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 8, 2021. For most US retail companies covered in this series, the quarter under review will be the second quarter of fiscal 2021 (2Q21), although some companies may have different year ends (for example, Ralph Lauren and VF Corporation). 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 have increased by about 10.3% year over year. We assess the recent performance of selected retailers and brand owners below.

Apparel and Footwear Brand Owners 

	Hanesbrands (NYSE: HBI) 2Q21
Commentary	Total sales were up 13% year over year and up 15% on a two-year basis (compared to the corresponding quarter in 2019, pre-crisis). By segment, innerwear sales decreased by 29% year over year, mainly owing to strong comparatives that included $614 million in sales of personal protective equipment (PPE). Excluding PPE, innerwear sales increased by 62% year over year, driven by strong point-of-sale performance, along with the benefit of transitory items, such as pent-up consumer demand, government stimulus and retailer inventory restocking. Sales in the basics segment grew 48% year over year, with double-digit growth in each product category, while intimates saw a sales increase of 150%, with triple-digit growth in both the bras and shapewear categories. Activewear sales grew 140% year over year, driven by double-digit growth in both the Champion and Hanes brands. The international segment’s sales increased by 91% year over year. Management said that Hanesbrands continues to commit to its “Full Potential” growth strategy, which focuses on the following four key areas: Grow the Champion brand globally by enhancing the core sweats business, expanding women's and kids’ product offerings and entering adjacent categories. Drive innerwear segment growth—specifically, the Bonds and Bras N Things brands in Australia—through direct-to-consumer (DTC) channels, with products targeted at younger consumers. Build e-commerce excellence across channels, leveraging data analytics to build knowledge of consumers and increase long-term loyalty. Streamline its global portfolio by rationalizing stock-keeping units (SKUs)—removing underperforming SKUs and adding higher-margin SKUs.
Outlook	For fiscal 2021, the company has revised up its sales guidance and now expects sales of $6.75–6.85 billion, versus prior sales guidance of $6.20–6.30 billion. At the midpoint, the revised sales guidance implies 11% year-over-year growth. The revised guidance includes a projected benefit of about $116 million from changes in foreign currency exchange rates. CFO Michael Dastugue said, “Rising Covid-19 cases continue to weigh on the macro environment. It's creating headwinds from additional lockdowns, most recently in Japan and Australia. It's also creating incremental disruptions to supply chains around the world. This, in turn, is driving cost pressure as well as higher levels of inflation relative to our prior outlook.”
	Ralph Lauren (NYSE: RL) 1Q22
Commentary	Total sales increased by 182% year over year but declined by 3.7% on a two-year basis. By geography, North America’s sales increased by 301% year over year; Europe’s sales grew 194%; and Asia’s sales rose 68%. Ralph Lauren’s e-commerce sales increased by more than 80% year over year, with the company-owned digital commerce business growing over 45%. Management said that the company continues to focus on five strategic pillars: Win over a new generation of consumers: Ralph Lauren noted that it continues to drive strong consumer engagement with first-quarter highlights centered around its Summer of Sports, including sponsorship of Team USA at this summer’s Tokyo Olympics, Wimbledon and its first collection in partnership with Major League Baseball. Furthermore, the company announced its launch as the official outfitter of G2 Esports, a groundbreaking new partnership in fashion and gaming. Energize core products and accelerate underdeveloped categories: Ralph Lauren noted that the company continues to drive brand elevation strategy across every region, with average unit retail (AUR) growth of 17% in the first quarter and delivering the right balance of core and seasonal new products, while also continuing to develop high-potential categories, including denim, footwear, home and outerwear. Drive targeted expansion in different regions and channels: The company noted that it continues to deliver strong sales growth across every region, with robust momentum in Mainland China, where first-quarter sales increased by more than 50% year over year and over 70% on a two-year basis. During the quarter, the company, in partnership with Tencent, opened its first digital-forward “Emblematic” retail concept in Beijing, supporting Ralph Lauren’s key city ecosystem strategy in the region. Lead with digital: Ralph Lauren continues to grow the company’s digital ecosystem revenues, with sales growth accelerating to more than 80% in the first quarter despite traffic starting to return to physical stores. Prioritize sustainability and inclusivity: Ralph Lauren commits to achieving net-zero greenhouse gas emissions by 2040 as part of its 2021 “Design the Change” report, along with establishing new targets around circularity and diversity and inclusion.
Outlook	For fiscal 2022, Ralph Lauren has revised up its sales and operating margin guidance. The company now expects sales growth of 25%–30% year over year, versus prior guidance of 20%–25% sales growth. Ralph Lauren now forecasts an operating margin of 12.0%–12.5%, versus the prior expectation of about 11.0%. This compares to the company’s operating margin of 4.8% in fiscal 2021 and 10.3% in fiscal 2020. Management said that the operating-margin expansion will be primarily driven by stronger AUR growth, favorable product mix and operating expense leverage, partially offset by increased freight headwinds.
	VF Corporation (NYSE: VFC) 1Q22
Commentary	Total sales increased by 104% year over year, or by 7% on a two-year basis (compared to 1Q20). By segment, the active segment’s sales grew 128% year over year, including a 110% increase in Vans brand sales and a 26-percentage-point sales growth contribution from acquisitions; the outdoor segment’s sales increased by 81%, including 93% sales growth in The North Face brand; and the work segment’s sales rose 69%, including a 61% increase in Dickies brand sales. In terms of geography, international sales increased by 84% year over year; Europe’s sales grew 126%; and Greater China’s sales rose 19%, including a 23% sales increase in Mainland China. By distribution channel, DTC sales increased by 97% year over year, with total digital sales growing 25%. The company saw a sharp recovery in its wholesale business, which grew over 100% year over year organically in 1Q22, approaching prior peak fiscal 2020 levels. During the quarter, the company’s Vans brand kicked off its 52-week drop calendar, seeking to create a globally aligned and focused approach to drive brand energy and consumer engagement. Seven weeks into the program, management said that the company is encouraged by the initial consumer reads and the instant sellout of several early drops. The company noted that it is on track to market the Vans drop list more formally in 3Q22, ahead of the fall holiday season.
Outlook	For fiscal 2022, VF Corporation expects sales of about $12.0 billion, reflecting growth of around 30% year over year, including an approximate $600 million contribution from the Supreme brand. The company expects adjusted EPS of about $3.20, including an approximate $0.25 contribution from the Supreme brand, in fiscal 2022. VF Corporation noted that most of the Southeast Asian markets are facing various degrees of pandemic-related lockdowns and restrictions on expedited shipping and sourcing, impacting the company’s supply chain capabilities. In fiscal 2022, the company expects to spend more than $35 million in incremental expedited freight charges relative to fiscal 2020.

