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 29. 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 store reopenings, 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 a 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

	American Eagle Outfitters (NYSE: AEO) 3Q20
Commentary	Total revenues increased by 3% versus a 15% decline in the previous quarter. Aerie posted a 34% increase in sales versus 32% sales growth in the prior quarter, marking the 24th consecutive quarter of double-digit growth. The company reported that Aerie continues to engage with customers through social media to build a community, highlighting the brand’s strong performance on short-form video platform TikTok. On the other hand, American Eagle’s (AE’s) revenues decreased by 11% versus a 26% decline in the prior quarter. Digital revenues increased by 29% and accounted for 37% of total revenues in the quarter. Aerie’s digital revenues rose by 83%, while AE’s digital revenues increased by 11%. The company reported that it was encouraged by improvements in its tops category, where it introduced new styles and fabrics this fall. During the quarter, the company opened its new “Offline” activewear brand store and currently operates four stores. Management said that the initial responses for the Offline brand have been positive, and the company sees activewear as a growing category. The company reported that it has increased its fulfillment capacity for the peak holiday period. Furthermore, the company has improved the page load speed on its website by 60% and taken steps to ensure that its site can handle significantly higher holiday peak transaction volumes. During the quarter, the company also began testing self-checkout in stores and same-day delivery for online orders.
Outlook	Management said that the company is prepared for the peak holiday period, noting that its inventory is well-managed. For the holiday, the company expects a higher mix of online transactions and demand that is spread out over a more extended time frame, stating they are already witnessing holiday demand in November. With more online shopping, management expects shipping and delivery costs to increase in its fourth quarter, and the company forecasts its operating expenses to increase relative to the same quarter last year.
	Burlington Stores (NYSE: BURL) 3Q21
Commentary	Off-price retailers are seeing strong sales improvement. Burlington’s sales decreased by 6.4% versus a 39.1% decline in the prior quarter. This followed the strong sequential increases in topline growth reported by Ross Stores and TJX last week. Burlington’s comparable sales declined 11% in the third quarter. The company did not report comps in the prior quarter due to the temporary closing of all its stores as a result of the pandemic. Management said that the third quarter started out weakly due to lower inventory levels and back-to-school season that was later than expected; however, sales improved in September and October, with comps increasing by 4% in both months. The company reported that it has shifted its assortment to significantly expand home, active, casual essentials and basics merchandise assortments. Burlington said that there has been an acceleration of consumers shopping for value and the company is seeing progress with its off-price execution model Burlington 2.0. Furthermore, the company is reviewing Burlington 2.0, with plans to roll out a smaller store of 25,000 square feet and focus on marketing, merchandising and store prototype. During the quarter, Burlington opened 30 net new stores, bringing its total store count to 769 stores.
Outlook	The company reported that the fourth quarter is off to a weak start with comps down in the low double digits for November month-to-date (as of November 24), with this low driven by unseasonably warm weather rather than Covid-19. In its fourth quarter, the company expects to close eight stores, resulting in a fiscal year-end store count of 761 stores. In fiscal year 2021, Burlington expects to open 18 new stores.
	Dick’s Sporting Goods (NYSE: DKS) 3Q20
Commentary	Total sales increased by 22.9% versus 20.1% growth in the previous quarter. Comparable sales increased by 23.2% versus 20.7% in the prior quarter. The sales growth was driven by a 19.6% increase in average ticket spend. Digital sales increased by 95% and accounted for about 21% of the company’s total sales. Stores fulfilled approximately 70% of online sales—this includes curbside and in-store pickup, which saw over 300% growth as compared to buy online, pickup in store (BOPIS) sales last year. The company’s average was outperformed by its private label brands’ comps by over 10%: The retailer’s Calia brand is its second-largest women's brand and the DSG brand has grown to become its largest vertical brand within one year of its launch. In the third quarter, two million new customers joined the Company’s ScoreCard loyalty program, which drove more than 70% of the company’s sales. The company said that, relative to its existing customers, the new customers skew younger and female, providing a strong opportunity for future growth. During the quarter, Dick’s rolled out a contactless self-checkout app Scan Pay and Play to over 300 stores, to enable an efficient checkout solution. Dick’s is launching Public Lands, an outdoor concept focused on protecting the environment and on getting people outdoors and participating in camping, hiking, biking, kayaking and fishing, among other activities. The company plans to open two Public Lands stores in 2021, one in August and another in October.
