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 November 7, 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 and a strong back-to-school season. September 2021 saw year-over-year retail sales growth to a still-strong 11.1%. On a two-year basis, September’s sales were up 25.8%. 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. We assess the recent performance of selected retailers and brand owners below.

Apparel and Footwear Brand Owners

Overall, apparel and footwear brand owners are witnessing a strong recovery. This week, we saw Hanesbrands and Under Armour report a double-digit sales increase on a two-year basis, while Ralph Lauren posted a double-digit sales decline on a two-year basis. Last week, Levi’s reported positive sales growth on a two-year basis, while VF Corporation witnessed a sales decline.

	Hanesbrands (NYSE: HBI) 3Q21
Commentary	Hanesbrands reported strong third-quarter 2021 results. Net sales from continuing operations were $1.79 billion, up 6% year over year, driven by strong consumer demand globally. On a two-year basis, the company’s revenue grew 11%. Total online sales grew 62%, including 50% growth in company-owned websites. Global Champion brand sales increased by more than 33% year over year and 20% on a two-year basis, driven by consumers’ strong demand for activewear. The company’s diversification strategy balances production between Asia and Central America. The company is operating with a strong owned manufacturing base, with long-term sourcing partners spread over 29 countries—giving the company flexibility, resilience and visibility to manage through the macro challenges over the past 18 months. Production across all 32 of the company’s owned manufacturing facilities was functioning throughout the quarter. By the end of the year, the company expects it will have made nearly 25% more units than its initial 2021 plan. A key pillar of the company’s “Full Potential” plan is focusing its portfolio to enable the company to invest in areas with the greatest potential for growth. As part of this plan, the company previously announced its intention to sell its European Innerwear business and has now reached an agreement to sell it to an affiliate of Regent, L.P. The transaction is expected to close in the first quarter of 2022.
Outlook	For the fourth quarter of 2021, Hanesbrands currently expects net sales from continuing operations of approximately $1.71–1.78 billion, representing approximately 3% growth over the prior year at the midpoint—net sales in the fourth quarter of 2020 were $1.69 billion, which included $28 million in PPE sales and approximately $45 million from the 53rd week. For fiscal year 2021, the company currently expects net sales from continuing operations to total $6.76–6.83 billion, representing 11% year-over-year growth at the midpoint. Full-year net sales were $6.13 billion in 2020, which included $820 million in sales of PPE. Looking to 2022, the company expects broad-based inflation pressures to continue and is working to mitigate their impact. This includes raising prices globally and continuing to work on additional cost savings and efficiency initiatives.
	Ralph Lauren (NYSE: RL) 2Q22
Commentary	In its second quarter of 2022, Ralph Lauren posted 26% year-over-year growth, with double-digit growth across all regions. However, on a two-year basis (compared to the corresponding quarter of 2019), revenue declined by 11.8%. Adjusted EPS increased by 81.9% year over year and 2.7% compared to the corresponding period in 2019. Global digital revenue increased by approximately 45%, which includes company-owned digital commerce growth of 35%. Average unit retail grew 14% driven by continued brand elevation and strong full-priced selling trends. This quarter, the company added 1.4 million new customers to its direct-to-consumer (DTC) channels, registering 19% growth year over year. During the quarter, Ralph Lauren continued to grow its product category sales. It made strong progress on its high potential categories, such as outerwear and denim. The company drove its core sportswear categories along with seasonal fall styles, such as transitional sweaters and fleeces. On the men’s side, the company saw robust growth across active styles, bottoms, denim, performance fleeces, shorts and sweaters. In women’s apparel, Ralph Lauren registered extensive growth in bottoms, mid-layer knits and sweatshirts. Outerwear, including denim jackets and transitional quilted jackets also saw double-digit growth year over year. Ralph Lauren continued to launch collaborations and special releases. Special releases in the quarter included its exclusive Next Generation-focused capsules for Urban Outfitters and ASOS, and its new Ralph’s Club fragrance. It launched a new collaboration with Zepeto—a metaverse or virtual world app, where users can socialize and create content. Through the partnership, users can purchase exclusive digital apparel for their 3D avatars.
Outlook	For fiscal 2022, Ralph Lauren now expects constant-currency revenues to increase by approximately 34%–36% year over year. The company continues to expect its operating margin to be about 12.0%–12.5%, compared to 4.8% in fiscal 2021 and 10.3% in fiscal 2020. For the third quarter of fiscal 2022, the company expects revenues to increase by approximately 14%–16% year over year on a constant-currency basis. According to the company, the biggest risks it is facing are macro-related, from supply chain to inflationary headwinds, but it feels confident about mitigating them. The company believes its inventories are well-positioned across key categories and channels in order to meet demand for the holiday and spring 2022 seasons.
	Under Armour (NYSE: UAA) 3Q21
Commentary	In the third quarter of fiscal 2021, Under Armour’s revenue was up 8% to $1.5 billion compared to the By sales channel, wholesale revenue increased by 10% to $911 million. Its DTC business increased by 12%, led by 21% growth in its owned and operated retail stores—partially offset by a 4% decline in e-commerce, which faced tough comparatives from last year. Management stated that when compared to the third quarter of 2019, its e-commerce business was up over 50%. Licensing revenue was up 24%, driven by improvement in its North American partner businesses. By geography, North America revenue increased by 8% and international revenue increased by 18%, including a 19% increase in Asia Pacific. By product category, apparel revenue increased by 14% and footwear by 10%, but accessories decreased by 13%. The third quarter covers both summer and fall, and Under Armour performed strongly in both—including solid sell-through of its Iso-Chill apparel products as well as fleeces, which witnessed strong sales for men and youth as customers gear up for the cooler months ahead. The company also continued momentum in men’s bottoms and women’s leggings. In footwear, its core running products, including ASER, Aurora and Pursuit, performed well globally.
Outlook	For the full year, Under Armour expects its revenues to be up approximately 25%, compared to the previous expectation of a low-twenties percentage increase—reflecting a high-twenties percentage growth rate in North America and a mid-thirties percentage growth rate in the international business. The company expects adjusted diluted EPS to reach approximately $0.74, compared to the previously expected range of $0.50–$0.52 per share. Over the next several quarters, Under Armour expects longer-than-usual transit times, caused by backlogs and congestion—which may create some variability in its results. Under Armour is going to focus less on promotion than 2020 and 2019 and will continue to drive the brand to higher levels.