Drugstore Retailers

	CVS Health (NYSE: CVS) 2Q21
Commentary	Total sales increased by 11.0% year over year, or by 14.6% on a two-year basis (compared to the corresponding quarter in 2019). Comparable sales increased by 12.3% year over year, driven by a 12.0% rise in the front-of-store (retail) segment and a 12.4% increase in the pharmacy segment with a 14.8% rise in prescription volume (which includes Covid-19 vaccines). Total front-of-store sales increased by almost 13% year over year, with management pointing to strength across all categories and noting that “nearly two-thirds of that growth was driven by health and wellness products.” Front-of-store saw a 340-basis-point (bps) improvement in adjusted operating margin, with adjusted operating income up nearly $1 billion year over year. Total adjusted operating income fell by 8.3% year over year, primarily due to more normalized utilization levels in the company's Health Care Benefits segment, following a substantial decrease in utilization one year earlier, partially offset by higher retail volumes, Covid-19 vaccination and diagnostics testing, better purchasing economics and an increase in pharmacy claims. In 2Q21, the company administered over 6 million Covid-19 tests and almost 17 million Covid-19 vaccines.
Outlook	The company raised its full-year 2021 EPS and cashflow guidance. CVS now expects adjusted EPS growth of 40.8%–42.6%, versus prior guidance of 38.2%–40.4% growth. The company expects cash flow from operations of $12.5–13.0 billion, versus prior guidance of $12.0–12.5 billion.

