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 coronavirus pandemic on third-quarter 2020 performance (ending October 31 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 November 8. For most US retail companies, the quarter under review will be the third quarter of fiscal year 2020 (ending January 2021), but some of the companies covered have different year ends (e.g., The Estée Lauder Companies). In August, US retail sales continued to rebound strongly as the reopening of stores improved, compared to the previous month. In September, US retail sales saw an extraordinary 12.1% year-over-year jump, with the growth rate more than doubling compared to August. This was fueled by strong growth in several sectors and further reopening of stores, with many states resuming the reopening of indoor malls as the number of coronavirus cases reduced month over month. However, amid concern over ongoing outbreaks, Coresight Research’s October 27 survey found that the proportion of US consumers avoiding any type of public area remains high at 80.4%, and 55.4% of respondents are currently avoiding shopping centers/malls. We assess the recent performance of selected retailers and brand owners below.

Apparel and Footwear Brands

	Hanesbrands (NYSE: HBI) 3Q20
Commentary	Hanesbrands’ sales declined by 3.2% versus a 1.3% decline in 2Q20. By segment, US innerwear sales increased by 37%, driven by sales of personal protective garments; US activewear sales declined by 41%, with the vast majority of these declines occurring in the sports apparel business due to the cancellation of sporting events and the closure of college bookstores. However, consumer demand for the Champion brand remains strong, and the International segment declined by only 5%. Online sales increased by nearly 70%. The company is looking for opportunities to modernize its technology in the supply chain to accelerate time to market and meet the unique needs of diverse brands and businesses. Meanwhile, it is expanding its digital focus and capabilities to be able to capture online growth. During the quarter, Hanesbrands announced 2030 global sustainability goals, including addressing the use of plastics and sustainable raw materials in products and packaging. In addition, the company launched a new sustainability website, designed to increase transparency on key metrics for investors, including diversity, human rights benchmarks and risk assessments.
Outlook	For 4Q20, the company expects net sales to be $1.60–1.66 billion, representing a year-over-year decline of 5–9%, including approximately $50 million of protective garment sales and approximately $10 million of foreign exchange benefit. For 4Q, the company expects adjusted EPS of $0.25–0.30. The company considers negative manufacturing variances and higher SG&A (selling, general and administrative expense) to be headwinds that will pressure both gross and operating margins in the fourth quarter. These manufacturing variances were incurred in March 2020 due to lower unit production that the company had initially planned owing to the Covid-19 pandemic, which raised the fixed cost per unit. In accounting terms, these expenditures are capitalized onto the balance sheet and rolled off on the income statement and the cost of sales as the inventory are sold. For full-year 2020, the company expects net cash from operations to be $300–400 million, which includes the impact from the higher-than-anticipated protective garment inventory.
	Under Armour (NYSE: UAA) 3Q20
Commentary	Revenue was flat year over year versus a 41% decline in 2Q20. By category, apparel revenue was down 6%, footwear revenue was up 19% and accessories up 23%. E-commerce grew more than 50% globally. The company highlighted the launch of its first-ever women-specific basketball shoe, UA HOVR Breakthru, which has been well accepted by the marketplace and demonstrates the company’s commitment to delivering innovative performance solutions. Under Armour made the decision to sell the MyFitnesssPal platform (which represents nearly all the connected fitness segment revenues) because it did “not fully align with the brand as a core asset with [its] target consumer needs,” according to the company. Under Armour said that it is focusing on four key areas to empower its ambitions as a premium athletic performance brand: Continue to strengthen the brand through increased engagement. Improve the company’s brand marketing platform and provide more touch points. Further refine operating model to drive efficiency. For example, the company cut its inventory purchases by about 30% for the back half of 2020 and moved more planned spring product deliveries to early 2021 versus late 2020. Prioritize a direct consumer-focused approach to deepen connection with consumers. Work to empower a more robust CRM. Amplify discipline to drive a more sustainable future: empower earnings potential and drive long-term returns to shareholders.
Outlook	For 2020, the company expects revenues to be down at a high-teen percentage rate compared to 2019, reflecting a low-20s-percentage-rate decline in North America and a high-single-digit-percentage-rate decline within the international business. The company expects promotional activity levels in the fourth quarter to be significantly higher than last year. Under Armour expects total inventory to be up approximately 10% at the end of 2020. The company plans to reduce its wholesale footprint starting next year and into 2022 and beyond, and it expects to reduce overall North American wholesale distribution points by about 2,000–3,000 to have about 10,000 doors by the end of 2022.

