Bath & Body Works (NYSE: BBWI) 3Q21

Commentary

Bath & Body Works (formerly L Brands) reported a sales decline of 1.2% year over year but growth of around 53% on a two-year basis (compared to the corresponding quarter of 2019). Adjusted EPS increased by around 11% year over year and 360% on a two-year basis.

The company attributed its performance to ongoing strong customer response to its merchandise assortment, the exceptional efforts of its associates and a growing, loyal customer base. Management stated that the company’s domestic supply chain and market leadership in key categories position it well for continued growth in the holiday season.

The company registered a strong performance across all months of the quarter, driven by strong customer response to its seasonal fall and Halloween merchandise. The company also launched two new fragrances in the third quarter, Fairytale and Open Sky, both of which received a strong response.

The company’s operating income declined by 6.3% year over year.

Outlook

Bath & Body Works is forecasting year-over-year sales growth in the mid-to-high single digits for the fourth quarter of 2021 and EPS of $2.10–$2.25 compared to $1.96 in 4Q20 and $1.41 in 4Q19.

Kohl’s (NYSE: KSS) 2Q21

Commentary

Total sales increased by 15.5% year over year but declined by 0.5% on a two-year basis. Comp sales increased by 14.7% year over year. Adjusted EPS increased by approximately 123% on a two-year basis.

Digital sales were 29% of total sales, growing 6% compared to 3Q20 and increasing by 33% on a two-year basis.

In 3Q21, the company launched Sephora at Kohl’s online and 200 shop-in-shop locations. Sephora at Kohl’s stores outperformed, reporting an incremental mid-single-digit sales lift to the overall store sales where they launched. More than 25% of Sephora at Kohl’s customers are new to Kohl’s—and roughly half of the customers purchasing Sephora are attaching at least one other merchandise category in their purchase.

By category, active category sales growth accelerated in 3Q21, with penetration growing to 26% of net sales. Men’s sales increased more than 30% year over year, footwear and accessories were both up more than 20%, and children’s increased by low double digits, driven in part by strong demand for toys.

Inventory at the end of the quarter was 1% higher than 3Q20 and down 25% on a two-year basis. However, available-for-sale inventory was down more, given higher in-transit inventory, with the women’s category disproportionately impacted.

Management stated that, on the positive side, inventory composition remains clean, and turnover marked a 10-year high.

Outlook

The company raised its full-year guidance. Net sales are now expected to increase by a mid-twenties percentage range compared to the previous expectation of an increase in the low-twenties percentage range.

Operating margin is now expected to be in the range of 8.4%–8.5% compared to the previous expectation of 7.4%–7.6%. Adjusted EPS is now expected to be $7.10–$7.30 compared to the previous expectation of $5.80–$6.10, an increase of around 20%–22%.

Included in the guidance are incremental headwinds totaling more than 350 basis points as compared to the same period in 4Q19. These include higher digital penetration, freight and holiday surcharges and higher wages and incentives.

The company plans to open 400 Sephora shops. This holiday, Kohl’s is focusing on products in active and cozy for the entire family, as well as home, new brands, Sephora and toys. The company reported that consumers have started shopping holiday.

Macy’s (NYSE: M) 3Q21

Commentary

Total sales increased by 36.3% year over year and by 5.2% on a two-year basis. Comparable sales increased by 37.2% year over year on an owned basis and were up 35.6% on an owned-plus-licensed basis—and on a two-year basis, they were up 8.9% and up 8.7%, respectively.

Digital penetration was 33% of net sales, a five-percentage-point decline from 3Q20, but a 10-percentage point improvement on a two-year basis.

By banner, comp sales at Macy’s were up 8.4% compared to 2Q21 with 33% digital penetration; Bloomingdale’s comp sales were up 11.2% compared to 2Q21 with 35% digital penetration; Bluemercury comp sales were down 2.2% compared to 2Q21 with 16% digital penetration. Its top performing categories include: Fragrances, home, jewelry, sleepwear and watches. Occasion-based categories such as dresses, luggage and men’s tailored continue to see renewed interest from customers.

