We assess the recent performance of selected retailers and brand owners below.

Apparel and Footwear Brands

	PVH Corp. (NYSE: PVH) 2Q21
Commentary	Total sales declined by 33% as the company’s owned stores and wholesale partner stores were closed for nearly one month during the quarter, and its stores operated at significantly lower occupancy levels and reduced working hours. By brand, Tommy Hilfiger sales declined by 28%, while Calvin Klein revenues decreased by 32%. Digital sales grew 50%, including a 90% surge in the company’s owned commerce sites. PVH believes that digital sales will contribute nearly 20% of its total sales in the next couple of years. Management said that the company continued to convert new consumers to the Tommy Hilfiger brand, including in its growth market, China, where its livestreams generated more than 60% of sales from first-time buyers. CEO Emanuel Chirico said, “International tourist traffic to the United States, which typically represents about 30–40% of our revenues, is down over 90% so far this year—and we do not expect it to come back during the second half of 2020. While back-to-school was never a big business for PVH, it was a traffic driver for outlet centers and department stores that we are not experiencing at the same level this time this year.”
Outlook	CFO Michael Shaffer said, “We currently expect revenue in the second half to be down 25% versus last year. We expect that our second-half gross margin will be relatively flat compared to the first half as we project heavy promotional activity across the industry in order to clear inventory, particularly in the United States.” Chirico said, “We are prepared to begin the holiday sales season early, as a number of our retail partners… are all beginning the holiday selling at an earlier time.” This includes PVH partner Amazon kickstarting its holiday season with the postponed Prime Day, which will now be held in October instead of its usual timing in the summer.

 

Department Stores

	Macy’s (NYSE: M) 2Q20
Commentary	Companywide comps were down 34.7% on an owned basis. Digital sales grew 53%. Interim CFO Felicia Williams said, “Our stores saw a sales decline of 61% in the quarter. The trend in store results was closely correlated with the pace of reopening as performance improved sequentially each month as the quarter progressed, and we exited the quarter with July [sales] down 40%. With stores [sales] improving as the quarter progressed, digital strength moderated at the end of the quarter. We expect this moderation to continue into the fall season.” By banner, strong categories at Macy’s included home, fine jewelry, fragrances, activewear and sleepwear. The retailer saw softness in men's tailored apparel and women’s dresses—both saw a nearly 70% sales decline in the spring season. Backstage performed better than the main Macy’s stores but still saw sales erosion of nearly 45%. At Bloomingdale’s, strong performers were home, handbags, fine jewelry and women's shoes, while men’s and women’s clothing saw challenges. Bluemercury.com experienced 105% sales growth. Macy’s said the BTS season started off slowly, but the company is seeing a much more elongated BTS season. For holiday, the company is adjusting promotional cadence to support an elongated holiday shopping season and focusing on newness for nearly 50% of gifts assortment, led by items in home and beauty. In its supply chain, the company is seeing bottlenecks in the port as well as challenges with ground freight. In light of current customer demand and future potential, the company has highlighted its “Focus 4” categories for Macy’s: jewelry, beauty, furniture and mattresses. For Bloomingdale's, the Focus 4 are luxury, advanced contemporary, textiles and Bloomingdale's The Outlet off-price. The company said that its “G 150” stores (Macy’s best 150 department stores dubbed as “Growth” stores, contributing nearly 50% of the total brick-and-mortar sales) continued to perform well.
Outlook	For 3Q and 4Q, the company expects total comps to be down in the low to mid-20s range. For the second half, Macy’s forecasts slightly stronger digital growth and slightly weaker store recovery. Macy’s believes that the off-mall format and smaller format have high potential. Over the next two years, the company plans to open several smaller-format, off-mall Macy's—and test a smaller-format, off-mall Bloomingdale's. In off-price, the company plans to open several additional freestanding Backstage stores, continue the expansion of Bloomingdale's The Outlet and test Backstage online. In 2021, the company plans to build its second Market @ Macy’s concept store, in Dallas. The company also plans to open three freestanding Backstage stores in three different markets.

 

Food, Drug and Mass Retailers: Discount Stores

	Big Lots (NYSE: BIG) 2Q20
Commentary	Comparable sales grew 31.3%, the best quarterly comp in the company's history, driven by a close-to-doubling of e-commerce traffic, a double-digit increase in store traffic and strong growth in average basket size across both channels. CEO Bruce Thorn said, “Q2 got off to a very good start in May. This strength was a continuation of a stimulus-driven sales surge that occurred in mid-April as customers looked to improve their living spaces with indoor and outdoor furniture and home-related accessories in the margin-rich categories of Furniture, Seasonal and Soft Home. And while sales trends moderated near the end of May, the pace was still robust and continued through June with our home-related merchandise categories experiencing the highest level of demand.”
Outlook	Management noted a high-single-digit comp in July and continued to see the acceleration of comps into August. In fiscal 2020, the company expects its store count to be flat to last year, with approximately 25 stores opening and 25 closures.

