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 third-quarter 2021 performance (ended September 30, 2021, for most companies). Companies featured are those within our Coresight 100 coverage list, and in this report, we focus on those that reported in the week ended October 31, 2021. For most US retail companies covered in this series, the quarter under review will be the third quarter of fiscal 2021 (3Q21). In July 2021, US retail sales grew by a strong 9.6% year over year and by 21.4% when compared to 2019 values. Similarly, in August 2021, US retail sales grew by a very strong 12.0% year over year and by 19.7% from the corresponding quarter of 2019, demonstrating consumers’ willingness to spend a strong back-to-school season. September 2021 saw year-over-year retail sales growth decelerate to a still-strong 11.1% year over year and were up 25.8% on a two-year basis. Overall, in September 2021, the demand for goods remained solid even as consumer spending is shifting back to services and the number of workers heading back to the office increases. We assess the recent performance of selected retailers and brand owners below.

Apparel and Footwear Brand Owners

	Levi Strauss & Co (NYSE: LEVI) 3Q21
Commentary	Levi’s reported revenue growth of 41% year over year, and up 3% versus the corresponding quarter in 2019. By channel, direct-to-consumer (DTC) revenues increased by 34% versus the same quarter last year, supported by increased revenue from company-operated stores. Global wholesale reported a 45% year-over-year increase in revenue. Revenues through all digital channels grew 10% and digital sales represented around 20% of its total third-quarter revenues. Levi’s completed the acquisition of Beyond Yoga, for an aggregate purchase price of around $400 million, diversifying its business and moving into the high-growth activewear segment. The company also introduced Tailor Shop virtual workshops, began piloting self-checkouts and launched a shop-to-store function on its app in the Americas. On the supply chain side, Levi’s continues to leverage its globally diversified sourcing strategy. The company now does not source more than 20% of its products from any one country—and its sourcing currently spans 24 countries. The company has also introduced a strategy to cross-source key products: More than 50% of its current bottoms volume is now produced at suppliers in at least two different source countries. The company has also redirected the vast majority of its goods to enter the US through East Coast ports, due to delays at West Coast ports.
Outlook	The company expects 20%–21% year-over-year revenue growth in the fourth quarter and 6%–7% on a two-year basis. The company expects EPS of around $0.38–$0.40 in the fourth quarter, bringing the full-year EPS outlook in the range of $1.43–$1.45.
	VF Corporation (NYSE: VFC) 2Q22
Commentary	The company’s revenue from continuing operations increased by 23% (up 21% on a constant-currency basis) to $3.2 billion; excluding acquisitions, revenue increased by 19% (up 17% on a constant-currency basis). However, on a two-year basis, revenue declined by 5.9%. By segment, Active revenue increased by 16%, including an 8% increase in Vans brand revenue and an eight-percentage-point revenue growth contribution from acquisitions; Outdoor revenue increased by 31%, including a 31% increase in The North Face brand revenue; Work revenue increased by 18%, including a 21% increase in Dickies brand revenue. By geography, International revenue increased by 18%; Europe revenue increased 19%; and Greater China revenue increased by 9%, including a 9% increase in Mainland China. By distribution channel, Direct-to-Consumer revenue increased by 32% and Digital revenue increased by 24%. Most of VF Corporation’s supply chain is currently operational, but suppliers are complying with local public health advisories and governmental restrictions, resulting in isolated product delays. The resurgence of Covid-19 lockdowns in key sourcing countries caused additional manufacturing capacity constraints during the second quarter. Additionally, continued port congestion, equipment availability and other logistics challenges have contributed to increasing product delays. The company is working with its suppliers to minimize disruption and is employing expedited freight as required.
Outlook	VF Corporation expects fiscal 2022 revenue to be approximately $12.0 billion, reflecting growth of around 30%. EPS is expected to be around $3.20. The company expects the promotional environment to be quite clean for the holiday season.

