% year over year, while adjusted EPS increased by 176.9% year over year. The company’s gross margin for the quarter was up 100 bps year over year to 39.6% due to higher average unit retail because of lower promotions on regular price merchandise, ticket price increases and category mix. Macy’s digital sales increased by 2.0% year over year. However, digital penetration was 33% of net sales, a four-percentage point decline from 1Q21. By banner, comp sales at Macy’s were up 10.7% year over year. Consumer shopping behaviors shifted during the quarter to more occasion-based apparel. As a result, dresses, women’s shoes, accessories and men’s tailored categories had strong sales performance. Bloomingdale’s comp sales increased by 28.1% year over year, driven by strong sales of dresses, men’s tailored and men’s and women’s contemporary apparel and luggage, with a particularly strong performance in the luxury clothing category. Bluemercury comp sales were up 25.2% year over year due to increased store traffic, better-than-expected private brand growth and increased demand for colorful lip, face and eye cosmetics. The company’s inventory was up 17.0% year over year. According to management, inventory performance was impacted by a decrease in demand for the active, casual, and soft home categories, increased demand for occasion-based apparel, and loosening supply chain constraints, which resulted in a higher percentage of inventory receipts than expected.
Outlook	For full fiscal 2022, the company reaffirmed its sales guidance but raised its adjusted EPS guidance. It expects sales growth to be flat to 1.0% year over year and digital sales penetration to be 35.0%, in line with 2021, down from the prior estimate of 37.0%. The company expects adjusted EPS in the range of $4.50–$4.90, compared to the previous guidance of $4.10–$4.50, representing a decline of 7.5%–15.1% year over year. For 2Q22, the company expects its net sales to be between $5.5 and $5.6 billion, representing flat growth year over year, and adjusted EPS to be in the range of $0.80–$0.90, representing a decline of 30.2%–34.9% year over year.
	Nordstrom (NYSE: JWN) 1Q22
Commentary	Nordstrom reported its total revenue increased by 18.7% year over year, versus 23.4% in the prior quarter. Gross merchandise value (GMV) increased by 19.6% year over year, and EPS increased by 112.4%. The company’s gross margin increased by 190 bps year over year to 32.8%, driven by improved merchandise margins from favorable pricing impacts and lower markdown rates. By banner, Nordstrom’s net sales increased by 23.5% year over year, and Nordstrom Rack’s net sales increased by 10.3%. Geographically, its Nordstrom banner in the Southern US—where 44.0% of the company’s stores are located—outperformed the Northern US market by three percentage points. Digital sales for the quarter were flat compared to the same period in fiscal 2021, as customers increasingly chose to shop in-store. Digital sales represented 39.0% of total sales. Sales in core categories, including men’s and women’s apparel and shoes, had the strongest growth year over year, as customers refreshed their wardrobes for social events, travel and office returns. Improvements were broad-based across regions, with urban stores experiencing the strongest growth as customer traffic returned in city centers. Men’s and women’s apparel had double-digit year-over-year growth, driven by suiting and dresses, with sales that exceeded pre-pandemic levels. Shoes had strong double-digit growth with increased demand across athletic, casual and formal styles. Management reported it had not seen an adverse impact on customer spending from inflationary pressures, which it suspects is due to the higher-income profile of its customer base. The company also increased average retail prices without negatively impacting transaction volumes. At the same time, it continues to consider macroeconomic headwinds, including the potential of more pronounced inflation impacts and supply chain disruption, both to its customer and margins.
Outlook	For fiscal 2022, the company raised its sales and EPS guidance and now expects its sales to grow 6.0%–8.0% year over year, compared to the prior guidance of 5.0%–7.0% growth. It expects a diluted EPS of $3.20–$3.50, compared to the previous guidance of $3.15–$3.50, representing year-over-year growth of 190.0%–218.2%. Nordstrom cited continued macro-related cost pressure in labor and fulfillment, which it factored into the revised guidance. The company expects these factors to affect its margins in the coming quarters. Nordstrom is launching Allbirds, a sustainable shoe brand, in selected stores beginning on June 1, with plans to launch on Nordstrom.com later this summer.