Beauty Brands and Retailers

	The Estée Lauder Companies (NYSE: EL) 1Q21
Commentary	Total revenues declined by 9%, a substantial sequential improvement from the prior quarter, when revenues declined by 32%. Travel retail sales were almost flat year over year, and sales from the acquisition of Have&Be (“Dr. Jart+”) contributed about three percentage points to total sales growth. Skin care, the company’s largest category, saw sales growth of 10%. Makeup, the second-largest category, witnessed a sales decline of 32%. For the quarter, fragrance sales were down 13% and haircare sales were down by 1%, on a constant-currency basis. The company is seeing growing demand for eye makeup. CEO Fabrizio Freda said, “Eye makeup is much stronger than other categories just because in a period of masking, eye makeup is more relevant than… lips, for example—and so, there is a very positive trend in our opinion.”
Outlook	For 2Q, the company expects a sales decline of 4–6% and an adjusted EPS decline of 24–32% in constant currency. For fiscal 2021, the company continues to expect sequential improvement in sales growth each quarter.

E-Commerce

	Amazon (NasdaqGS: AMZN) 3Q20
Commentary	Net sales increased by 37.0% versus 40.2% growth in 2Q20. By segment, North America saw 39% sales growth and accounted for 62% of total sales; International witnessed a 37% sales increase and accounted for 26% of total sales; and Amazon Web Services (AWS) reported sales growth of 29% and accounted for 12% of total sales. The retailer saw strong demand and sales growth across major product categories, including hardlines, consumables, softlines and media. Amazon also observed that Prime members have expanded their usage of Prime's digital benefits, including Prime Video, since the onset of the pandemic. Internationally, the number of Prime members who stream Prime Video grew by more than 80% in the third quarter, and international customers more than doubled the hours of content they watched on Prime Video compared to last year. On Prime Day 2020, third-party businesses achieved more than $3.5 billion in sales, a 60% increase compared to Prime Day 2019—and third-party business units represent 54% of the total unit mix, as of 3Q. Amazon has also launched innovative products and heightened its efforts in sustainability: The retailer launched new Echo and Fire TV devices that include 100% post-consumer recycled fabric, 100% recycled die-cast aluminum; Luxury Stores, a new shopping experience for eligible US Prime members, offers established and emerging luxury fashion and beauty brands; and Amazon unveiled its first custom electric delivery vehicle, which will launch in 2021.
Outlook	In 4Q, Amazon expects net sales to be between $112 billion and $121 billion, representing growth of 28–38%. The retailer expects operating income to be between $1.0 billion and $4.5 billion, compared with $3.9 billion in 4Q19. For 4Q20, Amazon identified two headwinds: As some of Amazon’s fulfillment network expansion shifted out a few weeks and now will happen in 4Q rather than 3Q, it will lead to to profitability when those new centers open. Amazon pointed to costs related to productivity losses, and economic uncertainties around holiday sales and the Presidential election. For 4Q, Amazon will focus more on marketing services revenues, including sponsored ads—with actions including updating sponsored product targeting and working on simplifying registration for agencies and marketers, getting them set up and making display ads easier.

Home and Home-Improvement Retailers

	Wayfair (NYSE: W) 3Q20
Commentary	Wayfair's total revenues grew 66.5%, versus 84.2% growth in 2Q20. Its US revenues increased by 66.5%, and international revenue rose 66.7%. Wayfair became profitable for the second time since it went public in 2014, reporting a net profit of $278 billion (2Q20 was the first profitable quarter). The number of active customers in the company’s Direct Retail business grew 50.9%, reaching 28.8 million as of September 30, 2020. Around 60% of total orders delivered for the company’s Direct Retail business in 3Q20 were placed via mobile devices, versus 53.8% in 3Q19. Its repeat customers accounted for 71.9% of total orders in 3Q20, versus 67.3% in 3Q19.
Outlook	For 4Q20, the company expects the following: Gross margin range to be between 26% and 28%. Capital expenditure in the range of $75 million to $85 million, subject to expected timing. Management expressed confidence that it has a long runway for continued strong profitable growth ahead, even after the current circumstances pass. CFO Michael Fleisher said, “Quarter to date, our gross revenue growth is trending at roughly 50% year over year. We did see moderation in growth in the latter half of Q3, excluding Way Day, so we still expect strong growth for the whole of Q4 and obviously well above pre-Covid levels. Although we are optimistic that holiday demand for the category will prove healthy and expect that many will prefer to shop online, there are still tremendous unknowns, a statement which is probably more poignant than usual when made on election day.”

