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 September 5, 2021. For most 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 14.0% year over year and by 19.3% when compared to 2019 values. June 2021 saw year-over-year retail sales growth decelerate to a still strong 13.0%. On a two-year basis, June’s sales were up 25.0%, the second-strongest sales growth of any month in the past year. In July 2021, retail sales growth slowed to a still strong 9.6% year over year. On a two-year basis, July’s sales were up 21.4%, the fourth-strongest growth in sales in the past year. Slowdown in July’s growth may be partly attributed to consumer concern over the spread of Covid-19’s Delta variant, impacting spending behaviors. However, overall demand for goods continues to remain strong, even as consumer spending is shifting back to services—July saw a strengthening in traffic trends despite a surge in new Covid-19 cases. Looking ahead to 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.

Apparel and Footwear Brand Owners

Overall, apparel and footwear brand owners are witnessing a strong recovery, although with pockets of weakness. This week, we saw PVH Corp. report a low-single-digit sales decline on a two-year basis. Last week, Guess? reported a high-single-digit revenue decline on a two-year basis. In the week ended August 8, Hanesbrands reported double-digit revenue growth on a two-year basis and VF Corporation reported high-single-digit revenue growth, while Ralph Lauren witnessed a low-single-digit revenue decline.

	PVH Corp. (NYSE: PVH) 2Q21
Commentary	Total revenues increased by 46.0% year over year but decreased by 3.8% on a two-year basis. By brand, revenues in Tommy Hilfiger increased by 41% year over year; Calvin Klein business saw a 56% revenue increase; and revenues in Heritage Brands increased by 37%. Management said that PVH is seeing consumers excited to come out of Covid-19 restrictions and adopting a hybrid lifestyle with an increasing mix of wearing occasions (grounded in a casual lifestyle). In the second quarter, PVH saw continued strength in key essential product categories like underwear, T-shirts, polos, hoodies, active and sneakers, and rising demand for denim and dresses. Digital penetration as a percentage of total revenue continues to be approximately 25%. Direct-to-consumer revenue for the second quarter increased by 19% compared to the same quarter in 2020. Total wholesale revenue for the second quarter increased by 77% compared to the same quarter in 2020, driven by strong performance in Europe. By geography, Europe represents PVH’s highest e-commerce penetration, well above the company's overall rate of 25%. PVH also generated very strong retail store sales in Europe, with traffic levels sequentially improving versus 2019 as stores reopened. In Asia, revenues were relatively in line with pre-pandemic levels, led by growth in China. PVH is leveraging data analytics and utilizing new tools and channels to drive performance, including expanding its work with WeChat. The North American region is still under pressure, with the lack of tourism remaining the biggest challenge. PVH’s current inventory levels are lean; however, the company is experiencing supply chain delays of four to six weeks. As PVH moves through the second half of the year, the company expects there will be $0.35 worth of airfreight expense per standard weight unit incurred to make sure that its inventories are in line with its sales forecast (up from $0.19).
Outlook	For the second half of 2021, the company expects revenue and EPS to be impacted by the pandemic. While the international businesses have exceeded and are expected to continue to exceed 2019 pre-pandemic revenue levels for the remainder of 2021, the North American businesses are anticipated to remain challenged, as international tourism, which is the source of a significant portion of the regional revenue, is not expected to return to any significant level this year. For 2021, the company expects its total revenues to increase by 26%–28% year over year—representing a decline of 7%–9% on a two-year basis. PVH projects EPS to be approximately $8.80 compared to an EPS of $(15.96) in 2020. Looking ahead, management said that PVH will continue to build out its collaboration strategy, connecting the iconic strength of Calvin Klein with creators and brands from around the world to express their unique perspective on the brand.

Apparel Specialty Retailers

Apparel specialists reported another strong quarter, with American Eagle Outfitters posting double-digit sales growth on a two-year basis. Last week, we saw Dick’s Sporting Goods, Foot Locker, Gap and Urban Outfitters report solid sales growth on a two-year basis.

	American Eagle Outfitters (NYSE: AEO) 2Q21
Commentary	Total revenues increased by 35% year over year or by 14.7% on a two-year basis. By banner, Aerie’s sales grew 34% year over year on top of 32% growth in 2Q20, and American Eagle’s (AE) sales increased by 35%, following a 26% decline last year. The company’s digital revenues decreased by 5% year over year, which it attributed to the natural channel shift associated with improved store traffic across the US. On a two-year basis, digital revenues increased by 66%. The company’s gross margin expanded by 1,210 basis points (bps) year over year to 42.1%, mainly driven by strong demand, higher full-priced sales, inventory optimization and lower promotions. Operating margin stood at 14.1%, the highest rate since 2008. By banner, Aerie’s operating margin expanded by 890 bps year over year to 21.0% and AE’s operating margin expanded by 1,400 bps to 23.5%. The company continued to expand its Aerie banner with the opening of 17 new stores in the quarter, bringing total year-to-date new store openings to 23. Management said that the company saw double-digit year-over-year growth across all product categories. Chief Creative Officer Jennifer Foyle said, “Core intimates, bralettes and apparel and swimwear saw strong demand. We continue to gain meaningful market share in swimwear as Aerie is becoming a true destination in the category. Aerie signature bralettes and leggings are showing incredible growth and also very pleased by the success of our OFFLINE activewear brand, which continues to gain traction.”
Outlook	The company did not provide financial guidance. For 2021, the company now expects capital expenditures to be at the low end of its prior guidance of $250–275 million, reflecting cost savings on its planned projects.

