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 of fiscal 2022 (2Q22) performance (ended July 31, 2022, for most companies).

Companies featured are those within our Coresight 100 coverage list, and we focus on those that reported in the week ended August 7, 2022. For most US retail companies covered in this series, the quarter under review will be the 2Q22.

In April 2022, US retail sales increased by revised 5.5% year over year, against strong 2021 comparatives, indicating that retail sales are healthy. In May 2022, US retail sales increased by revised 6.1% year over year, against very strong May 2021 retail sales data (when pandemic-driven stimulus checks proved a boost to retail spending). In June 2022, US retail sales remained nominally healthy in June, growing 5.6% year over year. However, with our inferred retail-only inflation metric at 7.6%, overall growth of 5.6% in retail sales in June implies consumers are buying fewer items at the store, and there was a real terms sales decline of around 2.0%. US retail traffic grew 2.9% year over year in June 2022, lower than May’s growth of 8.1% year over year.

We assess the recent performance of selected retailers below.

Apparel and Footwear Brand Owners

Overall, most apparel and footwear brand owners continue to witness solid sales growth, with Crocs and Gildan Activewear reporting double-digit sales growth year over year and Under Armour reporting single-digit sales growth. However, Carter’s reported a single-digit sales decline in its second quarter. Last week, we saw Columbia Sportswear, Deckers Outdoor, Levi’s, Skechers and VF Corporation all report positive sales growth year over year.