Outlook	The company remained optimistic about its business going forward. Management said that it expects consumers’ views on active lifestyles to remain unchanged even after the pandemic, with more consumers looking to live an active life and engage in outdoor activities and recreation. Furthermore, management believes that new working from home set-ups will continue to support the activewear and outdoor clothing market.
	Gap Inc. (NYSE: GPS) 3Q20
Commentary	Total sales were flat compared to an 18.2% sales decline in the prior quarter, with very strong growth at Old Navy but deepening declines at Banana Republic. Comparable sales were up by 5% versus a 13% increase in the previous quarter. By brand, Old Navy’s comps were up by 17% versus a 24% increase in the prior quarter; Gap’s comps were down by 5% versus a 12% increase in the prior quarter; Banana Republic’s comps were down by 30% versus a 27% decline in the prior quarter; and Athleta’s comps were up by 37%—the highest in the brand’s history— compared to 19% increase in the prior quarter. Management called out activewear as an area of strong growth at Old Navy, with category sales up by 55% at the banner. Old Navy was also supported by its off-mall locations, which comprise 75% of the banner’s estate. These locations drove shopper visits and offered curbside pickup services. Banana Republic’s traditional strengths in workwear have proved a weakness amid widespread working from home trends. The company acquired 6 million new customers in its third quarter, increasing the total count to 176 million, up by 15% compared to the same quarter last year. The company reported that its customers spent 6% more versus last year. On September 22, the company launched a new multi-tender loyalty program in the US and Puerto Rico, replacing its previous Bright Rewards program. The new program has a unique name for each brand: Athleta Rewards, Banana Republic Rewards, Gap Good Rewards and Navyist Rewards. Within two months of its launch, the company has enrolled 3.5 million new members under the multi-tender loyalty program, representing a double-digit conversion in stores and online enrollment, and accounting for more than 50% of the company’s total sales.
Outlook	For the fourth quarter, the company expects sales to be equal to or slightly higher compared to the same quarter last year and gross margin to be equal to last year. The company noted that Old Navy and Athleta are its fastest-growing and highest-margin businesses, together contributing 63% of the company’s total sales in the third quarter. The company expects these businesses to contribute about 70% of its total sales by 2023. The company aims to close unprofitable Gap and Banana Republic stores by the end of 2023, which will result in EBITDA savings of $100 million on an annualized basis. Furthermore, the company expects digital sales to account for nearly 50% of its total sales by 2023.
	Urban Outfitters (NasdaqGS: URBN) 3Q20
Commentary	Total sales decreased by 1.8% versus a 16.5% decline in the prior quarter and comparable sales were flat, compared to a 13.0% decline in the prior quarter. By banner, comparable sales increased by 17% at Free People versus 11% growth in the prior quarter; Urban Outfitters saw a 4% increase versus an 8% decline in the prior quarter; and comp sales decreased by 9% at Anthropologie versus a 25% decline in the prior quarter. The company’s digital business posted mid-double-digit comp sales growth in the quarter. Total new digital customers jumped by 45% during the quarter. The company is optimizing its stores’ picking, packing and shipping capabilities—it sold 1 million direct-to-consumer units out of store inventories globally in the third quarter. Management said that home was its strongest-performing category during the quarter. Management said that its “UO at Home” campaign that featured over 200 global influencers and creators strongly drove the growth in the home segment. The campaign witnessed increased engagement on its social media platforms, including Instagram, Pinterest and TikTok. Furthermore, the company reported that it is adopting new marketing methods to enhance consumer engagement—during the quarter, the company hosted virtual experiences for customers, including virtual dance and workout classes, live performance concerts, DIY workshops, and beauty tutorials.
Outlook	For the holiday, the company is launching new curbside pickup facilities; staffing stores to enhance picking, packing and shipping capabilities; installing more automated equipment and technology in the distribution centers; and increasing staff numbers in fulfillment centers.