E-Commerce Platforms

	Alibaba (NYSE: BABA) 1Q22
Commentary	Alibaba’s revenue from its China commerce retail business was up 34% year over year and up 79% on a two-year basis. Management said that the company's China retail marketplaces (such as Tmall and Taobao) “recorded solid physical goods gross merchandise value (GMV) growth that reflected strength in categories such as apparel and accessories, home furnishing and consumer electronics.” However, a specific growth figure for GMV was not provided. Alibaba’s total revenue growth in the quarter was supported by the consolidation of Sun Art in October 2020; excluding that consolidation, the total company’s revenues grew 22% year over year. Alibaba’s income from operations declined by 11% year over year, which the company attributed to investments in areas such as Community Marketplaces, Taobao Deals, Local Consumer Services and Lazada, as well as increased spending on growth initiatives in its China retail marketplaces segments, such as Idle Fish (secondhand) and Taobao Live (livestreaming).
Outlook	For fiscal 2022, Alibaba reiterated its revenue growth guidance of 29.7% year over year. The company noted that it plans to use all of the incremental profits and additional capital in fiscal 2022 to support merchants and “invest in new businesses and key strategic areas that will help the company to increase consumer wallet share and penetrate new addressable markets.”

Home and Home Improvement Retailers

	Wayfair (NYSE: W) 2Q21
Commentary	Total revenues declined by 10.4% year over year, cycling the 2Q20 pandemic-driven boom in online furniture sales, when the company’s total revenues jumped by 83.7% year over year. On a two-year basis (compared to the corresponding quarter in 2019, pre-pandemic), total revenues were up 64.6%. By geography, US sales were down 15.2% year over year, while international sales were up 3.2%. During the quarter, the total number of orders delivered was down 26.5% year over year. Belying the year-over-year revenue fall, active customers were up almost 20% year over year and net revenue per active customer was up almost 9%. The company’s adjusted EBITDA was down 29.3% year over year and adjusted EPS came in at $1.89—above consensus estimates but down from $3.13 from the same quarter last year. As we recently discussed, Wayfair was loss-making on an annual basis until 2020 (see our separate report, Can Wayfair Sustain Its Newfound Profitability? ). Niraj Shah, CEO, Co-Founder and Co-Chairman, said, “Meaningful adjusted EBITDA and free cash flow in Q2 reflect strong returns from many years of thoughtful investments behind each facet of our platform model. Even as we navigate any near-term volatility, we remain most focused on the long term and further reinforcing Wayfair's position as the category leader for home with both customers and suppliers alike.”
Outlook	Wayfair did not provide financial guidance. However, management said that 3Q21 net revenues will be “somewhat below” 1Q and 2Q levels but it is “confident that revenue dollars should accelerate sequentially into Q4.” CFO Michael Fleisher said, “The faster-than-expected reopening has pushed out our expectations for a return to so-called normal quarterly revenue flow.” He noted that 3Q21-to-date gross revenue is down and said, “Although year-ago comps do not get much easier for the rest of the quarter, we're cautiously optimistic. As the emerging-from-Covid summer experiences wind down and people return to more regular work and schooling routines, we will see sequential improvement in revenue trends.” Fleisher added, “When it comes to gross margins… we believe 27% to 28% is a more sustainable near-term range for us, even as we've overdelivered some quarters in the midst of Covid. With order volumes now normalizing and some near-term inflation impact, we do expect that gross margins will come down sequentially relative to the last two quarters and that 27% to 28% is still the right range. That doesn't take away from our long-term expectations for gross margin expansion.” Shah said, “Consumer balance sheets are strong, and interest in the home is not going away post pandemic, even if there is some shorter-term normalization. And while they [consumers] may be rebalancing their spend some, home to-do lists are nearly endless, supporting the large size of the category.”

