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 June 5, 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. This week, PVH Corp. posted single-digit sales growth year over year. Last week we saw, Guess and Ralph Lauren report double-digit sales growth year over year. In the week ended May 22, Deckers reported 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, both Carter’s and Gildan Activewear reported 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.

	PVH Corp. (NYSE: PVH) 1Q22
Commentary	PVH Corp.’s first-quarter revenue increased by 2.0% year over year, versus 16.0% growth in the prior quarter. Its EPS increased by 40.6% year over year, while its gross margin declined by 70 basis points (bps) year over year to 58.4% due to higher freight costs. The company stated that it continues to experience supply chain and logistics disruptions globally, as well as the impact of Covid-19 lockdowns in China. Revenue in the most recent quarter reflected a 5.0% reduction due to the sale of its Heritage Brands business and a 1.0% reduction from the Russia-Ukraine war, specifically the company’s closure of its stores in Russia and Belarus and a decline in wholesale shipments to Ukraine. By brand, Tommy Hilfiger reported a 2.0% year-over-year sales increase, Calvin Klein reported a 13.0% sales increase and Heritage Brands reported a 31.0% sales decrease. In April 2022, PVH introduced the PVH+ Plan, its multi-year strategic plan to drive brand, digital and direct-to-consumer (DTC) growth. The PVH+ Plan builds on the core strengths of PVH and connects its brands Calvin Klein and Tommy Hilfiger to the consumer through five key growth drivers: Win with product Win with consumer engagement Win in the digitally-led marketplace through its DTC digital-first approach Develop a demand and data-driven operating model, connecting the planning, buying and selling of inventory to demand and increasing speed and flexibility Drive efficiencies and invest in initiatives that will fuel growth
Outlook	For fiscal 2022, PVH Corp. expects revenue growth of 1.0%–2.0% year over year, reflecting a 2.0% reduction from the Heritage Brands transaction and a 2.0% reduction from the Russia-Ukraine war. It expects an operating margin of around 10.0% and an EPS of $9.00, an 11.3% decline year over year. The company expects supply chain and logistics disruptions to continue to impact its business, primarily in North America, through the rest of the year, with the first half being the most severely affected. This includes wholesale shipments initially planned for the end of the second quarter shifting into the beginning of the third quarter. For the second quarter of fiscal 2022 (2Q22), PVH projects a revenue decline of 3.0%–4.0% year over year, reflecting a 4.0% reduction from the Heritage Brands transaction and a 2.0% reduction from the Russia-Ukraine war. It expects its adjusted EPS to decline by 26.5% year over year.

Apparel Specialty Retailers

Overall, apparel specialty retailers have reported mixed results in the latest quarter. This week, Lululemon Athletica reported double-digit sales growth year over year with sequentially accelerating sales growth. Last week, we saw American Eagle Outfitters and Foot Locker post low-single-digit sales growth and Urban Outfitters report double-digit sales growth—all three retailers witnessed sequential deceleration in sales growth. However, Dick’s Sporting Goods and Gap Inc. reported sales declines year over year.

	Lululemon Athletica, Inc. (NasdaqGS: LULU) 1Q22
Commentary	Lululemon Athletica’s total revenues increased by 32.0% year over year, accelerating from 23.1% growth in the prior quarter. Its total comparable sales increased by 29.0% year over year versus 22.0% comp growth in the previous quarter. The company’s DTC sales increased by 33.0% year over year, accounting for 45.0% of the company’s total revenues versus 44.0% in the year-ago quarter. Management stated that the company saw broad-based growth across its product categories and regions. Its women’s apparel business grew by 24.0% on a three-year CAGR basis, while its men’s apparel business also remained strong, with sales increasing by 30% on a three-year CAGR basis. During the quarter, the company launched Blissfeel—Lululemon Athletica’s first sneakers for women—in select stores in China, the UK and the US. It also plans to launch a men’s version of the Blissfeel shoes in 2023. By geography, North American revenues increased by 32.0% year over year and international revenues increased by 29.0% year over year. The company’s gross margin declined by 320 bps to 53.9%, driven by a 370-bps decrease in product margin—which included a 340 bps increase in air freight. Its operating margin decreased by 30 bps to 16.1%, while its diluted EPS increased by 33.3% year over year. The company opened five net new stores and completed four co-located optimizations.
Outlook	For 2Q22, the company expects its revenues to increase by 21%–22% year over year, but its gross margin to be down 200 bps due to increased air freight costs led by port congestion and capacity constraints. The company expects its adjusted EPS to increase by 10.3%–13.3% year over year in the second quarter. At the same time, Lululemon plans to open 20 net new company-operated stores. For the full-year 2022, Lululemon Athletica expects its revenues to increase by 20.6%–22.4% year over year, based on the assumption that its e-commerce business will grow by a high-teens-to-low-20s percentage. The company forecasts its gross margin will decrease by 100–150 bps year over year due to increased investment in its distribution center network and a strategic rise in content development costs for its home gym technology, MIRROR; this will be slightly offset by a reduction in digital marketing. Lululemon Athletica now expects air freight to have a modest negative impact of nearly 30 bps on its gross margins in 2022 versus its prior expectation of flat change. The company expects its adjusted EPS to increase by 20.0%–22.0% and continues to expect capital expenditures of $600–625 million for fiscal 2022, reflecting increased investment in its digital capabilities, stores and supply chain, along with other corporate infrastructure projects. For 2022, Lululemon Athletica continues to expect to open nearly 70 net new company-operated stores, with about 40 stores in its international markets—the majority of these 40 store openings are planned for Mainland China.