 

Beauty Brands and Retailers

	Estée Lauder (NYSE: EL) 1Q22
Commentary	Estée Lauder reported a 23% year-over-year increase in revenues and 13% growth on a two-year basis. Operating income increased to $935 million from $705 million in the prior-year period, registering 33% growth, and its operating margin rose 140 basis points to 21.4%. 13 brands contributed to the company’s 18% organic sales growth, demonstrating its portfolio strength. Estée Lauder and MAC drove makeup sales. La Mer and Clinique delivered standout results in skin care and the category solidly outpaced last year’s organic sales growth, despite the toughest comparison among the categories. Fragrance grew double digits, driven by Tom Ford Beauty and Jo Malone London. Although the demand for makeup improved significantly versus the prior year, it continues to be the only category that remains below the pre-pandemic period, due to fewer occasions for its use and mask wearing—while skin care, fragrance and hair care have all grown from pre-pandemic levels. Net sales grew in every region and product category, reflecting the recovery in brick-and-mortar retail stores, predominantly in western markets. Net sales growth in the Asia-Pacific region primarily reflected an increase in Greater China and Korea, as pandemic-related retail store closures in the rest of the region impacted growth negatively.
Outlook	Estée Lauder has reiterated its fiscal 2022 guidance of organic sales growth of 9%–12%, with negligible currency translation impact, diluted EPS in the range of $7.23–$7.38, up 11%–14% on a constant-currency basis. , the company projects 11%–13% sales growth but higher operating expenses, supporting the holiday season and the continued recovery of brick-and-mortar retail around the world. The company is optimistic of a recovery in makeup and haircare categories as countries reduce Covid-19 restrictions.