Luxury Companies

	Capri Holdings (NYSE: CPRI) 1Q22
Commentary	Total revenues increased by 178% year over year but declined by 6.9% on a two-year basis (compared to 1Q20, pre-pandemic). Capri’s operating margin stood at 20.6% versus a negative operating margin of 35.9% in the same quarter last year. Management remarked that revenues and earnings significantly exceeded the company’s expectations during the quarter. By brand, Versace revenues increased by 158% year over year, Jimmy Choo’s revenue was up 178% and Michael Kors’ revenues grew 184%. Combined, these three brands added 10 million new customers to their databases during the quarter. By channel, total retail sales increased by 135% year over year, driven by 60% growth in e-commerce and “strong” store sales. The company noted that its wholesale channel’s revenue improved sequentially as sales rebounded relative to the initial impact of the pandemic in 2020. By region, Americas performed the strongest with revenues up 304% year over year. In EMEA, revenues rose 148% despite an average of 25% of stores remaining closed during the quarter, and in Asia, revenue increased by 55% even as many countries implemented store closures and restrictions.
Outlook	Management stated that it is increasing revenue guidance to reflect the better-than-expected first-quarter results, but the company continues to remain “cautiously optimistic” about the rest of the year. It added that it is experiencing delays in receiving merchandise and other challenges at the factory level due to restrictions where the factories are located. For fiscal 2022, Capri now expects revenues to come in at $5.3 billion, versus prior revenue guidance of $5.1 billion. The company now expects 100-bps expansion in gross margin, versus prior guidance of 50-bps expansion. For fiscal 2022, Capri expects operating margin growth of 16%, an increase of 200 bps compared to its prior guidance. At its Investor Day in July 2021, management laid out its plans for the company’s growth for the forthcoming year and beyond; it plans to invest $25–30 million in marketing, e-commerce and regional growth initiatives by fiscal 2023.

REITs

	Macerich Company (NYSE: MAC) 2Q21
Commentary	Macerich’s total revenues increased by 20.7% year over year but declined by 5.5% compared to 2Q19. At the end of the quarter, the portfolio occupancy rate was 89.4%, which is a 90-bps increase relative to the 88.5% occupancy rate at the end of the prior quarter. The company management noted that with increasing vaccination rates, sales and traffic continue to see significant improvement with remarkably high customer conversion rates: Macerich’s mall traffic levels continue to range in the low 90% as compared to 2019, with the strongest traffic trends in the company’s Phoenix-area properties, where traffic is almost back to pre-Covid 2019 levels. Second-quarter comparable tenant sales across Macerich’s portfolio was impressive, with May and June 2021 portfolio comparable tenant sales growing by about 15% on a two-year basis (compared to corresponding months in 2019, pre-pandemic), while April 2021 tenant sales increased by about 10% on a two-year basis. The company reported a loss of $11.8 million compared to a loss of $25.1 million in the year-ago quarter. Underlying FFO (funds from operations, excluding financing expense in connection with Chandler Freehold) was up 110.8% year over year to $127.6 million, yielding FFO per share of $0.59 versus $0.39 one year earlier.
Outlook	For fiscal 2021, Macerich has raised its EPS and FFO per share guidance. The company now expects EPS to be between $(0.06) and $0.09, versus prior EPS guidance of $(0.35) to $(0.55). Macerich now expects FFO per share of $1.82–$1.97, versus prior guidance of $1.77–$1.97. Senior EVP and Head of Leasing Douglas Healey said, “At the end of the second quarter, we had signed leases for over 500,000 square feet of new stores still to open in 2021. And looking into 2022 and 2023, we have signed leases for another 935,000 square feet of new stores to open. In addition to these signed leases, we're currently negotiating leases for new stores totaling 1.1 million square feet. In conclusion, sales are higher than they were pre-Covid. Occupancy is up from last quarter and is expected to continue to increase. Bankruptcies are at their lowest levels since 2015.”
	Simon Property Group (NYSE: SPG) 2Q21
Commentary	Total revenues increased by 18.1% year over year but by declined 10.0% on a two-year basis (compared to the corresponding quarter in 2019). FFO increased by 63% year over year. Portfolio net operating income, which includes income from domestic properties, international properties and Simon's investment in Taubman Realty Group, increased by 32.5% year over year. Malls and outlets occupancy stood at 91.8% at the end of 2Q21, an increase of 100 bps compared to 1Q21. Chairman, CEO and President David Simon said, “Leasing activity accelerated in the quarter. We signed nearly 1,400 leases for approximately 5.2 million square feet and had a significant number of leases in our pipeline. Through the first six months, we signed 2,500 leases for over 9.5 million square feet. Our team executed leases for 3 million more square feet or over approximately 800 more deals compared to the first six months of 2019.”
Outlook	For fiscal 2021, the company raised its EPS and FFO per share guidance. The company now expects EPS to be $5.47–$5.57, versus prior guidance of $4.47–$4.57. Simon now expects FFO per share to be $10.70–$10.80, versus prior guidance of $9.70–$9.80. This was the second consecutive quarter of raised guidance. David Simon told analysts, “We expect to generate approximately $4 billion in FFO this year. That will be approximately a 25% increase compared to last year and just 5% below our 2019 number. We expect to distribute more than $2 billion in dividends this year.”