Department Stores

	Nordstrom (NYSE: JWN) 3Q20
Commentary	Nordstrom provided further evidence of weakness at department stores, following the substantially negative 3Q figures reported by Macy’s (its comps decreased by 21.0%) and Kohl’s (its total sales decreased by 13.9%). Macy’s also provided topline guidance outlook for the second half, which we reported last week. Nordstrom’s total revenues contracted by 16%, following a 53% decline in the prior quarter, despite a positive impact of around 10 percentage points owing to the shift of the Nordstrom Anniversary Sales from its second quarter to its third quarter. Full price net sales decreased by 7%, while off-price net sales decreased by 32%. The company noted that its loyalty program The Nordy Club contributed approximately 80% of the sales during the Nordstrom Anniversary Sales. Digital sales increased by 37% and accounted for 54% of the company’s total sales. Nordstrom reported a net profit of $53 million in the third quarter, representing a year-over-year decline of 58.0%. During the quarter, Nordstrom reported outsized growth in its activewear, beauty and home categories, which contributed more than 25% of the company’s sales. Management said the company is positioned to support customers shifting to digital with a scalable platform across full-price and off-price offerings. Nordstrom is competitively positioning Nordstrom Rack as the only off-price store retailer with a significant digital platform. In its third quarter, online sales represented 40% of Nordstrom Rack sales. The company added 30,000 more off-price products online during the quarter and highlighted that 25% of Nordstrom Rack’s online orders were fulfilled from stores and more than 10% of online orders were picked up at Rack stores. The company is witnessing strong growth in online beauty consultations. During its third quarter, virtual styling accounted for roughly 30% of all styling appointments and sales from personalized looks created by salespersons tripled in volume as compared to the previous quarter.
Outlook	For its fourth quarter, the company forecasts total sales to decrease by around 20% and expects its operating cash flow to be positive. During the holidays, management expects a highly promotional and competitive environment, in addition to shipping surcharges and premium pay.

Food, Drug and Mass Retailers: Discount Stores

	Dollar Tree (NYSE: DLTR) 3Q20
Commentary	Total sales increased by 7.5% versus 9.4% growth in the previous quarter and comparable sales increased by 5.1%, compared to 7.5% growth in the prior quarter. Comps at Family Dollar grew by 6.4% versus an 11.6% increase in the prior quarter. At Dollar Tree, comps increased by 4.0% versus 3.1 % in the prior quarter. Dollar Tree delivered the strongest quarterly comps since the first quarter of fiscal year 2018. During the quarter, the retailer’s strongest-performing categories were home products, kitchenware, crafts, party items and seasonal Christmas merchandise. The company said that it had strong Halloween sell-through, with seasonal Halloween and Fall and Harvest categories (includes craft supplies, floral, décor, kitchen & dinnerware, and candles & scents items for the fall season) delivering combined comp growth of 9.4% comps in the quarter. In its third quarter, the company completed more than 550 real-estate projects, including opening 143 new stores, 34 relocations, 371 Family Dollar H2 renovations and shuttering 16 stores. The company ended the quarter with 15,606 stores. During the quarter, the company launched its e-commerce website familydollar.com. The company said that it is in the early phases of testing new initiatives, such as BOPIS and delivery options through Instacart and Shipt.
Outlook	Management said that the company is off to a good start in the fourth quarter, with quarter-to-date comps at both Family Dollar and Dollar Tree tracking above third-quarter levels. In the third quarter, the company saw strong sell-through of Dollar Tree Plus! items. The Dollar Tree Plus! program launched in May 2019 and features a multi-price product assortment with a focus on $1, $3 and $5 price points. The company plans to expand the program to approximately 500 stores by the spring of 2021.

Electronics Retail

	Best Buy (NYSE: BBY) 3Q20
Commentary	Best Buy reported a surge in sales: Total revenues grew by 21.4% versus 3.9% growth in the prior quarter. Comparable sales increased by 23.0% versus 5.8% growth in the prior quarter. The company’s domestic sales grew by 21.0%, while international sales increased by 25.4%. US digital comparable sales grew by 174% (compared to 242% in the prior quarter) and accounted for 35% of total domestic sales, and the company considers this as a testament to its strength as a multichannel operator. In terms of product category, the company registered strong growth across computing and both large and small appliances, in line with the previous quarter. Additionally, the home theater category returned to growth and was also a key contributor to its total comp growth. The company reported that its sales growth in October was boosted by the Amazon Prime Day event (shifted from July to October this year) and holiday promotions being drawn forward this year. Furthermore, the company noted that it continued to benefit from macro consumer trends such as sheltering at home and a shift in spending away from international travel and dining out.
Outlook	For the fourth quarter, the company forecasts sales growth to be positive, but does not expect to sustain the sales levels experienced in its third quarter. Best Buy expects its fourth-quarter margin to decline at a higher rate than in the third quarter, owing to anticipated success of online sales that will drive higher supply chain costs, as well as increased parcel surcharges from its carrier partners. Furthermore, the company anticipates a higher sales mix from lower-margin gaming consoles to have a negative impact on gross margin in the fourth quarter.