Discount Stores

	Dollar General (NYSE: DG) 1Q22
Commentary	Dollar General’s total sales increased by 4.2% year over year, versus 2.8% growth in the prior quarter. The company stated that the increase was driven by positive sales contributions from new stores and partially offset by a slight decline in same-store sales and the impact of store closures. Comparable sales declined by 0.1% year over year due to decreased customer traffic, despite being partially offset by an increase in the average transaction amount. The company’s diluted EPS declined by 14.5% year over year. Its comp sales in 1Q22 declined in the seasonal, apparel, and home products categories, but increased in the consumables category. Dollar General’s gross margin decreased by 151 bps year over year to 32.8%. The company stated that this decline was primarily because of higher production, transportation and distribution costs and a greater proportion of sales coming from the consumables category, which generally has a lower gross margin than other product categories. Increases in both markdowns as a percentage of sales and inventory damages also contributed. The company’s non-consumables initiative (NCI)—an expanded assortment in key non-consumable categories including home, domestics, housewares, and party and occasion—was available in nearly 13,000 stores at the end of the quarter. Management stated it is seeing strong sales and margin performances across its NCI store base, driving an average 2.5% increase in total comp sales in NCI stores. The company opened 11 new Popshelf stores during the quarter, bringing the total count to 66. Launched in 2020, Popshelf is a concept store that aims to engage customers by offering a different experience through continually refreshed merchandise, with about 95% of items priced at $5 or below. Dollar General’s merchandise inventories were $6.1 billion at the end of the quarter, representing a year-over-year increase of 19.4% overall and 13.3% on a per-store basis. This increase reflects the impact of product cost inflation and a greater mix of higher-value products, according to the company.
Outlook	Despite the ongoing uncertainties arising from product cost inflation and supply chain pressures, Dollar General raised its sales and comp sales guidance and reiterated the remainder of its financial guidance. For fiscal 2022, the company expects 10.0%–10.5% revenue growth year over year, compared to its prior guidance of 10.0% growth. It expects 3.0%–3.5% comp growth year over year, compared to the previous guidance of 2.5%, and expects EPS growth in the range of 12.0%– 14.0% year over year. It plans to spend $1.4–1.5 billion in capital expenditures in fiscal 2022. The company also reiterated its plans to execute 2,980 real estate projects in fiscal 2022, including 1,110 new store openings, 1,750 remodels and 120 store relocations. The company also plans to expand internationally, with the goal of opening up to 10 stores in Mexico by the end of 2022.
	Dollar Tree (NasdaqGS: DLTR) 1Q22
Commentary	Dollar Tree reported a revenue increase of 6.5% year over year, versus 4.6% growth in the prior quarter. Its comparable sales increased by 4.4%, while its EPS increased by 48.1%. The company’s gross margin was up 360 bps year over year to 33.9%, driven by improved initial mark-on, favorable product mix in the Dollar Tree segment and leverage on distribution and occupancy costs. This was partially offset by higher freight costs and markdowns. President and CEO Mike Witynski said, “During the quarter, the Dollar Tree team successfully completed its conversion to the $1.25 price point, contributing to both sales and margin improvements. Shoppers are responding favorably as the new greater value products hit our shelves. Importantly, other key strategic initiatives, including the expansion of the $3 and $5 Plus assortment in our Dollar Tree stores, as well as our Combo Stores and H2 renovations at Family Dollar are all working.” By banner, Dollar Tree comp sales increased by 11.2% year over year, driven by a 15.4% increase in average ticket and partially offset by a traffic decline of 3.6%. Family Dollar comp sales decreased by 2.8% year over year due to the significant stimulus dollars released in the prior year’s quarter. Additionally, for portions of 1Q22, approximately 400 Family Dollar stores were temporarily closed due to a product-related recall, negatively impacting the company’s quarterly comparable store sales by an estimated 200 bps. In its first quarter, Dollar Tree opened 112 new stores, expanded or relocated 33 stores and closed 30. Additionally, the company expanded its multi-price Plus offering into an additional 790 Dollar Tree stores and completed 118 Family Dollar store renovations.
Outlook	For fiscal 2022, Dollar Tree raised its sales, comp sales and EPS guidance and now expects sales of $27.8–28.1 billion, compared to prior guidance of $27.2–27.9 billion, representing 5.7%–6.8% year-over-year sales growth. The company estimates EPS in the range of $7.80–$8.20, compared to prior guidance of $7.60–$8.00, representing growth of 34.5%–41.4%. It expects mid-single-digit comp sales growth compared to the previous guidance of low- to mid-single-digit. For 2Q22, the company expects net sales of $6.7–6.8 billion (year-over-year growth of 5.7%–7.3%) based on a low to mid-single-digit increase in comp sales. It expects EPS for the quarter in the range of $1.50–$1.60, representing year-over-year growth of 21.9%–30.1%.