Looking Forward

Overall, apparel and footwear brand owners are reporting a solid recovery: On a two-year basis (versus the corresponding quarter in 2019, pre-pandemic), Hanesbrands reported double-digit sales growth and VF Corporation reported high-single-digit sales growth, while Ralph Lauren witnessed a low-single-digit decline in sales. Both Hanesbrands and Ralph Lauren have revised up their sales guidance for the full fiscal years amid improving sales and traffic trends, while VF Corporation expects about 30% year-over-year growth for the full year. However, supply chain disruptions and increasing freight charges continue to remain headwinds for these brand owners, which will likely impact their operating margins in the remainder of the year. Ralph Lauren continued to prioritize sustainability and inclusivity, and reiterated its commitment to achieving net-zero greenhouse gas emissions by 2040. Capri Holdings is seeing a slow recovery, with sales declining on a two-year basis. For the full fiscal year, the company has raised its revenue and operating margin guidance but remains “cautiously optimistic“ about the rest of the year. E-commerce platforms continue to report strong results. Alibaba continues to expect double-digit year-over-year sales growth for the full fiscal year and plans to invest incremental profits in new business areas to expand its addressable markets. As we reported last week, Amazon expects double-digit year-over-year sales growth for the next quarter but forecasts operating income to decline between 3% and 60%, assuming about $1.0 billion of costs related to Covid-19. Wayfair saw revenue fall year over year, but active customers were up almost 20% year over year and net revenue per active customer was up almost 9%. For the third quarter, Wayfair expects a quarter-over-quarter decline in revenues, but forecasts a sequential acceleration in revenues in the fourth quarter. Management noted that demand for home goods will continue to remain strong even after the pandemic ends, even if there is some shorter-term normalization. The REITs sector continues to suffer amid the coronavirus crisis, with Macerich and Simon Property reporting mid-single-digit to double-digit sales declines on a two-year basis. Last week, we saw Unibail-Rodamco-Westfield reporting a sales decline of over 30% on a two-year basis. However, most REITs remain optimistic about recovery in the rest of 2021. Macerich noted that it is observing encouraging trends in sales, traffic and retail demand. Drugstore retailer CVS sales growth accelerated in its latest quarter, driven by increased prescription volumes and higher pharmacy and front-of-store sales, led by a rise in demand for health and wellness products. For the full fiscal year, the company has revised up its adjusted EPS and cashflow guidance.