 

Drugstore Retailers

	CVS Health (NYSE: CVS) 3Q21
Commentary	CVS Health reported revenue growth of 10% year over year and 13.9% on a two-year basis (compared to the corresponding quarter in 2019), led by membership gains in both health care benefits and pharmacy services as well as higher volume in retail. Adjusted EPS was up by 18.7% compared to the corresponding period of 2019. The company added over 1.3 million new integrated pharmacy and medical members through the 2021 and 2022 selling season. By segment, health care benefits revenue increased by 9.5% year over year, driven by sustained growth in the government services business, slightly offset by the repeal of the health insurance fee. Pharmacy revenues increased by 9.3% year over year, attributed to brand inflation, growth in specialty pharmacy and increased pharmacy claims volume. The retail business delivered strong results with a 10% increase year over year, driven by contributions from more than 11 million Covid-19 vaccines and over 8 million Covid-19 tests administered, as well as strong front store sales. Adjusted operating income increased by 22% year over year, primarily due to Covid-19 vaccinations and diagnostic testing, the increased prescription and front store volume, and improved generic drug purchasing. This increase was partially offset by continued pharmacy reimbursement pressure and increased investments in the segment’s capabilities, alongside colleague compensation and benefits.
Outlook	The company raised its full-year 2021 EPS and cashflow guidance. CVS now expects an adjusted EPS range of $7.90–$8.00, an increase from $7.70–$7.80, reflecting strong performances in pharmacy services and retail, but partially offset by anticipated Covid-19 pressure in the health care benefits business. The company expects cash flow from operations to increase to $13.0–13.5 billion, increasing from prior guidance of $12.5–13.0 billion, and total revenue to be in the range of $286.5–290.3 billion, up from the prior guidance of $280.7–285.2 billion. The company anticipates that strong pharmacy services results in the third quarter will largely continue into the fourth.

 

Home and Home-Improvement Retailers

On a two-year basis, Wayfair reported over 30% sales growth. Last week, we saw Tractor Supply Company posting growth of more than 50% on a two-year basis.

	Wayfair (NYSE: W) 3Q21
Commentary	Wayfair reported an 18.7% decline in revenues year over year, as it cycled last year’s robust demand and was adversely affected by pronounced supply chain issues in the quarter. On a two-year basis, revenues were up 34.8%. By geography, US net revenue declined by 20.8% year over year while international net revenue declined by 6.8%. On a constant currency basis, international net revenue was 12.1% year over year. During the quarter, the total number of orders delivered was down 30.1% year over year. However, active customers were up 1.5% year over year and net revenue per active customer was up 7.3% year over year. President and CEO Niraj Shah stated, “As various geographies have reopened post pandemic, consumers have naturally shifted some spend towards travel and entertainment and from e-commerce towards brick and mortar. Demand and interest in the home remains resilient, but it will take a few more quarters for our growth and e-commerce growth in general to get back to normal.”
Outlook	Wayfair did not provide financial guidance. However, management expects fourth-quarter net revenues to be above third-quarter levels. CFO Michael Fleisher stated, “When it comes to gross margins, we continue to see 27%–28% as a sustainable range for us with continued visibility towards longer-term expansion. However, the low end of this range is a more appropriate place for you to model for the fourth quarter. Even with the benefit of operational efficiencies and supplier services ramping nicely, a tight labor market and higher wholesale and third-party shipping costs are all acute near-term factors that we have to work through.” Fleisher also stated that, given the large scale of their business and the tailwinds it experienced through the height of the pandemic, it will take several quarters until they have fully cycled pandemic-enhanced demand and return to year-over-year growth.