Discount Stores

On a two-year basis, Big Lots and Five Below reported double-digit revenue growth. Last week, Dollar General, Dollar Tree and Ollie’s Bargain Outlet reported double-digit revenue growth on a two-year basis.

	Big Lots (NYSE: BIG) 2Q21
Commentary	Total revenues decreased by 11.4% year over year but increased by 16.4% on a two-year basis. Comparable sales declined by 13.2% year over year, as the company lapped a historic 31.3% comparable sales growth last year. On a two-year basis, comparable sales increased by 14.0%. CEO Bruce Thorn said, “We saw two-year comp sales growth across all merchandise categories other than Food, with strong double-digit two-year growth in Furniture, Soft Home, Hard Home, and Apparel, Electronics & Other. Furniture sales remain strong and were up over 30% to 2019, led by continued acceleration in Broyhill.” Digital sales grew 10% year over year and increased by over 400% on a two-year basis. Operating margin stood at 3.7%, down from 37% in the same quarter last year.
Outlook	For the third quarter of fiscal 2021, Big Lots expects to report an EPS of $0.10–0.20, based on a mid-single-digit comparable sales decline year over year, which equates to a low-double-digit comparable sales increase on a two-year basis. For the third quarter, the company expects gross margin to be down approximately 175 bps year over year, driven by freight challenges. The company also expects these headwinds to adversely affect the fourth quarter, with the full-year 2021 gross margin rate down approximately 100 bps year over year. For the full-year 2021, the company expects a low single-digit comp decline, which incorporates an adverse sales impact from supply chain disruption. Considering the aforementioned impacts, Big Lots expects full-year EPS in the range of $5.90–6.05.
	Five Below (NYSE: FL) 2Q21
Commentary	Total revenues increased by 51.7% year over year, or by 54.9% on a two-year basis. Comparable sales increased by 39.2% versus 2Q20, or by 21% on a two-year basis. The company’s net income increased by 118.9% year over year, or by 124.9% on a two-year basis. During the quarter, the company opened 34 new stores and ended the quarter with 1,121 stores in 39 states, representing an increase in stores of 14.2% year over year. CEO Joel Anderson said, “For product, we continue to see broad-based strength across our worlds on both a one- and two-year basis, especially in the Sports, Tech, Candy, Room and Style worlds. Digital continues to be an effective and efficient platform to reach customers, both new and current. We expanded the partnership with Instacart for same-day delivery to now reach the entire chain. We believe our presence on Instacart is an effective brand awareness and new customer acquisition tool as well as a convenient service for our customers.”
Outlook	For the third quarter, the company expects total revenue growth of 15–18% year over year, assuming a mid-single-digit increase in comparable sales and based on the opening of 40–45 new stores. The company expects net income to be $12.8–16.7 million, representing a decline of 18%–37%.

Looking Forward

Apparel specialty retailers reported another robust quarter, with American Eagle Outfitters posting double-digit sales growth on a two-year basis. For 2021, the company now expects capital expenditures to be at the low end of its prior guidance of $250–275 million, reflecting cost savings on its planned projects. Last week, Dick’s Sporting Goods and Gap raised their full-year guidance. For fiscal 2021, Dick’s now expects comparable sales growth of 18%–20% year over year, versus prior guidance of 8%–11% growth. Gap now expects sales growth to be around 30% year over year in fiscal 2021, versus prior sales growth guidance in the low to mid-20s in percentage terms. Last week, Foot Locker reported that the company expects comp growth to be in the low to mid-teens in percentage terms in fiscal 2021; and Urban Outfitters reported that it expects sales growth to be in the low double digits in the next quarter. While most apparel and footwear brand owners are witnessing strong recoveries from the crisis, a few continue to see gradual recovery. For 2021, PVH expects revenues to decline by high single digits percent on a two-year basis. As we reported last week, for the full fiscal year 2022, Guess? expects revenues to be down by mid-single digits percent on a two-year basis. In the week ended August 8, Hanesbrands and Ralph Lauren reported that they have revised up their sales guidance: Both companies expect strong double-digit year-over-year growth for fiscal 2022. In the same week, VF Corporation reported that the company expects sales growth of around 30% year over year for fiscal 2022. Against very strong comparatives, discount store Big Lots expects a mid-single-digit comparable sales decline year over year in the next quarter, while Five Below projects a mid-single-digit increase in comparable sales for the next quarter. As we reported last week, Dollar General raised its comp growth guidance for fiscal 2021 and now expects a comparable sales decline of 2.5%–3.5% year over year, an improvement on its previous expectation of a decline of 3%–5% year over year. Furthermore, Dollar Tree reported last week that it expects a low single-digit increase in comparable sales year over year in the next quarter, while Ollie’s Bargain Outlet reported that it anticipates two-year comp growth of 5%–7% in the next quarter.