	Carter’s, Inc. (NYSE: CRI) 2Q22
Commentary	Carter’s reported a 6.1% year-over-year revenue decline in its second quarter, versus a 1.0% decline in the prior quarter, due to declines in the company’s US retail and wholesale sales and partially offset by growth in its international sales. Although sales declined, the US is witnessing more weddings and improving birth rates, which are tailwinds for the company’s business. Its diluted EPS declined by 22.2% year over year. The company’s adjusted operating margin was down 400 basis points (bps) year over year to 10.8% due to the higher ocean freight rates, increased inventory provisions and fixed cost deleverage on lower sales, and it was partially offset by lower air freight expenses. By segment, the company’s US retail revenue declined by 11.0% year over year, reflecting a tougher comparison to last year’s stimulus-led spending. Meanwhile, its US wholesale revenue declined by 3.0% year over year, and its international revenue increased by 7.0%. In its US e-commerce business, the company saw a high single-digit year-over-year decline in website traffic. By comparison, the company’s in-store traffic in the second quarter was only slightly lower than last year. In the quarter, Carter’s saw lower demand in its core Carter’s brand sold through department stores, clubs, and off-price retailers. However, it continues to see good demand for its eco-friendly Little Planet brand. In fiscal 2022, the company plans to expand Little Planet to nearly 800 stores in the US and Canada, split between Carter’s stores and the stores of some of its largest wholesale customers, such as Kohl’s and Target. On the supply chain side, the company saw improvement in on-time deliveries, though it has not returned to pre-pandemic levels. According to the company, 80.0% of 2022 fall deliveries are expected to be fulfilled on time, with the remaining balance running, on average, a few weeks behind.
Outlook	The company revised down its fiscal 2022 guidance for net sales growth to a mid- to high-single-digit decline year over year, compared to its prior guidance of 2.0%–3.0% year over year growth, and it expects an adjusted EPS decline of 3.4%–9.8% year over year, compared to its prior guidance of 12.0%–14.0% growth year over year. Carter’s expects to open 100 or more stores (net) in the US by 2026, including 30 store openings and 19 closures in fiscal 2022. Over 30.0% of the company’s online orders in the first half of fiscal 2022 were fulfilled by stores, and it expects stores to fulfill 40.0% or more of its online orders within the next four years. Management stated that the company’s inventories will be elevated in fiscal 2022 for two primary reasons. First, the company ordered product earlier to improve on-time deliveries for the back-to-school and holiday seasons. Second, the company is packing and holding inventory, given the slowdown in demand it has seen in recent months.
	Crocs, Inc. (NasdaqGS: CROX) 2Q22
Commentary	Crocs posted sales growth of 50.5% year over year versus 43.5% growth in the previous quarter, while its adjusted EPS increased by 45.3% year over year. The company’s adjusted gross margin declined by 660 bps year over year to 55.2% due to incremental air freight costs and supply chain disruptions. Crocs brand revenue was up 14.3% year over year. The company’s brand digital sales increased by 16.8% year over year, representing 37.2% of total revenues. HEYDUDE brand revenues were up around 96.0% compared to 2021, while its digital penetration comprised 31.5% of its total revenues. By distribution channel, the company’s direct-to-consumer (DTC) business, which includes retail and e-commerce, grew 22.8% year over year, and wholesale revenues grew by 80.6%. By geography, the Crocs brand’s North American revenue increased by 7.6% versus 2Q21. The Europe, Middle East, and Africa (EMEA) and Latin America regions’ combined revenue increased by 32.8% year over year. Meanwhile, the Asia Pacific (APAC) region’s revenue increased by 17.4% year over year.
Outlook	For fiscal 2022, the company revised down its sales growth and adjusted EPS guidance and now expects sales growth between 47.0% and 52.0% year over year, compared to its prior guidance of 52.0%–55.0% growth. It expects revenue growth for the Crocs brand to be 10.0%–13.0% year over year, compared to prior guidance of 20.0%, and revenue for the HEYDUDE brand to be approximately $750–800 million, compared to previous guidance of $850–890 million. The company expects gross margin to still include $75 million of air freight costs in 2022. It expects its adjusted operating margin to be 26.0%–27.0% and adjusted EPS growth of 14.2%-23.8% year over year. It continues to expect capital expenditures of approximately $170–200 million, primarily for supply chain investments to support growth. For 3Q22, the company expects revenue growth of 46.0%–53.0% year over year. It expects revenue growth for the Crocs brand to be 15.0%–18.0% compared to 2021 and revenue for the HEYDUDE brand to be approximately $235–255 million. It expects an adjusted operating margin of approximately 25.0%–26.0%.
	Gildan Activewear Inc. (TSX: GIL) 2Q22
Commentary	Gildan Activewear’s sales increased by 20.0% year over year, versus 31.0% growth in the prior quarter, driven by higher sales in activewear and partly offset by lower sales in the hosiery and underwear category. Its adjusted EPS increased by 26.5% year over year. Its adjusted gross margin was down 90 bps year over year to 29.6% due to higher manufacturing costs, although partly offset by higher net selling prices and a favorable product mix. By category, the company’s activewear sales were up 27.0% year over year, driven by higher base selling prices, lower year-over-year promotional discounting, a favorable product mix and higher unit sales volumes in North America. However, activewear volume growth was offset in part by lower international shipments compared to last year, largely driven by weaker demand in Asia due to Covid-19 lockdowns in China. Hosiery and underwear sales declined by 8.0% over last year as a result of the company lapping demand driven by last year’s stimulus payments and a softening retail sales environment. By geography, sales in Canada increased by 25.1% year over year, and US sales increased by 24.1% year over year. Meanwhile, international sales declined by 15.6% year over year. Management stated that the company’s inventory has been tight due to limited production capacity in sourcing countries. However, the company acquired Frontier Yarns in December 2021 and believes this acquisition will help the company increase its production capacity.
Outlook	Gildan management stated it feels optimistic about the rest of 2022 as it believes that the current events and tourism recovery remains a tailwind. The company is confident about its ability to deliver on its three-year objective: a net sales CAGR in the range of 7.0%–10.0% from 2022–2024, capital expenditures as a percentage of sales of 6.0%–8.0% over the next three years to support long-term growth and vertical integration, and an annual adjusted operating margin in the range of 18.0%–20.0%.
	Under Armour (NYSE: UAA) 1Q23
Commentary	Under Armour’s revenue in its first quarter increased by 2.0% year over year on a constant-currency basis versus 3.0% growth in the prior quarter. The company’s EPS declined by 87.5% year over year. Its gross margin declined by 280 bps year over year to 46.7% compared to the prior year due to elevated freight expenses, higher than planned promotions and the negative impact of changes in foreign currency. By channel, the company’s wholesale revenue increased by 3.0% year over year, driven by an increase in its distributor business and partially offset by lower sales in the off-price channel. Its DTC revenue decreased by 7.0% year over year due to an 8.0% decline in owned stores’ revenue. Its e-commerce revenue declined by 6.0% year over year and represented 39.0% of the company’s total DTC business during the quarter. By geography, North American revenue was flat compared to the prior year, with increased revenue in the wholesale business being offset by a decline in DTC sales. International revenue declined by 3.0% year over year. Within the international business, revenue decreased by 1.0% in EMEA and 8.0% in APAC due to lockdowns in China. Latin American revenue was up 6.0% year over year, driven by solid sales performance in distributor-led markets. By segment, apparel revenue decreased by 1.0% year over year, with strong sales in team sports products, particularly the football and baseball categories, offset by softness in sales of the golf and run categories. Footwear revenue increased by 1.0% year over year, with good sales performance in the football and basketball categories offset by sales declines in the run category. Accessories revenue decreased by 13.0% due to planned lower sales of the company’s SPORTSMASK brand compared to last year. At the end of the first quarter, the company’s inventory was up 8.0% year over year to $954 million. Under Armour has been running leaner inventory levels over the past year due to its constrained model and the proactive cancellations of orders as a result of supply chain challenges. As deliveries recover from recent supply chain disruptions over the next few quarters, the company expects elevated inventory growth rates.
Outlook	For fiscal 2023, Under Armour reiterated its revenue growth guidance, continuing to expect a revenue increase of 7.0%–9.0% year over year on a constant-currency basis. However, the company revised down its gross margin expectation and now expects it to be down 375–425 bps, compared to the previous expectation of 150–200 bps, due to expanded discounting and promotional activities. The company also revised down its EPS guidance and now expects it to be between $0.61 and $0.67, compared to its prior guidance of $0.79 to $0.84. The company expects capital expenditures of approximately $225 million in fiscal 2023, which is within its operating goal of 3.0%–5.0% of net revenues. This fall, Under Armour will introduce new technology via an upcoming training shoe. The company feels the shoe could become a signature item for its $1.5 billion footwear business and plans to bring the tech to additional footwear categories in fiscal 2023. For 2Q23, the company expects revenue to be flat to slightly up versus the prior-year quarter—up a low- to mid-single-digit rate on a currency-currency basis. Due to adverse impacts from elevated promotional activities, increased freight expenses, shifts in channel mix sales and growing pressures from foreign currency changes, the company expects its second-quarter gross margin to be down 550–600 bps compared to the prior year.