 

Luxury Companies

	Capri Holdings (NYSE: CPRI) 2Q22
Commentary	Capri Holdings posted revenue growth of 17% year over year and a decline of 9.8% on a two-year basis, exceeding company expectations. Management stated that 20% retail sales growth helped overall revenue growth. Revenues in the wholesale channel also increased, but at a lower rate. The company’s gross margin expanded 400 basis points versus last year, and 840 basis points versus 2019, to 68.0%. Management attributes this to the successful execution of its strategic initiatives, which were impacted by headwinds from supply chain disruptions and increased transport costs. Its operating margin was 15.0%, up from 13.8% last year and from 5.2% in 2019. By brand, Versace was the company’s best performer, with revenues up 45% year over year and 23.7% versus 2019. Jimmy Choo revenues were up 12% year over year and 9.6% compared to 2019, while Michael Kors revenues grew 11% versus last year but were down 19.1% against 2019 comparatives. By geography, management stated that revenue growth in the Americas exceeded expectations and would have been stronger if not for inventory constraints. Management also stated that demand for its brands was “healthy” thanks to increased social gatherings. In Europe, the Middle East and Asia, revenue growth also surpassed company expectations, as stores in the region reopened. However, in Asia revenue growth was flat due to pandemic-related restrictions in Japan, Southeast Asia and Australia and regional restrictions in China due to a rise in Covid-19 cases.
Outlook	For the full year, Capri Holdings expects revenues of $5.4 billion, slightly above its prior guidance of $5.3 billion. Management stated that in its new guidance it has acknowledged industry-wide supply chain disruptions, including factory closures and extended transport delays. Considering these disruptions, it expects a 200-basis-point increase in expenses compared to previous forecasts in the second half of the year. The company expects an operating margin of 18% versus the prior 16% and diluted EPS has been raised to $5.30—the diluted loss per share was $0.41 last year and $1.48 two years ago. At the company’s Investor Day in July 2021, management stated that it has marked out investments of $25–30 million for e-commerce, marketing and regional growth initiatives by fiscal 2023.

 

REITs

	Macerich Company (NYSE: MAC) 3Q21
Commentary	Macerich’s total revenues increased by 14.1% year over year but declined by 6.9% compared to 2019. At the end of the quarter, the portfolio occupancy rate was 90.3%, which is a 90-basis-point increase relative to the 89.4% occupancy rate at the end of the prior quarter. The increase was driven by robust leasing volumes for the quarter. EBITDA margin increased by 1.2 percentage points to 58.7%, from 57.5% last year. Net operating income (NOI) increased by 20.6% year over year, resulting from the dramatic increase in sales and improvement in bad debt expenses. Management stated that tenant sales and property traffic momentum, which drove its properties through spring, has carried through the summer. Despite surges in Covid-19 case rates, customer traffic returned to pre-pandemic levels in mid-summer, and tenant sales continued to move upward in aggregate. Funds from operations were $101.4 million in the third quarter, registering growth of around 22% year over year. Third-quarter portfolio comparable tenant sales from spaces less than 10,000 square feet grew 14% on a two-year basis. Senior EVP and Head of Leasing Douglas Healey stated, “In the third quarter, we signed 219 leases for 1.1 million square feet, resulting in $47 million in total annual rent. In the first three quarters of 2021, we signed 707 leases for 3 million square feet, resulting in $136 million in total annual rent. This represents 10% more leases, 25% more square footage and 14% more rent than during the same pre-Covid period in 2019.”
Outlook	For fiscal 2021, Macerich has raised its EPS and FFO per share guidance. The company now expects EPS to be between $0.09 and $0.17, versus prior EPS guidance of $(0.06)–$0.09. It now anticipates FFO per share of $1.92–$2.00, versus prior guidance of $1.82–$1.97, representing a $0.06 or 3% increase compared to the midpoint of the previously issued FFO guidance range. Macerich stated that the increased guidance is reflective of an operating environment that is improving better and faster than the company’s prior expectations, and is due to an increase in same-center NOI. Macerich is witnessing strong double-digit NOI growth in the second half of 2021, as anticipated during its previous two quarterly calls, and it expects strong same-center growth in the fourth quarter.
	Simon Property Group (NYSE: SPG) 3Q21
Commentary	Simon Property Group reported revenue growth of 22.6% year over year. However, revenue growth declined by 8.5% on a two-year basis. Funds From Operations (FFO) increased by 52.7% year over year. Portfolio net operating income, which includes income from domestic properties, international properties, and Simon’s investment in Taubman Realty Group, increased by 3.3% year over year. Malls and premium outlets occupancy stood at 92.8% at the end of the third quarter, an increase of 100 basis points compared to the second quarter of 2021. Mall sales increased by 43% year over year and 11% compared to 2019. Even though international tourism was still curbed the sales results are strong and are above 2019’s peak levels. CEO, Chairman and President David Simon stated “cash flow increased to nearly $3 billion year to date, consistent with pre-pandemic levels. We recorded increased leasing volumes, occupancy gains, shopper traffic, and retail sales. Demand for our space from a broad spectrum of tenants is strong and growing and our various platform investments continue to outperform.” He also stated that through the first nine months of the year the company signed 3,500 leases for 12.8 million square feet, which was around 3 million square feet or approximately 800 more deals compared to the first nine months of 2019. During the quarter, the company opened its fifth premium outlet in Korea and the tenth in Japan is under construction. It also acquired equity ownership in Authentic Brands Group, currently standing at 11%. The company also announced its fourth-quarter dividend of $1.65 per share in cash, an increase of 10% compared to the second quarter of 2021 and 27% year over year.
Outlook	For fiscal 2021, Simon Property Group raised its EPS and FFO per share guidance. The company now expects EPS to be $6.61–$6.71, versus prior guidance of $5.47–$5.57. It now expects FFO per share to be $11.55–$11.65, versus prior guidance of $10.70–$10.80. This was the third consecutive quarter of raised guidance. Although the company’s stock posted impressive returns, the company believes it is still undervalued and will perform even more strongly going forward.