Inventory was up 19.4% year over year and down 15.4% on a two-year basis. Compared to 2020, the company has increased inventory to meet demand in stores and online.

Gross margin for the quarter was 41.0%, up from 35.6% in the third quarter of 2020 and up 100 basis points from the third quarter of 2019.

In the quarter, the company reported 4.4 million new customers, a 28% improvement on a two-year basis. Average customer spend increased by 16% compared to the third quarter of 2019.

Outlook

The company raised its full-year revenue guidance to $24.1–24.3 billion, up from $23.5–23.9 billion, a 36%–38% increase over FY20. Adjusted EPS is expected to be in the range of $4.57–$4.76, up from the prior guidance of $3.41–$3.75—an increase of around 27%–34%.

For 4Q21, the company expects comparable sales on an owned-plus-licensed basis to increase between 2% and 4% on a two-year basis. This includes the adverse impact of approximately 125 basis points from the shift of the Friends and Family promotional event in the fourth quarter into the third quarter as compared to 2019.

Macy’s increased its digital expectations for FY21 to $8.75–8.8 billion, up from $8.35–8.45 billion, a slight increase from 35%–36% of total digital penetration to 36%–37%.

The company plans to close approximately 10 stores in January 2022 and to announce more details on how it will scale its smaller format stores in FY22. Macy’s will launch a digital marketplace in 2022, which will expand the company’s assortment in existing categories and brands, as well as introducing new categories, by enabling third-party merchants to sell their products on Macys.com and Bloomingdales.com.

Alibaba (NYSE: BABA) 2Q22

Commentary

Alibaba’s revenue from its China commerce retail business was up 29% year over year and up 87.1% on a two-year basis. Revenue of international commerce grew 34% year over year with continued strength in both its international wholesale and international retail businesses such as Alibaba.com, AliExpress, Lazada and Trendyol. EPS declined by 38% year over year.

Annual active consumers (AACs) in the Alibaba Ecosystem reached around 1.3 billion globally, a net increase of 62 million, representing 20% year-over-year growth.

Adjusted EBITDA decreased by 27% year over year, primarily due to increased investments in key strategic areas that have exhibited robust growth in operations, as well as support for its merchants.

Taocaicai, Alibaba’s community marketplace business, expanded operations to nearly 200 cities and its gross merchandise volume (GMV) increased by more than 150% year over year. Trendyol, the largest e-commerce platform in Turkey, delivered GMV growth of over 80% year over year.

Management stated that the company is experiencing robust GMV and user growth in its international commerce businesses, driven by localization strategies as well as the company’s ongoing investment in building technology and logistics capabilities. However, in line with industry retail trends in China, the year-over-year growth rate for GMV in physical goods moderated to single digits this quarter, primarily due to a slowdown in apparel and general merchandise categories. However, the growth rate of consumer electronics and home furniture categories remained resilient.

Alibaba’s income from operations increases by 10% year over year, due to a decrease in share-based compensation expenses related to Ant Group share-based awards granted to its employees.

Outlook

Alibaba revised its full-year revenue guidance down. It expects fiscal 2022 revenue to grow 20%–23% year over year versus prior guidance of around 30%, due to a lowering of commerce revenues that include both direct sales and customer-management revenue.

The company plans to continue its investments in its business, creating value for consumers and merchants and keeping its market leadership position, as well as building long-term competitive strength.

To grow and expand in new addressable markets in the long term, despite near-term weakness in the domestic macro-environment, the company will continue to invest in new areas and aims to increase consumer mindshare and wallet share.

JD.com (NasdaqGS: JD) 3Q21

Commentary

Total revenues increased by 25.5% year over year and by 8.8% compared to the corresponding period in 2019. Adjusted EPS increased by 8.2% year over year and 25% on a two-year basis.

The growth of both total number and types of merchants accelerated on a year-over-year and sequential basis. The number of third-party merchants that joined JD.com in the third quarter was three times the number in the first and second quarter combined, with apparel and home categories leading growth.