Beauty Brands and Retailers

	L'Oréal S.A. (ENXTPA: OR) 2Q22
Commentary	L’Oréal reported a 22.7% year-over-year increase in revenues versus 19.0% growth in the prior quarter, while its comp sales increased by 13.4% year over year. All divisions grew at a double-digit pace year over year: the professional products division recorded 20.7% year-over-year sales growth; consumer products sales increased by 16.8%; L’Oréal Luxe’s sales were up 26.1%; and active cosmetics sales grew by 33.9% year over year. Meanwhile, the company’s gross margin declined by 140 bps year over year to 73.1% due to freight costs. By geography, Latin America achieved the fastest sales growth at 43.9% year over year, led by strong growth in Mexico and an acceleration in Brazil and Chile. North American sales increased by 25.3%, and European sales increased by 13.4% year over year. North Asia reported 22.7% year-over-year sales growth, led by solid sales growth in Japan and South Korea. Moreover, in mainland China, the beauty market contracted significantly at the beginning of the second quarter due to Covid-19 lockdowns; however, the company was able to cope with disruptions and achieved a solid performance with double-digit sales growth in June, reinforcing its market share in all divisions. Sales in the South Asia Pacific, Middle East, North Africa and Sub-Saharan Africa region were up 38.9%, with a particularly strong performance in India and a recovery in the Australian market. Each of the company’s categories witnessed positive sales growth momentum. Specifically, the makeup segment saw a strong recovery, with lipstick growing at a double-digit percentage pace, while fragrance sales accelerated.
Outlook	The company did not provide financial guidance for fiscal 2022; however, it remains optimistic about the beauty market’s outlook in the coming months, despite inflationary pressures and supply chain issues. For the full-year 2022, the company expects to achieve a capital expenditure of 3.5% of total sales.

CPG

CPG companies are seeing a mixed recovery, with Colgate-Palmolive and Procter & Gamble posting single-digit sales growth year over year, Herbalife Nutrition posting a double-digit sales decline and Clorox Company reporting flat sales growth year over year. Last week, Kimberly-Clark Corporation reported single-digit sales growth year over year.