Home & Home Improvement

	Williams-Sonoma (NYSE: WSM) 3Q20
Commentary	Providing further evidence of the strength of home categories, Williams-Sonoma reported that its total revenues grew by 22.4% in the third quarter versus 8.8% growth in the prior quarter. The company’s comps grew by 24.4% versus 10.5% growth in the previous quarter. The company stated that demand comp growth, which includes orders placed but not yet filled in the quarter, was even stronger at around 31%. E-commerce comps grew by 49.3% in the third quarter. Brand-wise, Williams Sonoma was the strongest banner, delivering comp growth of 30.4%, while Pottery Barn’s comps grew by 24.1%. The retailer’s Pottery Barn Kids and Teens business registered comp growth of 23.8% and West Elm's comps grew by 21.8%.
Outlook	Williams-Sonoma stated that it continues to enjoy strong momentum across all its banners three weeks into the fourth quarter. The company expects high shipping costs to continue to be a headwind in its fourth quarter, given the anticipated high levels of e-commerce sales and surcharges that will come into play during the peak holiday selling season. The company announced its long-term financial targets of revenue growth in the mid-to-high single-digit range, operating margin expansion and an above-industry average return on invested capital (ROIC). The company reported that it is looking to expand its presence in the $80 billion business-to-business (B2B) market in the US. CEO Laura Alber said, “We believe that B2B will be our next $1 billion business within the next five years. Our competitive advantage is that we have eight unique brands, in-house product development capabilities and a sustainable supply chain, which allows us to simplify the customer experience for our B2B customers.”

Looking Forward

Department stores are seeing very weak recoveries from the crisis, with sales continuing to decline by double digits. Sales are likely to remain weak in the next quarter: Nordstrom expects its total sales to be down by around 20% in its fourth quarter. As we reported last week, Macy’s expects its total comps to be down in the range of 20% in the second half of 2020. By comparison, apparel specialists have seen strong improvements, with American Eagle Outfitters reporting 3% sales growth and Gap Inc.’s flat sales growth concealing double-digit growth at Old Navy. This compared to double-digit sales declines at both American Eagle Outfitters and Gap Inc. in the previous quarter. Off-price retailers, such as Burlington Stores, 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. Last week, we saw Ross Stores and TJX posting strong sequential increases in topline growth. Home-goods retailer Williams-Sonoma continued to report extraordinary comp growth. Last week, we noted that Kohl’s, Macy’s, Ross Stores, Target, The TJX Companies and Walmart called out home as an outperforming category, and that Home Depot and Lowe’s witnessed exceptional comp growth in this area. Similarly, electronics retailer Best Buy reported remarkably strong topline growth, with comp sales growth exceeding 20% in the quarter. This week, we saw more evidence that the crisis will support, and likely accelerate, structural changes in US retail, such as store expansion among discount retailers, such as Dollar tree , which reported strong topline growth and is continuing to expand its store portfolio. As the e-commerce channel continues to help retailers offset lost sales from brick-and-mortar store closures and reduce their in-store inventory, some retailers, such as American Eagle Outfitters and Urban Outfitters, are looking to strengthen their digital model. This involves looking to expand curbside pickup and ship-from-store capabilities, and implement automated fulfillment technology at stores and distribution centers. However, online sales tend to come with higher costs and, in the new year, retailers are likely to report negative margin impacts from strong online sales during the holiday peak. Many retailers, such as American Eagle Outfitters, Best Buy, Nordstrom and Williams-Sonoma, expect high levels of e-commerce sales and high shipping surcharges that will come into play during the peak holiday selling season to present a significant headwind in the fourth quarter.