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 22. For most US retail companies, the quarter under review will be the third quarter of fiscal year 2020 (ending January 2021). 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 revised 12.9% year-over-year jump, with the growth rate almost doubling compared to August. September saw further reopening of stores, with many states resuming the reopening of indoor malls as the number of coronavirus cases reduced month over month. In October, US retail sales continued to witness double-digit year-over-year increase, fueled by strong growth in several sectors. However, in October, many states reported a spike in Covid-19 cases; as a result, the US retail traffic decline steepened, mostly toward the end of the month. We assess the recent performance of selected retailers and brand owners below.

Apparel Specialty Retail

	L Brands (NYSE: LB) 3Q20
Commentary	Positive topline growth at L Brands was driven by a very strong sales increase at its non-apparel banner, Bath & Body Works (BBW). The company reported a 14.1% sales increase, compared to 20.0% growth in the prior quarter. Total comps increased by 28%, with 56% growth at BBW and 4% growth at Victoria’s Secret. BBW online customers nearly doubled compared to the same period last year, and its omnichannel shoppers increased by 70%—spending 3X more than a single-channel shopper. BBW’s soap and sanitizer business comprised about 21% of the company’s business in 3Q20, up from mid-teens last year. Home fragrance and body care each grew by more than 30% in 3Q20. Victoria’s Secret reported average unit retail growth, while the PINK brand had double-digit comp growth in its logo shop, driven by strength in bras, underwear and improved assortment and merchandising.
Outlook	The company is cautious about 4Q given pandemic uncertainty and the potential for further restrictions. CEO Andrew Meslow said, “Our typical holiday volumes are about 3X larger per week than the average week in the third quarter historically, and the current capacity limitations—that range from 25% to 50% of normal capacity—will not allow us to see the same number of customers on peak days that we have in prior years. But in the case of Bath & Body Works, we have dramatically increased our capacity at about 2.5X the amount of capacity that we had last year.” The company said that its holiday promotional strategy will be spread out over more days than last year.
	Ross Stores (NYSE: ROST) 3Q20
Commentary	Off-pricers Ross and TJX (below) saw strong improvements versus the prior quarter; in Ross’s case, this was despite having no e-commerce platform at a time when more demand has shifted online. Total revenues were down 2.5% versus a 32.5% decline in the prior quarter. Comps declined by 3% versus a 12% decline in the prior quarter. The improvement was driven by strong back-to-school (BTS) shopping season and merchandise assortments, a return to more normal store hours and a solid performance in the Midwest and the Southeast regions. The company’s best-performing category was home, which comprised nearly 31% of the total business, up from 26% last year. Other strong categories include beauty, kids wear and casual activewear. The company opened 39 new stores in the quarter, completing its 2020 expansion plan of 100 new store locations.
Outlook	Management said that the holiday season is going to be very promotional. The company plans to continue to manage its in-store inventory levels very conservatively.
	TJX Companies (NYSE: TJX) 3Q20
Commentary	TJX’s sales declined by 3.8% versus a 31.8% decline in the prior quarter. Open-only comp store sales were down 5% overall. By banner, open-only comp store sales were up 15% at HomeGoods, down 10% at Marmaxx, down 7% at TJX Canada and down 6% at TJX International and Europe. TJX reported strength in the home, beauty and activewear categories. Management said that its aggressive expansion of HomeGoods over the past five years has positioned it to capture outsized home share in this environment. The company announced plans to rollout out e-commerce on HomeGoods.com in the second half of 2021. TJX said that it has added 100 new global vendors year-to-date, increasing the total count to over 21,000 vendors. The company sees this as an advantage alongside its flexibility in procurement plans, store formats and distribution networks. During the quarter, TJX increased its store count by 17 stores to a total of 4,574 stores.
Outlook	For the holiday season, management said that the company is well positioned on products and ready to bring a fresh assortment of gifts to its stores and online. In early November, the company started holiday marketing campaigns, which highlight gift assortments and communicate values with messaging such as “spend less, gift better” and “big love, small prices.”

