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 15, 2021. For most 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, Canada Goose). 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. Looking ahead to soon-to-be-reported July retail sales and projected sales in August, we expect retail sales to increase by about 10% year over year. We assess the recent performance of selected retailers and brand owners below.

E-Commerce Platforms

E-commerce players continue to report strong top-line expansion, with eBay reporting double-digit sales growth year over year. For the next quarter, the company expects positive sales and adjusted EPS growth against strong comparatives. Last week, Alibaba reported that sales were up by one-third, year over year, in its latest quarter. Similarly, we saw Amazon reporting outstanding sales growth in the week ended August 1.

	eBay (NasdaqGS: EBAY) 2Q21
Commentary	Total revenues grew by 14% year over year and increased by 40% compared to 2Q19. Total GMV declined by 7% year over year, while annual active buyers fell by 2% year over year. The company’s adjusted net income decreased by 3.8% year over year. CEO Jamie Iannone said, “Sneakers and watches continue to outgrow our overall marketplace. Our sneakers business saw strong double-digit growth despite tougher comps from a year ago… We have expanded sneaker authentication to the UK, Canada and Australia. Luxury watches are also sustaining double-digit growth. In fact, luxury watch buyers spent $8,000 on more than 50 items in other categories, well above the average eBay buyer. The next luxury category we are focused on is handbags. We have started in the US by authenticating handbags [valued at] over $500 from major brands.”
Outlook	For 3Q21, eBay expects revenue of $2.42–2.47 billion, representing growth of 6%–8% year over year. The company forecasts adjusted EPS of $0.86–$0.90, representing growth of 1%–6% year over year.

Food and Grocery Retailers

	Grocery Outlet Holding Corp (NasdaqGS: GO) 2Q21
Commentary	The company reported a sales decrease of 3.5% year over year as it lapped the elevated sales experienced during the early months of the pandemic. On a two-year basis (versus the corresponding quarter in 2019), the company’s sales increased by 20.2%. Grocery Outlet’s comparable sales declined by 10% year over year, versus a 17% increase in the same quarter last year. Grocery’s Outlets’ adjusted EBITDA declined by 15.7% year over year. Management said that the NOSH (Natural, Organic, Specialty, Healthy) category was a top performer in the quarter and remains a key long-term driver in the company’s fresh-food expansion. During the quarter, the company opened 11 new stores, ending the period with 400 stores, compared to 362 a year earlier.
Outlook	Management noted that quarter-to-date comparable store sales for the third quarter were down 6%. Based on the current trends, the company expects comparable store sales for the full third quarter to be in the negative mid-single-digit range. The company expects inflation to remain a headwind for the third quarter due to an increase in commodity and freight costs and supply chain stresses. Grocery Outlet reiterated its plan to open 36–38 stores in fiscal 2021, with one closure. The company expects capital expenditure to be about $130 million for the full fiscal year. In the light of elevated e-commerce trends, Grocery Outlet is planning to test online shopping within the next few months. Management said that the company is in talks with technology partners to pilot both online delivery and BOPIS (buy online, pickup in store) options.

Luxury Companies

US-based luxury companies are witnessing slow sales recoveries from pre-pandemic levels (slower than European firms such as LVMH), with Canada Goose reporting a double-digit sales decline on a two-year basis, versus double-digit growth in the prior quarter on a two-year basis. Last week, we saw Capri Holdings report a high-single-digit sales decline on a two-year basis.

	Canada Goose (TSX: GOOS) 1Q22
Commentary	Canada Goose reported about 116% year-over-year revenue growth during the quarter. However, on a two-year basis (compared to 1Q20), revenues were down 20.8%, versus 33.7% sales growth in the prior quarter on a two-year basis. Canada Goose’s global e-commerce revenues grew 80.8% year over year. Direct-to-consumer (DTC) revenues rose by about 183%, driven by fewer disruptions across the company's store network, e-commerce growth and the opening of new stores. Management stated that it lost about 20% of trading days during the quarter compared to 60% last year (which was due to pandemic-induced restrictions). Wholesale revenues nearly tripled owing to a greater volume of shipments to the brand’s wholesale and international distribution partners. While gross margin expanded to 54.0% from 18.4% last year, the company’s operating loss widened to C$(60.7) million ($(49.4) million), versus C$(59.3) million ($(48.2) million) during the same quarter last year, resulting in a loss per share of C$(0.51) ($(0.41)). Canada Goose mentioned that it is not experiencing some of the supply issues that many companies in the sector are facing, due to its vertically integrated business model, and that all its eight Canadian manufacturing facilities are now open.
Outlook	Canada Goose reiterated its guidance for the full fiscal-year 2022, of revenues of about C$1 billion ($814 million), representing year-over-year growth of about 10%—and about 4% growth on a two-year basis. In the second quarter of fiscal 2022, the company expects low double-digit growth in wholesale revenues, driven by the earlier timing of shipments, and it forecasts DTC revenues to be roughly 1.5X the level seen in the second quarter of the previous fiscal year.

Luxury E-Commerce

	The RealReal (Nasdaq: REAL) 2Q21
Commentary	The RealReal reported a revenue increase of 83% year over year; sales were up 46% compared to the same period in 2019. The company’s GMV was up 91% year over year and up 53% versus the same period in 2019. The company’s consignment and service revenues jumped 76% year over year, while direct revenues rose 113%. Gross profit grew 78% year over year. The company’s gross profit per order increased by $9 quarter over quarter, to $94. The RealReal incurred a net loss per share of $0.78 versus a loss per share of $0.49 in the same quarter last year. The company’s average order value (AOV) was up 25% year over year to $520, primarily driven by a 17% year-over-year increase in average selling price.
Outlook	The RealReal is focused on driving its gross profit per order closer to the $100 mark by the end of this year and believes that variable cost efficiencies through lower buyer incentives, incremental improvements in shipping costs and continuing benefits from a high AOV will help it get there. Management noted that the company expects top-line year-over-year growth of over 30% “for the foreseeable future.” During the quarter, The RealReal opened three new stores, which generated 30% of new consignments in the quarter. The company plans to open two more stores in the second half of this year. Furthermore, management said that the company is renovating its New York store to accommodate greater capacity.

Looking Forward

For the next quarter, eBay expects positive sales and adjusted EPS growth against strong comparatives. As we reported last week, 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. Similarly, in the week ended August 1, Amazon reported that the company expects double-digit year-over-year sales growth for the next quarter but forecasts operating income to decline by between 3% and 60%, assuming about $1.0 billion of costs related to Covid-19. For the full fiscal-year 2022, Canada Goose expects double-digit sales growth year over year and low-single-digit sales growth on a two-year basis. Last week, we saw Capri Holdings’ sales decline by high-single digits on a two-year basis (compared to the corresponding quarter in 2019). For the full fiscal year, Capri has raised its revenue and operating margin guidance but remains “cautiously optimistic” about the rest of the year. Management at The RealReal noted that the company expects top-line year-over-year growth of over 30% “for the foreseeable future.” The company continued to expand in the physical retail space with the opening of new stores. Grocery Outlet expects comparable store sales to be in the negative mid-single-digit range in the next quarter. Grocery Outlet expects inflation to remain a headwind for the third quarter due to an increase in commodity and freight costs and supply chain stresses.