 

Looking Forward

Overall, apparel and footwear brand owners are reporting a solid recovery: On a two-year basis Hanesbrands and Under Armour reported double-digit sales growth, but Ralph Lauren witnessed a decline in sales. Nevertheless, all the three brand owners have raised their full-year revenue guidance and expect strong double-digit year-over-year revenue growth, amid improving sales and traffic trends. Similarly, as we reported last week, Levi’s forecasts year-over-year revenue growth in the high teens for the next quarter, while VF Corporation expects year-over-year revenue growth of around 30% for fiscal 2022. However, broad-based inflation pressure and supply chain constraints remain headwinds for these brand owners, particularly continued port congestion and other logistics challenges, and they are working with suppliers to minimize disruption and employing expedited freight as required. In beauty, Estée Lauder continues to witness robust recovery, with double-digit sales growth on a two-year basis. The company witnessed strong growth across the fragrance and skincare categories. Although haircare and makeup categories are witnessing slower sales recoveries, the company remains optimistic for the next quarter. For full fiscal 2022, Estée Lauder continues to expect organic sales growth of 9%–12% year over year. Wayfair saw revenue fall substantially year over year, as its US segment annualized 2020’s strong demand for furniture and the channeling of that demand online. Along with the very soft year-over-year growth in online product sales reported by Amazon and the negative year-over-year growth in GMV reported by eBay (both covered in last week’s report), these figures point to a meaningful slowdown in overall online momentum in the third quarter—even when considered on a two-year basis. For the fourth quarter, Wayfair expects a quarter-over-quarter increase in revenues. As we reported last week, 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%. CVS Health saw accelerated sales growth—reflecting its strong performance in pharmacy services and retail, led by a rise in demand for health and wellness products. For the full fiscal year, the company has revised up its adjusted EPS and cashflow guidance. The company anticipates that strong pharmacy services results in the third quarter will largely continue into the fourth. Capri Holdings is seeing a slow recovery, with sales declining on a two-year basis. For the full fiscal year, the company has raised its revenue and operating margin guidance slightly, but expects an increase in expenses, compared to prior forecasts, in the second half of the year—due to supply chain disruptions, led by factory closures and extended transport delays. The REITs sector continues to recover from the pandemic, with Macerich and Simon Property Group reporting sequentially positive occupancy trends but high-single-digit sales declines on a two-year basis. However, these companies remain optimistic about recovery in the next quarter, based on encouraging traffic trends and retail demand. Both companies have raised their full-year 2021 EPS and FFO guidance.