Department Stores

	Kohl's (NYSE: KSS) 3Q20
Commentary	Department stores continued to perform poorly, with weak sequential easing at Kohl's and Macy’s (below), especially when compared to the sequential improvements at off-pricers. At Kohl's, total sales declined by 13.9% versus a 23.0% decline in the prior quarter. Kohl's saw strong positive sales growth in its home, toys, beauty, and activewear and athleisure categories; the company sees these categories as a key part of its strategy going forward. Digital sales grew 25% and contributed 32% of the company’s total sales. Nearly 40% of online orders were fulfilled by stores. Kohl's continued to invest in its omnichannel capabilities. The company said that its omnichannel customers are 6X more productive than a digital-only customer and 4X more productive than a store-only customer.
Outlook	For the holiday season, the company is emphasizing home, toys, activewear and comfort-wear categories. The company is more than doubling its number of stores carrying incremental inventory to meet online orders during the peak holiday season. In 2021, Kohl's plans to accelerate its activewear sales by increasing its space dedicated to activewear in its stores by nearly 20%. The company aims to expand its activewear category from 20% to 30% of its total business in the next couple of years. In March 2021, the company plans to launch its new athleisure private-label brand FLX. Kohl's also aims to triple its sales in the beauty segment, which currently accounts for low-single-digit penetration of its business. During the third quarter, Kohl's began piloting a new concept, Wellness Market, in 50 stores and online. Wellness Market will help the company to introduce new products across categories such as home, personal wellness, beauty, baby and pet care, with an emphasis on sustainable initiatives. The company is focusing on four key areas to drive shareholder value: Driving topline growth Expanding operating margin Disciplined capital management Agile, accountable and inclusive culture
	Macy’s (NYSE: M) 3Q20
Commentary	Total revenues were down 22.9% versus a 35.8% decline in the prior quarter. Comparable sales were down 21.0% versus a 34.7% decline in the prior quarter. Digital sales were up 27%. In terms of category, fine jewelry, beauty, furniture and Backstage, performed well in the quarter and outpaced the business; home furnishings, jewelry and fragrance, generated double-digit sales growth compared to last year. During the quarter, the company launched same-day delivery offerings across Macy's and Bloomingdale's stores, in partnership with DoorDash. Furthermore, the company upgraded curbside pickup to include digital check-in experience and an app to quickly process curbside orders. During the quarter, over 1 million new customers signed up to the company’s Star Rewards Loyalty Bronze program, taking Bronze enrollment to 9 million members. Total loyalty-program penetration improved sequentially to more than 56% in the quarter.
Outlook	Macy’s expects its total comps to be down in the low-to-mid-20s range in the second half of 2020. For the fourth quarter, the company expects its gross margin to be slightly weaker than the third quarter, due to digital growth and holiday surcharges from its shipping partners. For the holiday season, the company said that 50% of its gifting assortment will be new products, from low-priced gifts to luxury items. Management said that Covid-19 continues to impede the company’s recovery in international tourism and urban areas, adding to the bottlenecks despite supply chains opening up.