	Clorox Company (NYSE: CLX) 4Q22
Commentary	The Clorox Company reported flat net sales growth year over year in 4Q22, versus a 2.0% growth in the previous quarter, due to lower shipments and offset by pricing benefits. Its adjusted EPS declined by 2.0% year over year, while its gross margin remained flat compared to the year-ago period at 37.1% due to elevated commodity, manufacturing and logistics costs and offset by the pricing benefits and cost savings initiatives. By segment, health and wellness’ net sales declined by 5.0% due to lower sales volume and partially offset by a favorable price mix. Household net sales increased by 4.0%, driven primarily by a favorable price mix and partially offset by lower sales volume. Lifestyle net sales increased by 1.0%, mainly due to a favorable price mix, although lower sales volumes partially offset this. International sales increased by 4.0%, driven by a favorable price mix and partially offset by unfavorable foreign exchange rates and lower sales volumes. CEO Linda Rendle stated, “Despite a challenging operating environment with record high input cost inflation and ongoing pandemic-driven volatility, Clorox’s actions to rebuild margin and its investment in innovation and the portfolio of trusted brands helped the company to deliver results matching its outlook, including yet another quarter of sequential gross margin improvement.”
Outlook	For fiscal 2023, Clorox expects year-over-year net sales growth in the range of (4)%–2% due to its progress in rebuilding its gross margin and the continued normalization of demand in some of its portfolios (those that witnessed a significant increase over the last two years). It expects an adjusted EPS in the range of $3.85–$4.22, representing (6.0)%–3.0% year-over-year growth. The company expects its gross margin to increase by 200 bps, driven by the pricing benefits, cost savings and supply chain optimization, although offset by continued cost inflation. The company expects the sales environment to remain difficult in fiscal 2023 due to both its lapping of Covid-19 impacts on its business and persisting factors like input cost inflation and supply chain disruptions.
	Colgate-Palmolive Company (NYSE: CL) 2Q22
Commentary	In 2Q22, Colgate-Palmolive reported organic sales growth of 9.0% year over year, versus 4.0% growth in the previous quarter, led by growth in every division and category and the company’s focus on premium innovation, brand building and digital capabilities. The company’s diluted EPS declined by 13.3% year over year, while its gross profit margin was down 300 bps year over year to 57.0% due to significant material and logistics cost increases. By geography,  total organic sales in North America increased by 6.0% year over year, while Latin America’s organic sales increased by 12.5%, with Argentina, Brazil, Columbia and Mexico leading the growth. Europe’s organic sales growth was flat year over year due to organic sales decline in its Filorga business, despite being partially offset by organic sales growth in Poland and France. The Asia-Pacific region’s organic net sales increased by 9.0%, led by Australia, Greater China and the Philippines. Organic sales in the Africa/Eurasia region increased by 5.0% year over year due to growth in Turkey and South Africa, although offset by organic sales declines in Russia and Ukraine. CEO Noel Wallace explained that “Our solid results this quarter, despite significant headwinds from raw materials, foreign exchange and the broader macro environment, demonstrate that our strategies are working. We will continue to deliver impactful innovation that provides value to our customers and consumers as we work to offset these headwinds and deliver sustainable, profitable growth over the long term.”
Outlook	Colgate-Palmolive raised its organic sales growth guidance for fiscal 2022 and now expects it in the range of 5.0%–7.0% year over year, compared to its prior guidance of 4.0%–6.0% growth. It still expects its net sales growth to be at the higher end of 1.0%–4.0%, including a mid-single-digit negative impact from foreign exchange rates. The company expects a year-over-year decline in its adjusted gross profit margin and a mid-single-digit EPS decline.
	Herbalife Nutrition Ltd. (NYSE: HLF) 2Q22
Commentary	Herbalife’s total sales decreased by 10.3% year over year compared to an 11.0% decline in the previous quarter, while its adjusted diluted EPS declined by 38.1% year over year. Its gross profit margin for the quarter was 77.3%, a sequential improvement. However, its EBITDA margin was down by approximately 200 basis points year over year, primarily due to increased supply chain input costs related to raw materials, manufacturing and shipping costs. Management stated that the 2Q22 financial performance exceeded the top end of the company guidance range for net sales, despite 2Q21 being the largest quarter in the company’s history as a result of pandemic-led demand. The company took incremental pricing actions in most markets in mid-June to offset inflationary increases in input costs. This increase is on top of the previously implemented price increases in the first quarter to offset significant increases in input and freight costs. The company also continued to innovate with local product development, resulting in approximately 60 new stock-keeping units (SKUs) in the second quarter. By geography, North American sales declined by 16.5% year over year, EMEA’s sales decreased by 21.4% year over year, and sales in South and Central America decreased by 5.6% year over year. Meanwhile, the Asia Pacific region’s sales increased by 15.0% year over year—setting a quarterly sales record for the company—due to continued strength in India, which grew 30.0% year over year, 25.0% year-over-year growth in new distributors and preferred customers, and 37.0% growth in active sales leaders. Herbalife believes that its cost control measures have started generating sequential margin improvements. After implementing incremental pricing actions in June, the company plans to monitor any impact on demand elasticity and performance closely. The company also plans to invest $400 million in Herbalife One, its first-ever unified data and artificial intelligence (AI)-powered global digital platform, designed to support distributor growth and elevate customer experiences. The company believes that Herbalife One will increase its scalability, flexibility, performance and speed to market capabilities, help differentiate the company and strengthen its leadership position in the market.
Outlook	For 3Q22, Herbalife expects its sales growth to decline by 3.0%–9.0% year over year, including a 550 bps currency headwind versus the prior year. It expects its adjusted EPS to be in the range of $0.70–$0.95, a year-over-year decline of 21.5%–42.1%. For fiscal 2022, the company reaffirmed its net sales growth guidance of a 4.0%–10.0% decline year over year. However, the company expects year-over-year net sales growth to return to positive territory in the fourth quarter. Herbalife is lowering its full-year adjusted EPS guidance to $3.25–$3.75, compared to prior guidance of $3.50–$4.00, representing a decline of 21.7%–32.2% year-over-year decline. The company also reaffirmed its full-year adjusted EBITDA guidance range of $680–$740 million.
	Procter & Gamble Company (NYSE: PG) 4Q22
Commentary	Procter & Gamble’s total revenues increased by 3.0% year over year versus 7.0% growth in the prior quarter. Meanwhile, its comparable sales increased by 7.0% year over year due to improved pricing, although partially offset by shipment volumes because of lockdowns in China and reduced operations in Russia. Its adjusted EPS increased by 7.0% year over year. By segment, beauty comp sales were flat year over year. Within the beauty segment, haircare organic sales increased by a low single digit, driven by increased pricing and partially offset by volume declines due to lockdowns in China and reduced operations in Russia. The skincare and personal care segments’ organic sales declined by a low single digit each due to sales decline in the super-premium SK-II brand. The grooming segment’s comp sales increased by 3.0% year over year. Within grooming, shave care comp sales increased by mid-single-digit year over year, driven by improved pricing and partially offset by volume declines from lockdowns in China. The appliances segment’s comp sales declined by a high single digit year over year, while health care’s comp sales increased by 9.0% year over year. Within health care, oral care comp sales increased by a high single digit year over year, driven by increased net pricing and a favorable product mix, although partially offset by lower volumes due to pandemic-related lockdowns in China. Meanwhile, personal health comp sales increased by a mid-teens percentage year over year, driven by increased net pricing and volume growth due to a stronger respiratory season versus a year ago. The fabric and home care segment’s comp sales increased by 9.0% year over year, in which fabric care comps saw a double-digit increase due to higher net pricing; meanwhile, home care comp sales registered low-single-digit growth. The baby, feminine and family care segment’s comp sales increased by 7.0% year over year, with both baby care and family care comp sales increasing by a mid single digit year over year and feminine care comp sales increasing by a low-teen percentage year over year. By region, US comp sales increased by 8.0% year over year, and European comp sales increased by 3.0% year over year. Mainland China comp sales were down 11.0% year over year due to Covid-19 lockdowns. E-commerce sales in the US increased by 11.0% year over year, representing 14.0% of total sales. The company’s gross margin was down 370 bps year over year due to increased commodity costs and higher freight costs, although this was partially offset by some pricing benefits. Its operating margin went down 30 bps year over year.
Outlook	For fiscal 2023, the company expects year-over-year sales growth in the range of flat to 4.0%, and it expects comp sales growth of 3.0%–5.0% year over year. Meanwhile, it expects EPS growth in the range of flat to up 4.0% versus 2022. The company estimates its capital spending to be around 5.0% of fiscal 2023 net sales, in line with the fiscal 2022 capital expenditure.