E-Commerce

E-commerce players are witnessing a mixed recovery. In the latest quarter, Alibaba posted high-single-digit sales growth year over. Last week, we saw JD.com post strong, double-digit year-over-year sales growth. In the week ended May 1, we saw Amazon post high-single-digit year-over-year sales growth; however, at constant currency, first-party online sales turned negative with growth of (1.0)%.

	Alibaba (NYSE: BABA) 4Q22
Commentary	Alibaba’s total sales increased by 9.0% year over year, versus 10.0% growth in the prior quarter. The sales growth was driven by its local consumer services and its Chinese commerce and cloud segments. Its adjusted EPS declined by 23.0% year over year. The number of annual active consumers (AACs) in the company’s ecosystem reached around 1.3 billion globally, a quarterly increase of 28 million. AACs grew to 24.6 million in China during the quarter, while AACs outside of China grew to 305 million, with a quarterly net increase of 3.7 million. Sales from its China commerce segment—which includes retail businesses such as Alibaba Health, Freshippo, Sun Art, Taobao, Taobao Deals, Taocaicai, Tmall, Tmall Global and Tmall Supermarket, alongside wholesale business, including 1688.com—increased by 8.0% year over year. The consumer growth for the segment reflected the successful execution of the company’s multi-app strategy to create personalized, immersive and engaging experiences for different consumption scenarios and formats, which helped attract and retain users of different demographics and shopping behaviors to its commerce ecosystem. Physical goods GMV for Taobao and Tmall grew by a low-single-digit percentage year over year due to demand softening—a result of the impact of Covid-19 induced lockdowns in China—and supply chain disruptions. International commerce sales increased by 7.0% year over year, driven by solid transaction growth from its Lazada and Trendyol brands. However, this was partially offset by AliExpress’ order decline due to the change in the European Union’s value-added tax rules and supply chain disruptions from the Russia-Ukraine war. Transaction value growth of Alibaba.com businesses slowed to 22.0% year over year due to slowing export growth in China and logistical hurdles. The local consumer services segment generated year-over-year order volume growth of 9.0%. The slower growth for the quarter was because of the impact of Covid-19 lockdowns in China, which began in March 2022. Sales from smart logistics network Cainiao increased by 16.0% year over year, primarily driven by the growth of fulfillment solutions and value-added services provided to China commerce retail businesses. Cloud business sales increased by 12.0% year over year. The growth of the cloud segment was slower compared to prior quarters, reflecting slowing economic activities, softening demand from customers in China’s Internet industry and delays in the delivery of hybrid cloud projects. Management stated that while the company’s user traffic and engagement have remained resilient, consumption patterns across categories on its platforms have shifted due to Covid-19-induced lockdowns in China. Fashions and electronics consumption decreased, while demand for essential supplies such as food and fast-moving consumer goods increased significantly. Demand for emerging categories such as health care, activewear and outdoor products also grew rapidly.
Outlook	The company did not provide guidance. However, it believes it will continue generating strong operating cash flow, allowing it to maintain strategic flexibility as it calibrates its operations against changing economic and competitive circumstances.