Discount Stores

Discount stores are posting mixed results, with Big Lots reporting a double-digit sales decline year over year as Big Lots’ customers pull back on spending due to high inflation. However, last week, we saw both Dollar General and Dollar Tree post single-digit sales growth year over year. Big Lots has a prominent big-ticket component (notably furniture) in its sales mix.

	Big Lots (NYSE: BIG) 1Q22
Commentary	Big Lots’ total sales decreased by 15.4% year over year, versus a 0.3% decline in the previous quarter. On a year-over-year basis, the company’s comparable sales declined by 17.0%, while its adjusted EPS declined by 85.1%. Due to high freight costs and markdowns, its gross margin declined by 350 bps year over year to 36.7%. Management stated that the sales decline was primarily due to the spending pressures its customers felt from higher gas prices and broader inflation. In terms of the company’s owned brands, Broyhill and Real Living continued to perform well. Across all divisions, both brands represented close to 30.0% of the company’s total sales, up from the mid-20s last year. According to management, e-commerce sales remain “a standout” and now account for over 7.0% of the company’s total sales, with same-day deliveries growing 20.0% year over year. Despite tough traffic versus the stimulus-fueled quarter a year ago, Big Lots added 1.2 million new rewards members during the quarter, bringing the total number of rewards members to around 22 million. The company opened seven new stores and closed four during the quarter, bringing its store count to 1,434 and its total selling space to 32.8 million square feet. At the end of the fourth quarter of 2021, inventory was 48.5% higher than 1Q22 due to significantly higher unit costs and increased in-transit inventory.
Outlook	In 2Q22, Big Lots expects its three-year comps to accelerate to positive mid-to-high-single digits, "equating to mid-to-high single digit negative comps versus 2021." The company expects new stores to add about 150 bps of growth versus 2021. It also predicts its second-quarter total inventory will be up in the low-20s versus 2021, a significant reduction from its first-quarter inventory levels. The company forecasts that promotional activity will drive its second-quarter gross margin rate into the low-30s. The company plans to take aggressive actions to improve its gross margin rate in the back half of the year, expecting to achieve significant sequential improvement in the third quarter—with a fourth quarter in line with the prior-year quarter. For fiscal 2022, Big Lots expects capital expenditures of around $175 million. Meanwhile, it expects its total store count to grow by 30-plus stores in 2022 versus its prior guidance of 50-plus stores.

Home and Home-Improvement Retailers

Home and home-improvement retailers are witnessing mixed performances. This week, RH posted double-digit sales growth year over year in its first quarter. Last week, we saw Williams-Sonoma post high-single-digit sales growth year over year. In the week ended May 22, The Home Depot reported single-digit sales growth year over year, while Lowe’s reported a single-digit sales decline. Similarly, in the week ended May 8, we saw Floor & Decor Holdings post double-digit sales growth year over year, while Wayfair reported a double-digit sales decline year over year. In the week ended May 1, Tractor Supply Company reported a high-single-digit sales growth year over year.

	RH (NYSE: RH) 1Q22
Commentary	RH’s total revenues increased by 11.0% year over year, in line with the prior quarter, while its adjusted EPS increased by 59.0% year over year. The company’s adjusted gross margin was up 480 bps year over year to 52.1% due to a 390 bps increase in product margins and lower promotional activities as demand trends slowed. CEO Gary Friedman stated, “Our strategy comes full circle as we begin to conceptualize and sell spaces, moving beyond the $170 billion home furnishings market into the $1.7 trillion North American housing market with the launch of RH Residences, fully furnished luxury homes, condominiums and apartments with integrated services that deliver taste and time value to discerning time-starved consumers. The entirety of our strategy will come to life digitally as we launch The World of RH, an online portal where customers can explore and be inspired by the depth and dimension of our brand.”
Outlook	Based on current market trends and the uncertain macro-economic environment, RH has revised down its guidance for 2Q22 and fiscal 2022. For 2Q22, RH expects a revenue decline of 1.0%–3.0% year over year versus its prior guidance of 7.0%–8.0% growth. It expects its adjusted operating margin to be in the range of 23.0% to 23.5%. For fiscal 2022, the company now expects revenue growth of 0.0%–2.0%, compared to its prior guidance of 5.0%–7.0% growth. It expects its adjusted operating margin to be in the range of 23.0% to 24.0%, compared to its prior guidance of 25.0% to 26.0%.

Luxury Companies Luxury companies are witnessing strong sales recoveries, with Capri Holdings posting double-digit sales growth year over year. In the week ended May 15, Tapestry reported double-digits year-over-year sales growth.