Drugstore Retailers

Drugstore owners have witnessed mixed results as they cycled last year’s strong comparatives due to robust Covid-19 vaccinations and testing. In its latest quarter, CVS Health reported double-digit sales growth year over year. Last week, we saw Walgreens report a low-single-digit year-over-year sales decline.

	CVS Health (NYSE: CVS) 2Q22
Commentary	CVS Health reported revenue growth of 11.0% year over year versus 11.2% in the previous quarter, with solid sales growth in all segments. Its adjusted EPS declined by 1.0% year over year. Meanwhile, its adjusted operating income declined by 1.6% year over year due to declines in the adjusted operating income of its retail/long-term care (LTC) and corporate segments, although this was offset by increases in the health care benefits and pharmacy services segments. The company administered over four million Covid-19 tests and around six million Covid-19 vaccines nationwide in 2Q22. By segment, health care benefits’ revenue increased by 10.9% year over year, driven by growth across all product lines. Its pharmacy services segment’s revenues increased by 11.7% year over year, attributed to an increase in pharmacy claims, growth in specialty pharmacy sales and inflation, and partially offset by continued client price improvements. Its retail business witnessed a 6.3% year-over-year sales increase, driven by increased prescription and front store volume, including the sale of over-the-counter (OTC) Covid-19 test kits, the impact of an extended cough, cold and flu season compared to the prior year, and pharmacy brand inflation. The company has closed 198 stores to date and remains on track to close 300 total in 2022. Regarding its digital-first approach, the company has now served more than 45 million unique digital customers, up 1.5 million since last quarter.
Outlook	CVS Health raised its full-year 2022 guidance for adjusted EPS and now expects it in the range of $8.40–$8.60, compared to earlier guidance of $8.20–$8.40, representing 3.5%–6.0% year-over-year growth, reflecting the 2Q22 sales performance and the company’s improved outlook for the retail LTC segment. CVS Health also raised its 2022 cash flow from operations guidance range to $12.5–13.5 billion, compared to its prior guidance of $12.0–13.0 billion. In 2022, the company expects to administer around 20 million Covid-19 vaccines, with approximately 75.0% of the vaccines already administered in the first half of 2022. It also expects full year Covid-19 diagnostic testing volumes of approximately 19 million and sales of Covid-19 OTC test kits to more than double compared to prior year, exceeding 50 million units. In aggregate, the company expect these three categories of Covid-19 driven items to now produce nearly $3 billion of revenue in 2022, a decline of approximately 33.0% versus 2021. For fiscal 2022, the company continue to anticipate capital expenditures in the range of $2.8–3.0 billion, as it plans to invest in technology and digital enhancements to improve the consumer experience and its community locations.