Electronics Retailers

	Best Buy (NYSE: BBY) 1Q23
Commentary	Best Buy reported its total sales decreased by 8.5% year over year versus a 3.4% decline in the prior quarter, while its EPS decreased by 29.6% year over year. Domestic sales decreased by 8.7% year over year due to declining comp sales across almost all categories, with the largest drivers being computing and home theatre. The domestic gross margin was 21.9%, a slight decrease from 23.3% in the same period last year. Meanwhile, international sales declined by 5.4% year over year due to the closure of its Mexico business and Canada’s comp decline of 1.4%. The international gross margin was 24.3%, increasing from 23.7% same period last year. Comparable sales decreased by 8.0% year over year, compared to 37.2% growth in 1Q22. Domestic comparable sales declined by 8.5%, and international comparable sales declined by 1.4%. Management stated that the company saw cost inflation in significant areas, including labor, marketing and supply chain in the 1Q23. However, this cost inflation was largely in line with its expectations, and the company benefited from its planning and execution over the past two years. The company also noted that while customers have returned to physical stores to see and touch products and get advice, the company’s digital engagement remains high. Online sales made up 31% of domestic sales, compared to 33.0% in 1Q21. During the quarter, the company expanded its recycling program to include a new service for customers looking for help recycling large electronics. For a fee, the company will go to customers’ homes, pick up large and small electronics and appliances, and ensure they’re responsibly recycled.
Outlook	Best Buy expects its fiscal 2023 financial results to be softer than last year as there are no planned stimulus checks or other widespread government support in America, which both helped bolster the previous two years of unusually strong demand. Still, the company will continue to invest in its future, planning for increased promotional activity and higher supply chain expenses. For fiscal 2023, the company revised down its sales and comps guidance and now expects sales of $48.3–$49.9 billion, compared to the prior guidance of $49.3–$50.8 billion, representing a decline of 3.7%–6.8% year over year. It expects a comp decline of 3.0–6.0% year over year, compared to prior guidance of a decline of 1.0%–4.0%. Best Buy also revised down its adjusted EPS guidance and now expects it to be in the range of $8.40 to $9.00, compared to the prior guidance of $8.90–$9.20, down 10.1%–16.1% year over year. For the second quarter of fiscal 2023 (2Q23), Best Buy anticipates that its comp sales and the year-over-year decline in its adjusted operating margin will both be very similar to the first-quarter results.

Home & Home-Improvement Retailers

Home and home-improvement retailers are witnessing a mixed performance. In its first quarter, Williams-Sonoma posted high-single-digit sales growth year over year. Last week, we saw The Home Depot report single-digit sales growth year over year, while Lowe’s reported a low-single-digit sales decline. Similarly, in the week ended May 8, we saw Floor & Decor Holdings post strong double-digit sales growth year over year, while Wayfair reported a double-digit sales decline year over year. In the week ended May 1, we saw Tractor Supply Company report a high-single-digit sales growth year over year.

	Williams-Sonoma (NYSE: WSM) 1Q22
Commentary	Williams-Sonoma’s total revenues increased by 8.1% year over year, versus 9.1% growth in the prior quarter. Its adjusted EPS increased by 19.5% year over year, while comparable sales grew 9.5% year over year. The company’s gross margin expanded by 80 bps year over year to 43.8%, driven by high merchandise margins and an occupancy cost leverage of 20 bps. By brand, West Elm comp sales increased by 12.8% on top of 50.9% last year, driven by strong performance in the furniture category and new categories such as kids and bath. Pottery Barn’s comp sales increased by 14.6% on top of 41.3% last year, with all channels and product categories contributing to driving incremental demand; however, Pottery Barn Kids and Teens saw comp sales decline by 3.1% year over year due to supply chain disruptions out of Vietnam. Williams Sonoma’s comp sales decreased by 2.2% year over year. Merchandise inventories increased by 28.4% year over year, while on-hand inventory increased by 17.7% year over year. However, management stated that the company’s inventory levels are still not aligned with high product demand due to significant macro supply chain disruptions. Williams-Sonoma expects to return to more normalized inventory levels by the latter half of 2022. Management stated that the current economic environment is challenging, but the housing market remains strong. Hybrid work culture, where people continue to spend more time in their homes, and rising gas costs have historically led people to stay at home to cook and entertain. The company believes that these trends will result in continued momentum in the strong housing market, which will improve its sales in the coming months.
Outlook	For fiscal 2022, the company expects revenue growth to be in line with its long-term guidance of mid-to-high-single-digit, with operating margins relatively in line with fiscal 2021. It expects revenues to reach $10 billion by 2024.