	Capri Holdings (NYSE: CPRI) 4Q22
Commentary	Capri Holdings reported a sales increase of 24.6% year over year, versus 24.0% growth in the prior quarter. Management attributed the growth to better-than-expected results at all three of its brands: Versace, Jimmy Choo and Michael Kors. The company’s gross margin expanded by 250 bps year over year to 64.1%. Its operating margin was 8.0%, returning to positive territory compared to an operating margin of (11.6)% in the prior year’s fourth quarter. The company posted a 48.9% increase in net inventory versus last year; management remarked that this is in line with its plans to accept seasonal merchandise earlier in the year and hold a greater quantity of its core inventory. By brand, Versace performed the strongest, with sales up 34.0% year over year. Meanwhile, Jimmy Choo sales increased by 25.8% year over year, and Michael Kors sales grew by 21.8%. By geography, management stated that the Americas’ sales performance exceeded expectations significantly, growing 30.0% and, if not for inventory constraints around inventory, growth may have been greater. In the Europe, Middle East and Africa (EMEA) region, sales were up 33.0%, despite the impact of the Russia-Ukraine war on certain parts of the region. In Asia, sales were up 2.0%, reflecting improving trends in Japan and Southeast Asia; however, it was partially offset by a sales decline in Mainland China due to Covid-19 related restrictions and lockdowns. Management remarked that fiscal 2022 results significantly exceeded original expectations, as full-year revenues, gross margin and EPS were at their highest points in the company’s history. In 2022, revenues were up 39.2% year over year, while its gross margin was 66.2%, up 230 basis points versus last year, and its diluted EPS came in at $5.39.
Outlook	In the first quarter of fiscal 2023, Capri expects total revenue of $1.3 billion, representing year-over-year growth of 4.0%, and a diluted EPS of $1.35, a 4.3% year-over-year decline. For fiscal 2023, the company expects total revenue of $5.9 billion, representing  5.0% year-over-year growth, and a diluted EPS of $6.85, representing 27.1% growth. The company forecasts that the stronger dollar will adversely impact reported revenue by approximately $100 million; therefore, at constant currency, its expected revenue growth will be 10%. The company also anticipates a negative impact of about $50 million on revenue due to the extended Covid-19 related restrictions in China.

Looking Forward

Overall, apparel and footwear brand owners continue to report strong sales growth. This week, PVH Corp. posted single-digit sales growth year over year. For fiscal 2022, the company expects single-digit sales growth year over year. Last week we saw, for fiscal 2023, both Guess and Ralph Lauren report that they expect single-digit year-over-year sales growth. In the week ended May 22, we saw Deckers report that it expects double-digit year-over-year sales growth for fiscal 2023, while VF Corporation expects high-single-digit sales growth. In the week ended May 15, Under Armour reported that, for fiscal 2023, it expects mid-to-high-single-digit year-over-year sales growth. In the week ended May 8, Carter’s and Hanesbrands both 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 all report that they expect double-digit net sales growth for fiscal 2022. Most of these companies expect supply chain headwinds and Covid-19-related shutdowns in China will affect their businesses in the near term. Apparel specialty retailers have posted mixed results in the latest reported quarter amid high inflation and supply chain headwinds. This week, Lululemon Athletica reported double-digit sales growth year over year. For fiscal 2022, the company expects double-digit year-over-year sales growth. Last week we saw American Eagle Outfitters, Dick’s Sporting Goods and Gap revise down their financial guidance for fiscal 2022; however, Foot Locker raised its sales and comp sales guidance. Urban Outfitters did not provide the financial guidance, but it anticipates sales growth to decelerate sequentially in 2Q22. Discount stores have witnessed mixed results, with Big Lots posting a double-digit year-over-year sales decline this week. For 2Q22, the company expects mid- to high-single-digit negative comps year over year; however, it expects to achieve significant sequential gross margin improvement in the third quarter and a fourth quarter that is approximately in line with the prior-year quarter. Last week, we saw Dollar General and Dollar Tree both raise sales and comp sales guidance for fiscal 2022. However, Big Lots is distinct from the dollar stores in having a prominent big-ticket (furniture) component in its sales mix. Home and home-improvement retailers are witnessing mixed performances. This week, RH posted double-digit sales growth year over year. For fiscal 2022, the company revised down its sales growth and now expects it to grow flat to 2.0% year over year. Last week, Williams-Sonoma reported that it expects its sales growth for fiscal 2022 to be in line with its long-term growth guidance of mid- to high-single-digit. In the week ended May 22, we saw, for fiscal 2022, The Home Depot raise its sales, EPS and comp guidance, while Lowe’s reaffirmed its sales, EPS and comp guidance. In the week ended May 1, Tractor Supply Company reported that it expects high-single-digit year-over-year sales growth. Luxury companies are witnessing strong sales recoveries, with Capri Holdings posting double-digit sales growth year over year. For fiscal 2023, the company expects single-digit year-over-year sales growth. In the week ended May 15, Tapestry reaffirmed its fiscal 2022 sales guidance, expecting double-digit sales growth year over year; however, it revised down its diluted EPS guidance.