E-Commerce

E-commerce players have reported flattish sales growth during the quarter. Alibaba reported flat year-over-year sales growth in its first quarter. Last week, Amazon reported single-digit year-over-year sales growth; however, at constant currency, first-party online sales were flat.

	Alibaba (NYSE: BABA) 1Q23
Commentary	Alibaba’s total sales were flat year over year, versus 9.0% growth in the prior quarter, due to a decline in the China commerce segment’s revenue, although offset by revenue growth in the cloud segment. Its adjusted EPS declined by 29.0% year over year. Sales from its China commerce segment—which includes retail businesses, such as Alibaba Health, Taobao, Taobao Deals, Tmall, Tmall Global and Tmall Supermarket, and its wholesale business—declined by 1.0% year over year due to Covid-19 lockdowns in Shanghai and other major cities in April and May. Physical goods gross merchandise value (GMV) for Taobao and Tmall decreased by a mid-single-digit percentage each, year over year, due to higher order cancellations—a result of Covid-19 lockdowns in China—and supply chain disruptions. International commerce sales increased by 2.0% year over year, driven by positive revenue growth of the Lazada brand and partially offset by declining revenues from the AliExpress and Trendyol brands. Revenue from Alibaba.com’s wholesale business grew 12.0%, driven by 16.0% growth in the value of transactions completed, which led to an increase in revenue generated by cross-border related value-added services. The local consumer services segment’s order volume growth declined by 5.0% year over year due to declining Ele.me restaurant delivery orders and the Covid-19 resurgence in China; this was partly offset by solid growth of Ele.me non-restaurant delivery orders and strong growth of Amap orders. Alibaba’s cloud segment revenue increased by 10.0% year over year, reflecting the overall recovery of non-internet industries; however, this was partly offset by the decline in revenue of the online education industry and softening demand from Chinese customers. Revenue from Alibaba’s smart logistics network, Cainiao, increased by 5.0% year over year due to the increasing popularity of its consumer logistics services because of service upgrades. However, the growth was partly offset by the decrease in international orders on AliExpress. Alibaba’s digital media and entertainment segment saw a revenue decrease of 10.0% year over year due to decreased revenue from Alibaba Pictures and Youku, a video hosting service. Alibaba’s management emphasized that this quarter the company made meaningful progress in narrowing losses across multiple business channels by improving operating efficiency and increasing cost control and cost optimization. These improvements, coupled with Alibaba’s strong free cash flow and net cash reserves, allow Alibaba to remain flexible in the current macroeconomic environment. Management also addressed Alibaba’s recent announcement to pursue a dual-primary listing in both New York and Hong Kong to expand its investor base.
Outlook	The company did not provide financial guidance. However, management noted that even though there was a gradual demand recovery in China in July, they believe there are still many risks and uncertainties that may arise in the region in the coming months. Regarding future investments, Alibaba believes emerging technologies remain a considerable opportunity and will seek to leverage its cloud industry to support new tech. Additionally, it plans to leverage autonomous vehicles for logistics and the metaverse for increased consumption and customer engagement.

Food Retailers

Food retailers are witnessing solid sales, with both Sprouts Farmers Market and Weis Markets posting single-digit year-over-year sales growth in their second quarter. Similarly, last week, we saw Albertsons Companies post single-digit year-over-year sales growth. High inflation in food is driving sales expansion in the sector.