Off-Price Retailers

Off-price retailers are witnessing weak demand due to high inflationary pressures weakening consumers’ pockets. Burlington Stores posted a double-digit sales decline year over year, and Ross Stores posted a single-digit sales decline year over year. Last week, we saw The TJX Companies post double-digit sales growth year over year, but management revised down full-year sales guidance due to cost pressures in the market.

	Burlington Stores (NYSE: BURL) 1Q22
Commentary	Burlington Stores’ total revenue decreased by 12.0% year over year, versus 14.3% growth in the prior quarter. Adjusted EPS declined by 79.2% year over year, while comp sales declined by 18.0% on a two-year basis. The company achieved 20.0% comp store sales growth last year and, as a result, it planned for a mid-teens comp decline in its first quarter. However, it missed this plan due to low and unbalanced inventories in February and March. The company deliberately planned inventories down in the first quarter, but this backfired, as late deliveries created significant gaps in its assortment, impacting its sales. Burlington’s gross margin rate declined by 230 basis points (bps) year over year to 41.0% due to higher freight expenses and low merchandise margins. The company stated that it feels disappointed with its first-quarter results and that it also expects the economic environment to worsen this year. Should this happen, the company said it would likely face more challenges in the short term. However, it believes that the economic slowdown could provide long-term benefits, as it could cause new shoppers to begin shopping at off-price retailers as they look for value. At the end of the quarter, merchandise inventories had increased by 64.0%, while in-store inventories increased by 2.0% on a comp store basis. Reserve inventory, which the company holds back in anticipation that it will not be able to be sold, was 50.0% of the total inventory. Burlington opened 26 net new stores during the quarter, bringing its store count to 866.
Outlook	For fiscal 2022, Burlington Stores expects a comp sales decline of 6.0%–9.0% year over year and its adjusted EBIT margin to be down by 130-200 bps. It expects its adjusted EPS to be in the range of $6.00–$7.00, representing a decline of 16.7%–28.6% year over year. For the second quarter of fiscal 2022 (2Q22), the company expects a comp sales decline of 13.0%–15.0% year over year and its adjusted EBIT margin to be down 610-670 bps. It expects its adjusted EPS in the range of $0.20–$0.30, representing a decline of 84.0%–90.7% year over year. The company remains cautious about second-quarter planning, as it is concerned about the economic environment, primarily the impact of inflation on retail spending. Lower-income customers are under significant financial stress, and it is not clear that this will change in the next few months, the company stated. Burlington plans to open 120 new stores during 2022 while relocating or closing 30 stores, adding 90 net new stores to its fleet.
	Ross Stores (NYSE: ROST) 1Q22
Commentary	Ross Stores’ total sales declined by 4.1% year over year, versus 18.1% growth in the prior quarter. The company’s comparable store sales declined by 7.0% year over year, and its EPS decreased by 27.6% year over year. According to the company, the results came in below expectations due to high inflationary pressures and very strong comparatives from last year’s government stimulus quarter. Management also reported that it saw customers pull back on spending at both its Ross and dd’s DISCOUNTS stores. The company’s operating margin was down 340 bps year over year to 10.8% due to same-store sales decline and cost pressures from higher freight and wages. Men’s clothing was its best-performing category this quarter, while Florida was the top-performing region in terms of sales. At the quarter’s end, Ross’ inventories were up 57.0% year over year, mainly due to higher packaway inventory (which includes apparel), which represented 43.0% of total inventories versus 34.0% in the first quarter of 2021 (1Q21), when the company used a substantial amount of packaway inventory to meet robust consumer demand. The company opened 22 new Ross stores and eight dd’s DISCOUNT stores during the quarter.
Outlook	Ross Stores updated its guidance with a more conservative outlook for the rest of the year, given its first-quarter results and the uncertain macro-economic and geopolitical environment. For fiscal 2022, the company revised down its comp sales and EPS guidance. It now expects its comp sales to decline by 2.0%–4.0% year over year, compared to its prior guidance of flat to 3.0% growth. Meanwhile, it expects its EPS in the range of $4.34–$4.58, compared to its prior guidance of $4.71–$5.12, representing a decline of 5.6%–10.9% year over year. For 2Q22, Ross forecasts total sales to decline by 1.0%–4.0% year over year and comp sales to decline by 4.0%–6.0%. It expects its operating margin to be 10.4%–10.8%, down from 2021 due to deleveraging on lower comp sales and ongoing expense headwinds that are expected to continue through the first half of fiscal 2022. Ross expects its EPS in the range of $0.90–$1.10, representing a decline of 23.0%–28.8% year over year. Ross plans to return to its regular store opening plan of 100 new store openings in 2022, comprising 75 Ross and 25 dd’s DISCOUNTS locations. It plans to open 29 stores in the second quarter, including 21 Ross and eight dd’s DISCOUNTS stores.