	Dollar Tree (NYSE: DLTR) 2Q20
Commentary	Comparable sales increased by 7.2%. Family Dollar comps increased by 11.6% and Dollar Tree comps grew by 3.1%, driven by strong performance of discretionary businesses. During the quarter, Family Dollar saw a comp of 28.9% in the discretionary business and witnessed a 15% increase in new customers. CEO Michael Witynski said, “As the quarter progressed, we saw a shift from kitchenware and tabletop into more home decor and soft home, as customers are investing in their homes and spending more time in their homes. Anything related to staying at home, such as lawn and garden and outdoor grilling, continues to perform very well. And on the apparel side, we have had strong sell-through of our spring and summer apparel with a focus on our at-home items like loungewear, sleepwear, slippers, athleisure, children's clothing as well as newborn and onesies.” During the quarter, the company completed over 250 real estate projects, including 131 new stores opening, 22 relocations, 76 Family Dollar H2 renovations (H2 format is a new model for both new and renovated Family Dollar stores) and 26 store closings.
Outlook	Management noted that Family Dollar is delivering very strong comps in the early third quarter despite less government assistance as compared to the second quarter. Witynski said, "Early indicators on fall and Halloween are strong, and we think we are well positioned for that. We think, based on what we are seeing from the customer, since they’re spending more time at home, they want to decorate their homes and invest in their homes more—and we are seeing that in our sales." For fiscal 2020, the company plans to renovate 750 Family Dollar stores and open new stores in the H2 format.
	Five Below (NasdaqGS: FIVE) 2Q21
Commentary	Comparable sales were down 12.2%, driven by a 20% decrease in comparable operating days. For the reopened period, comps were up 6%. The company reopened virtually all of its stores by end of June. The company is seeing continued demand for fun tees and tops as well as home-related merchandise, including items for pets. The company reported four-times-higher e-commerce sales compared to last quarter, although the online channel still represents a low-single-digit percentage of its total sales. Five Below also highlighted its efforts to enhance its e-commerce capabilities, including by launching a Five Below app and transitioning Hollar.com's Ohio e-commerce fulfillment to Five Below and migrating its site to a new platform. Hollar.com, an online dollar store featuring apparel, beauty, home essentials and electronics, was acquired by Five Below in January 2020. During the quarter, the retailer opened 63 new stores in a new format that features Five Below Beyond products, self-checkout services and an expanded snack area.
Outlook	Management noted that the third quarter is off to a strong start, and the trend of a higher average ticket size coupled with lower transactions continued in August as consumers are still limiting their trips to stores. The retailer plans to open 110 stores in 2020, taking its total store count to 1,020 stores by end-of-year. Management said that the company is making significant progress on strategic investments across people, infrastructure and systems to scale its business to over 2,500 stores.

 

Looking Forward

This week, we saw more evidence that the crisis will support, and likely accelerate, structural changes in US retail: department stores such as Macy’s continue to be hit hard while discount formats are continuing to expand their store estates. The pace of stores reopening picked up for most retailers as the second quarter progressed. Macy’s noted a moderation in e-commerce sales, with store sales improving each month as the quarter progressed—and expects this moderation to continue into the fall season. In discretionary sectors, we continued to see strength in home categories. In the apparel and footwear categories, the demand for activewear, loungewear, sleepwear, children’s clothing and women’s shoes remained strong, while men’s and women’s tailored clothing and dresses saw weaknesses. Most discount stores have reported strong comp growth and have substantial new store openings plans in the second half of the year. BTS season business started off slow for most retailers and they are planning to feature a BTS assortment for an extended period this year. Coresight Research estimates that BTS spending will fall by 7.5–9.5% year over year. We estimate that e-commerce will account for around 43% of total BTS spend in the US this year, with online dollar spending up by an estimated 35–40% year over year. The holiday shopping season is likely to start as early as October, providing for an extended shopping period. We believe the holiday season will be highly promotional and expect the e-commerce channel to drive a significantly greater share of sales than last year. For the holiday season, retailers should be prepared to quickly adjust inventory levels at stores by ensuring the capability to scale with customer demand—such as by expanding ship-from-store capabilties.