E-Commerce Platforms

	Amazon (NasdaqGS: AMZN) 3Q21
Commentary	Amazon reported 15% revenue growth year over year. On a two-year basis (compared to the corresponding quarter in 2019), the company registered revenue growth of 58.3%. By segment, Amazon Web Services (AWS) saw accelerated revenue growth of 39% year over year, versus 37% in the prior quarter. Sales for Online Stores (first-party retail sales) were up just 3% year over year while physical stores were up 13%. Two-year growth for Online Stores slowed sharply, to around 43% in 3Q versus 71% in 2Q. Net product sales were up just 4% year over year in 3Q. Operating income decreased by 21% year over year to $4.9 billion. EPS declined by 50.5% year over year, but grew 44.7% on a two-year basis. The company stated that global supply chain disruptions and inflation remain strong headwinds. CFO Brian Olsavsky stated, “The disruption to the global supply chains and inflation in the cost of materials such as steel and services such as trucking has also raised our cost of operations. We estimate the cost of labor, labor-related productivity losses, and cost inflation to have added approximately $2 billion in operating cost in Q3, particularly in August and September. Our Q4 guidance range anticipates that these costs will approach $4 billion in Q4 as we see a full quarter’s impact of these effects and a higher seasonal unit volume.”
Outlook	The company expects its revenue in the fourth quarter to be in the range of $130.0–$140.0 billion, representing 4%–12% growth year over year. Operating income is expected to be between $0 and $3.0 billion as compared with $6.9 billion in the fourth quarter of 2020. The company anticipates that labor costs and inflation will add about $4 billion to its operating cost in the fourth quarter.
	eBay (NasdaqGS: EBAY) 3Q21
Commentary	On a constant-currency basis, eBay reported 10% revenue growth year over year; however, it declined by 5.7% on a two-year basis. Transaction revenue saw growth in double digits for the sixth consecutive quarter, driven by managed payments contributions. EPS increased by 9% year over year. Gross Merchandise Volume (GMV) decreased by 12% on a constant-currency basis due to relative mobility and country-specific macroeconomic trends. However, compared to the corresponding quarter in 2019, GMV has increased by 9% on a constant-currency basis. In the US, GMV increased by 22% on a two-year basis, mainly driven by increased product rollouts within focus categories and steady growth within the e-commerce sector. The company’s sneakers business in the US continues to grow at healthy double-digit rates. The company’s active buyers stood at 154 million at the end of the quarter, representing a decrease of 5% year over year. This decline was due to low-value buyers, a group that makes up over half of their buyer base but contributes only 5% to GMV. Adjusted operating margin has declined by 2.7 PPTs year over year and stands at 31.7%. The decrease is driven primarily by lower sales volumes due to reduced coupons and rewards programs targeted earlier towards low-value buyers. Going forward, the company will be trialing a new 3D image technology on select sneaker listings. With the help of artificial intelligence (AI) and machine learning, customers will have access to a detailed 360-degree view of items they are purchasing.
Outlook	The company has revised up its fiscal 2021 outlook for payments revenue from $1.8 billion to $2 billion, estimating growth of 11%. For the fourth quarter, management expects to report total revenue between $2.57 billion and $2.62 billion, representing 3%–5% growth on a constant-currency basis. The revenue guidance implies GMV will be down low teens on a constant-currency basis compared to last year and up mid-to-high single digits compared to the fourth quarter of 2019. The company expects EPS growth of 14%–19% year over year in next quarter.

Home and Home-Improvement Retailers

	Tractor Supply Company (TSCO) 3Q21
Commentary	Tractor Supply Company reported a 15.7% year-over-year increase in revenue and a 52.5% increase on a two-year basis. Adjusted EPS increased by 20.4% year over year and by 87.5% on a two-year basis. Comparable sales increased by 13.1% year over year, driven by a 9.5% increase in average ticket and 3.6% growth in transactions. The company stated that comparable sales have continuously expanded by more than 10% for the sixth consecutive quarter. Gross profit increased by 14.5% year over year and the gross margin declined to 36% from 36.4% last year, driven by higher product cost inflation, inflated freight costs and a more normalized product mix shift in Consumable, Usable, and Edible (CUE) products. However, it was still approximately one percentage point higher than the comparable quarter in 2019, which recorded a rate of 35%. Operating profit increased by 18%, yielding an operating margin of nearly 10% in the third quarter. At the end of the quarter, merchandise inventories exhibited 11.7% year-over-year growth in average inventory per store, reflecting robust sales trends and the inflation effect.
Outlook	The company has revised up its fiscal 2021 financial guidance to reflect its strong performance through the third quarter of 2021. It expects fiscal 2021 net sales to be around $12.6 billion compared to its prior expectation of $12.1–$12.3 billion, with comparable sales growth of about 16% versus the prior expectation of 11%–13%. The company expects its operating margin to be 10.2%–10.3% from the prior guidance of 9%–9.5% and EPS between $8.40 and $8.50 compared to the previous range of $7.70–$8.00. Comparable sales growth for the fourth quarter is anticipated to be around 8%–10%.

Looking Forward

Apparel and footwear brand owners are witnessing substantial recovery from the crisis. For the next quarter, Levi's expects year-over-year revenue growth in the high teens. Similarly, VF Corporation forecasts year-over-year revenue growth of around 30% for fiscal 2022. However, supply chain constraints led by continued port congestion and other logistics challenges remain headwinds for Levi's and VF Corporation. Both companies are working with suppliers to minimize disruption and employing expedited freight as required. When we focus on online retail-related metrics, Amazon and eBay faltered in the quarter, with the former reporting low-single-digit growth in its Online Stores (and with two-year growth decelerating sharply) and the latter seeing GMV decline versus one year earlier. In the next quarter both expect revenue growth to be in single digits, as they face strong comparatives from 2020. In the next quarter, Amazon expects labor costs and inflation to add about $4 billion to its operating cost, from about $2 billion in the latest reported quarter. In the home and home-improvement retail sector, Tractor Supply Company raised its comp growth guidance for fiscal 2021 and now expects comps to be approximate 16%, increasing from the prior expectation of 11%–13%. The company has also revised up its operating margin guidance and now expects it to be 10.2%–10.3%, an increase from the previous guidance of 9.0%–9.5%.