Luxury

	Canada Goose (TSX: GOOS) 2Q21
Commentary	Total revenues decreased by 33.7%, versus a 63.3% decline in the prior quarter, driven by retail traffic disruptions in the DTC (direct-to-consumer) segment and lower order bookings in the wholesale segment due to Covid-19. DTC revenue in China, however, jumped 30% year over year, and global e-commerce revenues increased by 10%.
Outlook	CFO Jonathan Sinclair said, “We’ve restarted production at the beginning of Q2, and that was specifically to add newness and depth for the full winter—in other words, for the forthcoming season. So, we are now at the point where sales really pick up, and that will naturally drive down inventory levels through the remainder of the year.” The company plans to open three more stores in China in the remainder of the year.
	Capri Holdings (NYSE: CPRI) 2Q21
Commentary	Capri Holdings reported a revenue decline of 23.0%, marking a significant improvement from the prior quarter, when revenues fell 66.5%. At constant currency, revenues declined by 24.6%. By brand, Versace’s sales declined by 18.9%, Jimmy Choo’s sales decreased by 6.4% and Michael Kors’ sales declined by 27.9%, on a constant-currency basis. The company’s e-commerce sales improved sequentially, increasing by about 60% in the quarter. Store performance also improved sequentially, mainly due to local clienteling initiatives. CEO John Idol said, “By geography, we are seeing the fastest recovery in Asia. This is being led by Mainland China with positive sales in our retail channel across all three of our luxury houses. Revenue in the Americas is also recovering faster than we anticipated, with sales in our retail channel increasing by double digits at Versace, low-single digits at Jimmy Choo and at a slower recovery at Michael Kors. EMEA improved sequentially, but sales across all three brands trailed other regions, given the impact of lower tourism and its importance in this geography.”
Outlook	For the full year, the company expects a revenue decline of approximately 30%, an improvement versus its prior expectation. For 3Q, Capri Holdings expects a modest sequential improvement in total revenues, with sales declining by double digits year over year, representing an improvement relative to its prior outlook. For 4Q, the company expects a more pronounced improvement in trends, although it continues to expect negative sales growth. The company plans to grow its revenues and earnings by executing on five strategic pillars: Design the most innovative fashion luxury product from all its three founder-led houses. Engage through compelling marketing campaigns. Develop a consumer-centric approach by leveraging global database. Expand e-commerce and omnichannel capabilities. Adopt a comprehensive social responsibility and environmental strategy, emphasizing on inclusion, diversity and philanthropy.

Looking Forward

As the e-commerce channel continued to help retailers to offset the lost sales from brick-and-mortar store closures amid Covid-19, some retailers—such as Capri Holdings and Hanesbrands—are looking to expand their digital and omnichannel capabilities. In discretionary sectors, we continued to see strength in the home categories. In the apparel and footwear categories, the demand for innerwear and women’s shoes remained strong, while tailored clothing and activewear saw weaknesses. In beauty categories, skin care is trending, but demand for makeup remains weak—except eye makeup, which is seeing a strong positive trend. Even in the midst of a pandemic, some brand owners and retailers—such as Amazon, Hanesbrands and Under Armour—are prioritizing sustainabilityinitiatives. We believe that a focus on sustainability could help these retailers attract more customers, employees and investors. Holiday demand is expected to be healthy for the retail industry: Coresight Research estimates an approximate 5% year-over-year rise in total retail sales for the holiday period (October to December). We believe this holiday season will be highly promotional and expect total online retail sales to rise by one-third (33.5%) year over year, taking e-commerce sales to around $234 billion, or 21.7% of total holiday sales.