Food, Drug and Mass Retailers: Mass Merchandisers

	Target (NYSE: TGT) 3Q21
Commentary	Topline growth remained very strong at Target, with comp sales growth remaining above 20%. Total sales grew 21.3%, compared to 24.8% growth in the prior quarter. Total comparable sales increased by 20.7% versus 24.3% in the prior quarter. Digital comps grew by 155%, while store-based comps increased by 9.9%. Target witnessed growth in all merchandise categories: Growth was strongest in the electronics segment, driven by computer software, video games, portal electronic and office equipment; in Home, driven by décor and kitchen supplies; and apparel, led by intimates and sleepwear, as well as men's apparel. The company noted that almost 75% of its digital sales during the third quarter were fulfilled by stores. Within the digital channel, Drive Up (curbside pickup service) grew more than 500%, Pick Up (in-store pickup service) increased by over 50% and home delivery services through Shipt saw growth of nearly 280%.
Outlook	Management said that it is entering the holiday season with more than double the number of Drive Up parking spaces versus the year-ago period and added that it will continue to optimize space within its stores, including options to free up space to accommodate growth in Pick Up and Drive Up services. Target remains bullish on the small-format store concept. Year-to-date, the company opened 30 new stores, of which 29 were small formats, which is the highest number of small-format openings by the company in any year. In 2021, the company expects to open the first 100 Ulta Beauty shop-in-shops and sees potential to open 100 more in the years beyond.
	Walmart (NYSE: WMT) 3Q21
Commentary	Total revenues increased by 6.1% versus 5.6% growth in the prior quarter. The company witnessed continued strength in home, sporting goods and electronics categories, in line with the last quarter. The Walmart US segment (which excludes Sam’s Club) reported comp growth of 6.4% versus 9.3% in the prior quarter, while its e-commerce sales grew 79% compared to 97% in the prior quarter. Sam’s Club posted comp growth of 15.3% versus 17.2% in the prior quarter (excluding fuel and tobacco), with positive contributions from both increased transactions and average ticket size. Sam’s Club membership income grew 10.4% in the third quarter, boosted by robust new member sign-ups, high renewal rates and rising penetration of Walmart+, its new membership program launched in early September. The company noted that customers continued to consolidate shopping trips with larger baskets and fewer transactions. Management highlighted that it has converted around 2,500 stores into fulfillment centers to meet online orders and can quickly flex this number to help relieve pressure on its e-commerce fulfillment centers during the holiday season. Despite reporting a strong quarter, the company noted that it had an “unusual” and soft BTS shopping season and lower benefits from the government stimulus spending compared to the first half of the year.
Outlook	Walmart noted that it continues to benefit from persistent, strong at-home consumption trends. The company also highlighted that the shopping behaviors adopted by consumers during the crisis will stick beyond the pandemic, and Walmart is uniquely positioned to capitalize on the shift through its strong store footprint combined with emerging digital capabilities. The company recently announced the sale of its Argentina, Japan and UK businesses and plans to increase its focus on priority markets outside the US, which include China, Canada, India and Mexico.

Food, Drug and Mass Retailers: Warehouse Clubs

	BJ’s (NYSE: BJ) 3Q20
Commentary	Like Sam’s Club and Target, BJ’s continued to see very strong topline growth, supported by digital expansion. Total revenues increased by 15.6% versus 18.4% growth in the prior quarter. Comparable sales rose 18.5%, compared to 24.2% in the prior quarter. Digital sales surged 200% year over year in the third quarter, continuing momentum from the 350% and 300% growth in the first and second quarters, respectively. BOPIC (buy online, pickup in club) and same-day delivery were the most popular channels, representing three-quarters of the company’s digital growth. In the third quarter, the company’s membership base increased by 12%, or 630,000 members. The company noted that its new members are younger and engage more with its digital platforms. The company also noted that its members are continuing to consolidate their trips and are buying bigger baskets. During the third quarter, the company rapidly expanded its assortment in categories it had historically underpenetrated, including fitness equipment, household goods, indoor furniture and select consumer electronics.
Outlook	The company continues to see strong merchandise comps across almost all categories, driven by earlier holiday shopping versus last year, increased in-home consumption trends and consumers’ investments in home goods. It expects the ongoing elevated shopping trends to continue well into 2021. The company said that it remains on track to open two new clubs in New York at the end of fiscal 2020, opening a total of four stores this year. In 2021, BJ’s expects to open around six new clubs.