Pet Care Retailers

	Petco Health & Wellness Company, Inc. (NasdaqGS: WOOF) 1Q22
Commentary	Petco’s total revenues increased by 4.3% year over year versus 13.0% in the prior quarter. Comparable sales increased by 5.1% year over year, and adjusted EPS was $0.20, in line with the previous year’s first quarter. Gross margin declined by 102 bps year over year to 41.2% due to high supply chain and commodity costs. Petco added around 400,000 net new customers, representing double-digit year-over-year growth. Petco’s digital revenue increased by 11.0% year over year. Its digital channels continue to show meaningful gross profit improvements, driven by improved operating efficiencies, including its recently renegotiated contract with the online delivery platform DoorDash. The company stated it saw some softening in discretionary spending, but its total merchandising mix remains strong overall. By brand, WholeHearted, So Phresh Litter and Reddy all delivered double-digit year-over-year sales growth.
Outlook	For fiscal 2022, the company maintained its financial guidance and continues to expect sales growth of 6.0%–8.0% year over year and adjusted EPS growth of 6.6%–9.9% year over year. It expects adjusted EBITDA growth of 7.0%–9.0% year over year.

Warehouse Clubs

Warehouse clubs are posting strong topline expansion, with Costco posting double-digits sales growth year over year. Similarly, last week, we saw BJ’s posted double-digit sales growth year over year.

	Costco (NasdaqGS: COST) 3Q22
Commentary	Costco’s total sales increased by 16.3% year over year versus 16.1% growth in the prior quarter, while EPS increased by 9.5% year over year. Total comparable sales, excluding fuel, increased by 10.8% year over year, with US comparable sales, excluding fuel, increasing by 10.7% year over year. Canada comp sales, excluding fuel, increased by 12.8%, and other international comp sales increased by 9.1% year over year. The company’s gross margin for the first quarter, excluding gas inflation, declined by 53 bps year over year to 10.2% due to high inflation and freight expenses. Still, it also noted that traffic increased by 6.8% at its stores worldwide and was up 5.6% year over year in the US. The average transaction was up 7.6% worldwide and up 10.4% in the US. The best performing categories in the quarter were apparel, bakery, candy, deli, home furnishings, jewelry, kiosks, sundries, tires and toys, while the underperforming departments were hardware, liquor, office and sporting goods. In terms of other business sales, the best performers were business centers, food courts, gasoline and travel. E-commerce sales, excluding foreign-currency impact, increased by 7.9% year over year. In e-commerce, the strongest performing departments were home furnishings, jewelry, patio and garden and special or kiosk items. Membership fee income increased by 9.2% year over year, and the US and Canada’s membership renewal rate stood at 92.3%, up 0.3% year over year. The worldwide renewal rate came in at 90.0%, up 0.4% year over year. During the third quarter of fiscal 2022, Costco opened one new warehouse and relocated two warehouses.
Outlook	In fiscal 2022, Costco plans to open a total of 27 new warehouses, including three relocations—for a net of 24 new warehouses opened. The 24 net new warehouses by market will include 14 in the US, two in Canada and one each in Australia, China, France, Japan, Korea, Mexico, Spain and its first New Zealand location, which will open in August 2022. The company estimates its full-year 2022 capital expenditure spends to be about $4.0 billion.