	Sprouts Farmers Market, Inc. (NasdaqGS: SFM) 2Q22
Commentary	Sprouts’ total sales increased by 5.0% year over year—versus 4.0% growth in the previous quarter—driven by new stores and comparable store sales growth of 2.0% year over year. Its EPS increased by 9.6% year over year, while its gross margin increased by 30 bps year over year to 36.4% due to decreased warehouse and distribution costs. E-commerce sales increased by 15.0% year over year, representing 11.1% of total sales. In the second quarter, the company continued to see digital customer engagement growth with increases in account sign-ups, active e-mail users and “tech subscriptions.” It also continued to experience strong sales in its deli business, as consumers searched for healthy and easy meal options, as well as the areas with the largest product selection, such as grocery, dairy and frozen. Management stated that as consumers feel inflation pressures, the company is proactively focusing on value across the store. It is driving value through pack and pricing by leaning into great produce pricing, emphasizing bulk offerings, running buy one get one (BOGO) and vitamin offers. During the quarter, the company opened two new stores and closed three due to lease expirations, resulting in 378 stores in 23 US states as of July 2022.
Outlook	For fiscal 2022, the company raised its financial guidance and now expects sales growth of 4.0%–5.0% year over year, compared to its previous guidance of 4.0%–6.0% growth. It expects comp store sales growth of 1.0%–2.0% year over year, compared to its prior guidance of flat to 2.0%. The company expects adjusted EPS in the $2.18–$2.26 range, compared to its previous guidance of $2.14–$2.24, representing 3.8%–7.6% year-over-year growth. The company expects to continue to pass through product input costs, but now expects a slight increase in gross margins for the full year relative to last year. The company plans to open around 16 new stores in 2022 and invest $130–150 million in capital expenditures, including potentially relocating one of its distribution centers to a larger facility. For 3Q22, the company expects comp store sales year-over-year growth of 1.0%–2.0% and an adjusted EPS between $0.49 and $0.53, representing a decline of 5.4%–12.5% year over year.
	Weis Markets, Inc. (NYSE: WMK) 2Q22
Commentary	Weis Markets reported 8.4% sales growth year over year versus 9.7% in the prior quarter, while comp sales increased by 8.4% year over year. The company’s diluted EPS increased by 8.9% year over year. CEO Jonathan Weis stated, “We generated strong results in the second quarter despite ongoing inflationary pressures throughout our business operations. We are also mindful of inflation's impact on our customers and continue to promote the value of our private brands along with the fuel and retail product savings available through our Weis Rewards program. In May, we made a multi-million-dollar investment to expand our Low-Price program by lowering prices on hundreds of our best-selling brand-name and Weis quality frozen products."
Outlook	The company did not provide financial guidance.

Home and Home-Improvement

Home and home-improvement retailers are witnessing a mixed performance. In its latest quarter, Floor & Decor Holdings posted double-digit sales growth year over year, while Wayfair reported a double-digit sales decline year over year. Last week, we covered Tractor Supply Company’s high-single-digit year-over-year sales growth.

	Floor & Decor Holdings, Inc. (NYSE: FND) 2Q22
Commentary	Floor & Decor Holdings reported 26.7% sales growth year over year versus 31.5% growth in the prior quarter. Its comp sales increased by 9.2% year over year, driven by a 17.9% increase in average ticket total, while its adjusted EPS increased by 4.1% year over year. The company’s first-quarter gross margin decreased by 250 bps year over year to 40.0% due to higher supply chain and freight costs. Its e-commerce sales increased by 34.0% year over year and accounted for 17.5% of total sales. By category, pro sales growth was significantly above the company’s total sales growth rate. Pro accounted for around 39.0% of total sales growth in 2Q22, up 500 bps from the previous year. In 2Q22, the company rolled out its in-home design service offering, which is focused on building a consistent, high-touch, best-in-class and seamless designer service experience for homeowners and pros in the Washington, D.C. market, shortly followed by Dallas, Houston and Miami. The company plans to launch its in-home design services in Atlanta in the third quarter. Management stated that it believes the company has past peak pain resulting from capacity constraints in the global supply chain. The company has managed to reduce overall ocean and trucking spending and effectively manage its ocean capacity needs while, at the same time, improving its in-stock levels. The company opened nine new warehouse stores in the second quarter, ending the quarter with 174 warehouse stores in 34 US states.
Outlook	For fiscal 2022, the company revised down its financial guidance and now expects its sales to be $4.29–4.33 billion, compared to its prior guidance of $4.29–4.38 billion, representing 25.1%–26.2% year-over-year growth. It expects its diluted EPS to be $2.65–$2.80, compared to its prior guidance of $2.75–$3.00, representing 12.0% midpoint growth year over year. The company expects comp sales growth to be 10.0%–11.0% year over year compared to its prior guidance of 10.5%–13.0%. Floor & Decor Holdings is on track to hit its goal of opening 32 new warehouse-format stores and four small design studios in 2022. However, the company lowered its capital expenditure expectation from $550–590 million to $480–$500 million for the year.
	Wayfair (NYSE: W) 2Q22
Commentary	Wayfair reported a 14.9% decline in revenues year over year versus a 13.9% decline in the previous quarter. Management stated that the second quarter fared slightly better than the first quarter in terms of revenue, as customers responded to promotional events positively and the suppliers leaned in with more aggressive wholesales. Its adjusted EPS was $(1.94) for the quarter. By geography, net revenue in the US declined by 9.7% year over year, while international net revenue declined by 34.4% year over year on a constant-currency basis. During the quarter, the total number of orders delivered was down 28.2% year over year, while active customers declined by 24.1% year over year. However, net revenue per active customer increased by 12.3% year over year. In May 2022, the company launched its first all-modern store, and it plans to open additional locations under its specialty retail banners later in 2022. Next year and on a limited basis, the company will continue experimenting with new specialty retail formats, ultimately leading to a large Wayfair-branded store in 2024. Wayfair CEO Niraj Shah stated, “Consumers remain engaged and responsive to the right combination of wide selection, great deals, and satisfying service, while suppliers are leaning in with Wayfair, extending us more product and better wholesale costs, while using more of our service offerings.”
Outlook	Wayfair did not provide full-year financial guidance. However, for 3Q22, the company expects its revenue to be below 2Q22 levels and its gross margin to be at the upper end of the 27.0%–28.0% range.