Home & Home Improvement

	Lowe’s (NYSE: LOW) 3Q20
Commentary	The home-improvement sector remains the standout among store-based sectors, and the sequential slowing of growth from the second-quarter peak was only very moderate at Lowe’s and Home Depot (below). At Lowe’s, total sales grew by 28.3% versus 30.1% in the prior quarter. Comps grew 30.1% versus 34.2% in the prior quarter, driven by transaction growth of 16.4% and average ticket growth of 13.7%. US comps grew 30.4%, driven by consistent and strong project demand from both DIY and Pro customers during the quarter. Lowe’s said that lumber was its strongest performing category in the third quarter, driven by strong demand from both professionals and DIY customers. The company stated that the third quarter saw broad-based growth across channels, product categories and geographies, in line with trends in the previous quarter. Sales growth exceeded 15% across all merchandising departments and 20% across all geographic regions, while Lowes.com witnessed a sales increase of 106%. In line with the prior quarter, DIY comps trumped Pro comps in the third quarter, buoyed by consumers’ mindsets inclined towards redesigning the functionality of their homes.
Outlook	For 4Q20, Lowe's expects comp growth of 15–20% and adjusted EPS of $1.10–$1.20, representing growth of 17–28%. In 4Q20, the company anticipates that topline growth will ease from 3Q20 levels as outperformance in seasonal categories abates, in line with natural demand patterns for the home-improvement sector. In the fourth quarter, the company expects to incur approximately $150 million in expenses related to the merchandising investment in its stores as it aims to complete the store reset activity for over 90% of its US stores, as well as plans to invest in expanding the supply chain network. For fiscal 2020, Lowe's expects capital expenditure of approximately $1.7 billion.
	The Home Depot (NYSE: HD) 3Q20
Commentary	Home Depot saw only a very minor slowing of growth from the prior quarter: Total sales increased by 23.2% versus 23.4% in 2Q. Total comps grew 24.1% versus 23.4% in the prior quarter, while US comps increased 24.6% versus 25.0% in the prior quarter, with both tickets and transactions registering double-digit growth. The company stated that big-ticket categories such as appliances, vinyl plank flooring and lumber performed strongly during the quarter. All of the company's top 40 markets posted double-digit comp growth, driven by growth in its Pro and DIY customers. Internationally, Canada's comp growth was above the company’s average, and Mexico registered its best performance since the pandemic broke out. Home Depot stated that the sales through its digital channel grew 80%, with stores fulfilling 60% of online orders. E-commerce penetration was 13% in the quarter. Management described its third-quarter performance as “exceptional” and attributed it to continued outsized demand for home-improvement projects.
Outlook	Management said that it is focused on continuing the momentum of its strategic investments to improve its interconnected shopping experience and position itself for continued share capture over the long run. The company said that the salient components of its One Home Depot strategy, including the opening of various supply chain facilities, technology investments and enhancements to its digital experience, remain on track. Home Depot stated that it has restarted many of the store investments that were paused at the onset of the pandemic. The company is transitioning some of its temporary employee compensation programs that it implemented during the pandemic into permanent wage increases, which will result in $1 billion of additional expenses annually. CEO Craig Menear highlighted that Home Depot has spent about $1.7 billion on temporary pay and benefits so far this year.

Looking Forward

Department stores are seeing very weak recoveries from the crisis, with comparable sales continuing to decline by double digits. Comps are likely to remain weak in the next quarter: Macy’s expects its total comps to be down in the low-to-mid-20s range in the second half of 2020. By comparison, off-pricers have seen strong improvement, with sales at Ross Stores and TJX down by low single digits versus more than 30% sales declines at both retailers in the prior quarter. Home-goods retailers Lowe’s and Home Depot continued to report exceptional comp growth. Similarly, mass merchandiser Target’s topline growth remained exceptionally strong, with comp sales growth remaining above 20%. Warehouse clubs BJ’s and Sam’s Club (owned by Walmart) also continued to see very strong topline growth. This week, we saw more evidence that the crisis will support, and likely accelerate, structural changes in US retail: Warehouse club BJ’s is continuing to expand its store estates. In discretionary sectors, we are seeing sustained strength in home and home-improvement retail, while the apparel and beauty categories are witnessing substantial improvement. Within apparel categories, the demand for casual wear and athleticwear remained strong. As the e-commerce channel continues to help retailers to increasingly offset the lost sales from brick-and-mortar store closures and reduce in-store inventory, some retailers, such as Kohl's and Macy’s, are looking to strengthen their digital model, including through the expansion of curbside pickup and ship-from-store capabilities. However, in the case of these department stores, where sales remain deeply depressed, these initiatives look to be insufficient in the short term. Off-pricers such as Ross Stores and TJX do not have substantial—or in some cases, any—e-commerce business to fall back on, yet are seeing much stronger sequential topline improvements than the department stores. 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). An early onset of the holiday shopping season (versus last year) has helped some brands and retailers to post strong merchandise comps so far in the fourth quarter, for example, BJ’s. Many retailers, such as Kohl's, Macy’s and Target, have expanded their omnichannel capabilities to fulfill consumer demand during the peak holiday season. We expect total online retail sales to rise by one-third (33.5%) year over year in the holiday period. Reinforcing this, Coresight Research’s November 17 survey of US consumers found that 72.5% of consumers are buying more online than the pre-crisis, compared to 73.8% a week ago.