Looking Forward

We are seeing the spending crunch affect retailers to low- and moderate-income customers. Off-price retailers, including Burlington and Ross Stores, experienced weak demand as shoppers pulled back from spending amid pressures on their pockets. Apparel retailers are also seeing slower sales growth compared to topline expansions in previous quarters due to elevated freight costs and inflationary pressures. As a result, most reported companies, including American Eagle Outfitters, Dick’s Sporting Goods and Gap, revised down their financial guidance for fiscal 2022. At the same time, apparel and footwear brand owners witnessed strong sales growth, with Guess and Ralph Lauren both posting double-digit sales growth year over year. For fiscal 2023, both Guess and Ralph Lauren expect single-digit year-over-year sales growth. Last week, we saw Deckers report that it expects double-digit year-over-year sales growth, while VF Corporation expects high-single-digit sales growth. In the week ended May 15, Under Armour reported it expects mid-to-high-single-digit year-over-year sales growth for fiscal 2023. In the week ended May 8, we saw Carter’s and Hanesbrands report that they expect positive sales growth for the year, while Gildan’s three-year (2021 to 2024) CAGR outlook reflects net sales growth of high-single-digit to double-digit. In the week ended May 1, Columbia Sportwear Company, Levi’s and Skechers reported that they expect net sales growth in double-digits for fiscal 2022; however, these companies expect supply chain headwinds and Covid-19 related impacts in China to affect their businesses in the near term. Beauty brand owners and retailers are witnessing solid recoveries in the quarter. Retailer Ulta Beauty reported double-digit sales growth year over year. For fiscal 2022, the company raised its sales, comp sales, operating margin and EPS guidance. Last week, Bath & Body Works raised its sales guidance but revised down its EPS guidance for fiscal 2022. In the week ended May 15, Coty raised adjusted EPS guidance and reiterated its comparable sales guidance for fiscal 2022. In the week ended May 8, Estée Lauder revised down its revenue growth guidance for fiscal 2022, while, in the week prior, L’Oréal did not provide financial guidance for fiscal 2022. However, the company remains optimistic about the beauty market’s outlook in the coming months. Beauty brand owners and retailers are witnessing consumer demand bounce back in the makeup category as consumers resume their beauty routines with more in-person activities. Department stores are witnessing mixed sales recoveries, with Macy’s and Nordstrom both reporting double-digit sales growth year over year. For fiscal 2022, Macy’s raised its adjusted EPS guidance, and Nordstrom raised its sales and EPS guidance. In contrast, we saw Kohl’s revise its sales and EPS guidance last week. Discount stores are experiencing a strong quarter as customers respond favorably to the value for money amid high inflationary pressures. Both Dollar General and Dollar Tree posted single-digit sales growth year over year. For fiscal 2022, both companies raised sales and comp sales guidance. E-commerce players are witnessing a mixed recovery. Alibaba reported high-single-digit sales growth year over year. The company did not provide guidance; however, it believes it will continue to generate strong operating cash flow to maintain strategic flexibility. Last week, JD.com did not provide financial guidance for fiscal 2022; however, the company stated it expects a challenging external environment in the near term. In the week ended May 15, Qurate Retail did not provide financial guidance for fiscal 2022, but 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 saw Amazon report that it expects revenue growth of low-to-high-single-digit in 2Q22. Electronics retailer Best Buy reported a single-digit sales decline year over year. For fiscal 2023, the company revised down its sales, comp sales and EPS guidance. Home and home-improvement retailers are witnessing a mixed performance. This week, Williams-Sonoma reported high-single-digit sales growth year over year. For fiscal 2022, the company expects its sales growth in line with long-term growth guidance of mid to high-single-digit. Last week, we saw The Home Depot raise its sales, EPS and comp guidance for fiscal 2022, while Lowe’s reaffirmed its sales, EPS and comp guidance for fiscal 2022. Off-price retailers are witnessing slow growth. Burlington Stores posted a double-digit sales decline year over year, and Ross Stores posted a single-digit sales decline year over year. For fiscal 2022, Ross Stores revised down its comps and EPS guidance, while Burlington Stores now expects negative comps and EPS growth. Similarly, last week, TJX revised down its fiscal 2022 sales guidance. Pet care retailer Petco reported single-digit year-over-year sales growth in its latest quarter. For fiscal 2022, it reaffirmed its sales and adjusted EPS guidance. Warehouse clubs are posting strong topline expansions, with Costco posting double-digit sales growth year over year. For fiscal 2022, the company did not provide guidance. Last week, we saw BJ’s report that it expects flat year-over-year EPS growth. Both these warehouse clubs plan to expand their clubs in fiscal 2022.