 

Looking Forward

The macroeconomic context is challenged and consumers have, in total, been cutting back on the volume of purchases. Yet, we continue to see meaningful pockets of topline expansion in covered companies, albeit in many cases price hikes will be flattering those top lines. 

Overall, most apparel and footwear brand owners continue to witness solid revenue growth, with Crocs, Gildan Activewear, and Under Armour reporting positive sales growth, while Carter’s reported a single-digit sales decline year over year. However, negative gross margins remain a concern for these companies due to incremental freight costs—although partially offset by price increases. For their respective fiscal years, Carter’s and Crocs have revised down their net sales and EPS guidance and Under Armour revised down its EPS guidance, while Gildan Activewear’s sales CAGR outlook from 2022 to 2024 reflects net sales growth of a high-single-digit to double-digits. Last week, we saw Columbia Sportswear, Skechers, and VF Corporation revise down their EPS guidance for their respective fiscal years, while Deckers Outdoor Corporation raised its EPS guidance for fiscal 2023. However, all the companies, except VF Corporation, reported that they expect double-digit net sales growth for their respective fiscal years.

Beauty brand owner L’Oréal reported double-digit sales and comp growth year over year, balanced across all geographic zones and divisions. For fiscal 2023, the company did not provide financial guidance; however, it remains optimistic about the outlook of the beauty market, despite inflationary pressures and supply chain issues.

CPG companies are witnessing a mixed recovery, with the Colgate-Palmolive Company and Procter & Gamble posting single-digit sales growth year over year, while Clorox Company posted flat sales growth year over year and Herbalife Nutrition posted a double-digit sales decline. For fiscal 2023, Clorox and Procter & Gamble expect positive sales growth year over year, while Herbalife Nutrition expects a year-over-year sales decline in fiscal 2022. Colgate-Palmolive raised its organic sales guidance for fiscal 2022 and now expects it to grow mid- to high-single-digit year over year. Last week, we saw Kimberly-Clark Corporation reiterate its sales guidance and raise its comps guidance for full-year 2022.

Drugstore owners have witnessed mixed performances in the quarter, with CVS reporting double-digit sales growth year over year in its second quarter. For fiscal 2022, the company raised its full-year EPS guidance and now expects it to grow by a mid- to high-single-digit percentage, reflecting both its second-quarter sales performance and an improved outlook for the retail LTC segment. The company also raised its full-year 2022 cash flow from operations guidance. Last week, we saw Walgreen maintain its adjusted EPS guidance of low-single-digit year-over-year growth; however, it raised its guidance for its “base business” from mid- to high-single-digit growth to high-single-digit growth year over year.

E-commerce players are reporting flattish online sales, with Alibaba reporting flat sales growth year over year in its first quarter, while the sales of its China commerce segment declined by a single-digit percentage year over year. The company did not provide financial guidance for fiscal 2023. However, it believes there are still many risks and uncertainties as a result of slowing macro activities that may be seen in the coming months. Last week, we saw Amazon report flat sales in its Online Stores segment (at constant currency), which represents first-party sales. 

Fueled by inflation, food and grocery retailers are witnessing strong sales growth in the quarter, with both Sprouts Farmers Market and Weis Markets posting single-digit year-over-year sales growth in their second quarter. For full-year 2022, Sprouts Farmers Market raised its sales, comp sales and adjusted EPS guidance, while Weis Markets did not provide financial guidance. Last week, we saw Albertsons raise its comp sales and EPS guidance for fiscal 2023.

In the home and home-improvement sector, Floor & Decor Holdings posted single-digit sales growth year over year, while Wayfair reported a double-digit year-over-year sales decline. However, for fiscal 2022, Floor & Decor Holdings revised down its sales, comp sales and EPS growth guidance. While Wayfair did not provide full-year financial guidance, it expects its 3Q22 revenue to be below 2Q22 levels and its gross margin to be at the upper end of the 27.0%–28.0% range. Last week, we saw Tractor Supply Company raise its sales, comp sales and EPS guidance for fiscal 2022. Currently, all these companies are continuing to expand their store networks.