Introduction

Our weekly Earnings Insights reports look at key commentary and qualitative insights from major US retailers and brand owners on their recent performance, in terms of revenues and comps, and the impact of the Covid-19 pandemic on second-quarter 2021 performance (ended July 31, 2021,for most companies). Companies featured are those within our Coresight 100 coverage list, and in this report, we focus on those that reported in the week ended August 1, 2021. For most US retail companies covered in this series, the quarter under review will be the second quarter of fiscal 2021 (2Q21). In May 2021, US retail sales grew by a very strong 17.4% year over year and by 19.6% when compared to 2019 values. June 2021 saw year-over-year retail sales growth decelerating to a still-strong 12.3%. On a two-year basis, June’s sales were up 24.2%, the second-strongest sales growth (along with April’s) of any month in the past year. Overall, in June 2021, the demand for goods remained solid even as consumer spending is shifting back to services. In July 2021, we expect retail sales to increase by about 10.3% year over year. We assess the recent performance of selected retailers and brand owners below.

Beauty Brand Owners 

	L'Oréal (ENXTPA: OR) 2Q21
Commentary	L’Oréal reported a 29.6% year-over-year increase in revenues during the quarter, and 4.4% growth on a two-year basis. E-commerce sales grew by strong double digits and accounted for around 27% of the company’s total sales in the quarter. All divisions and regions posted strong double-digit year-over-year growth. The Professional Products division recorded the strongest growth, 57.5% year over year, benefiting from the digitalization of salons, development of freelance stylists and strength in e-commerce. The Consumer Products division’s sales were up 11.5%, driven by market share gains in makeup, haircare and skincare. L’Oréal Luxe’s sales increased by 40.9%, boosted by strong growth across all three of its categories—skincare, makeup and fragrance. The Active Cosmetics division’s sales grew 44.9% in the quarter, thanks to increased consumer focus on health, wellness and e-commerce. The company redefined its geographic zones in the quarter. Latin America witnessed the highest year-over-year sales growth of 59.3%, followed by 33.7% sales growth in both North America and SAPMENA-SSA (South Asia Pacific, Middle East, North Africa and Sub-Saharan Africa). Europe saw year-over-year sales growth of 27.6%. North Asia recorded year-over-year sales growth of 23.3%, led by Mainland China. For the first half of the year, the company reported operating profit of €2,988 million, up 26.8% year over year, with the operating margin climbing by 170 bps. 1H21 net profit jumped by 29.9% year over year.
Outlook	The company did not provide specific guidance for the next quarter or for 2021, but management commented that, for the second half of the year, L’Oréal will focus on new product launches and investment in relevant growth drivers to achieve positive year-over-year growth in both sales and net profit in 2021.

E-Commerce Platforms

	Amazon (NasdaqGS: AMZN) 2Q21
Commentary	Amazon reported a 27% year-over-year increase in revenues during the quarter, and 70% growth on a two-year basis. Amazon saw strong demand and sales growth across major product categories, including consumables, media, hardlines and softlines. The company’s EPS increased by 47% year over year and 191% on a two-year basis. By segment, North America saw 22% year-over-year sales growth; International witnessed a 36% sales increase; and Amazon Web Services (AWS) reported sales growth of 37%. AWS added the highest year-over-year and quarter-over-quarter revenues in the company’s history and has become a $59 billion annualized-run-rate business, up from $43 billion in the same period last year. The company noted a “record-breaking” Prime Day in June, with third-party sellers being a key contributor to the event’s success. The June timing compared to an October Prime Day in 2020, supporting year-over-year growth in 2Q21 (when the retailer was annualizing its strongest quarter from 2020). In the two-week lead-up to Prime Day, Amazon’s customers spent $1.9 billion on items from third-party sellers during its small business promotion “Spend $10, Get $10”—more than double than was spent during the 2020 Prime Day small business promotion. Amazon noted that third-party revenues continue to grow faster than the company’s online store’s revenues: In 2Q21, third-party units represented 56% of the company’s total paid units, up from a 53% mix in the same quarter last year. Amazon continues to prioritize sustainable initiatives. During the quarter, the company launched 14 new renewable energy projects in Canada, Finland, Spain and the US. The new projects bring Amazon’s total renewable energy investments to 10 gigawatts of electricity production capacity—enough to power about 2.5 million US homes, according to the company. Furthermore, Amazon noted that the company had reached 65% renewable energy across its business operations, up from 42% in 2019. The company expects to power 100% of its business operations with renewable energy by 2025, five years ahead of its original 2030 target.
Outlook	For 3Q21, Amazon expects sales growth of 10%–16% year over year. This guidance assumes a favorable impact of about 70 basis points from foreign exchange rates. In 3Q21, the company expects operating income to decline between 3% and 60%, assuming about $1 billion of costs related to Covid-19.

REITs

	Unibail-Rodamco-Westfield (ENXTAM: URW) 1H21
Commentary	The company reported a revenue decline of 26.2% year over year and a 37.4% decline versus the corresponding period in 2019. Adjusted EPS declined by 30.4% year over year, or by 49.8% on a two-year basis. During 1H21 (the first half of fiscal 2021), the company’s shopping centers globally were closed for an average of 68 days (compared to 67 days in 1H20), with the average in Europe being 92 days (versus 60 days in 1H20). The company noted that the drop in restrictions in May drove a jump in traffic and sales that further improved in June, when all its shopping centers reopened and restrictions were further eased. The company’s rental income decreased by 23.3% year over year in 1H21, mainly due to its rent relief efforts and tenants’ bankruptcies. The company’s total vacancy rate in Europe stood at 6.1% in June 2021, versus 6.5% in March 2021 and 5.6% in December 2020. During 1H21, the company signed 1,218 leases, representing 84% growth from 1H20 and 2% growth from 1H19. Management said that the recovery seen during 1H21, when shopping centers reopened and restrictions for F&B (food and beverage) and entertainment were lifted, justifies its confidence that its flagship destinations will continue to be the preferred locations for shoppers and retailers as trading conditions return to normal.
Outlook	The company did not provide financial guidance but noted that it will continue to be impacted by the Covid-19 pandemic (particularly owing to the emergence of new variants) in 2H21, even as ongoing vaccine programs support operational stabilization.

Looking Forward

Beauty brand owner L’Oréal continues to witness robust recovery, with positive sales growth on a two-year basis. The company noted strong growth across the fragrance, haircare, makeup and skincare categories. For 2021, L’Oréal’s management commented that the company will achieve positive year-over-year sales and net profit growth by focusing on new product launches and investing in related growth drivers in the second half of 2021. Amazon reported another remarkable quarter, with outstanding sales growth on a two-year basis. The retail giant continued to prioritize sustainability by investing in renewable energy. For the next quarter, the company expects double-digit year-over-year sales growth but forecasts operating income to decline between 3% and 60%, assuming about $1.0 billion of costs related to Covid-19. REITs company Unibail-Rodamco-Westfield continued to suffer amid the coronavirus crisis, reporting a sales decline of over 30% on a two-year basis. The company noted that it will continue to be impacted by the Covid-19 pandemic (particularly owing to the emergence of new variants) in the second half of fiscal 2021, even as ongoing vaccine programs support operational stabilization.