GMV of JD.com’s omnichannel business saw growth of nearly triple digits year over year. Its online to offline on-demand retail business, created in partnership with Dada Group, recorded accelerated growth.

As of September 30, 2021, the number of annual active user accounts stood at 552.2 million, increasing by 25.0% year over year.

The company’s average order frequency for all users increased by 23% year over year, driven by both new and existing users. Total order volume witnessed year-over-year growth of about 40%.

By segment, JD Retail’s revenue increased by 23% year over year. Electronics and home appliances revenue maintained resilient growth of 19% year over year, outpacing the industry’s overall low-single-digit growth. General merchandise revenue increase by 29% year over year.

The company’s operating margin stood at 4% and remained largely stable compared to its all-time high in the third quarter last year.

Outlook

The company did not provide financial guidance; however, going forward, the company aims to capitalize on the industry’s healthier competition and development environment to continuously enrich its marketplace ecosystem, explore new models and formulate differentiated strategic approaches.

From a long-term perspective, management stated that JD.com has strategically positioned itself to generate compelling growth opportunities, despite the current complex and evolving macro-environment.

Home Depot (NYSE: HD) 3Q21

Commentary

Total sales increased by 9.8% year over year and by 35.3% on a two-year basis. EPS stood at $3.92, up from $3.18 in the same quarter last year, registering  23.3% year-over-year growth. On a two-year basis (compared to the corresponding period in 2019), EPS increased by 54.9%.

The company’s comparable sales increased by 6.1% year over year, with US comps of 5.5%. Some 12 of the company’s 14 merchandising departments saw positive year-over-year comp growth. On a two-year basis, each department reported strong double-digit comps. Digital sales increased to 95% on a two-year basis.

Gross margin was 34.1%, decreasing by around 5 basis points year over year due to higher transportation costs and the mix of products sold. Operating expense as a percent of sales decreased by around 130 basis points to 18.4% year over year. The operating margin was 15.7%, an increase of around 125 bps year over year.

By geography, all 19 US regions posted positive year-over-year comps. Both Canada and Mexico posted positive comps driven by its continued focus on its customers, while managing industry-wide supply chain disruptions, inflation and a tight labor market.

On a comparable basis, the average ticket increased by 12.7% year over year, supported by inflation across several product categories.

Management stated that the company saw many customers turn to professionals for help with larger projects, as in the second quarter—reflected by strong performances in several Pro-heavy categories, including drywall, pneumatics, pipe and fittings, and several millwork categories. As professionals tell the company that their backlogs are healthy, Home Depot remains encouraged regarding growth in the coming months. Additionally, Pro sales growth continues to outpace DIY growth.

Outlook

For fiscal 2021, management did not update its sales guidance. However, management stated that customer engagement and demand for home improvement remains healthy.

Management also stated that same-store sales growth for the first two weeks of the fourth quarter are slightly higher than third-quarter levels.

Lowe’s (NYSE: LOW) 3Q21

Commentary

The company reported that total sales increased by 2.6% year over year and by 31.6% on a two-year basis. EPS increased by 38% year over year.

The company’s comparable sales increased by 2.2% year over year and 33% on a two-year basis. US comparable sales increased by 2.6% year over year and grew 33.7% on a two-year basis, driven by disciplined execution of its Total Home strategy.

The company’s operating profit increased by 28% year over year. Gross margin was 33.1% of sales, up 38 basis points year over year.

After Labor Day, the company saw an increase in DIY demand on the weekends, as travel activity slowed down and children returned to school, resulting in consumers spending more time on projects at home. Lowe’s is also making noteworthy progress growing Pro sales: Pro once again outpaced DIY this quarter, growing over 16% year over year and over 43% on a 2-year basis.

CEO Marvin Ellison commented, “This quarter, we completed the conversion of our second geographic area, the Ohio Valley region, to the market-based delivery model for big and bulky product, building on the success we gained in Florida. As a reminder, in the market-based delivery model for big and bulky products flowing from our supply chain directly to consumers’ homes, bypassing the stores all together. This replaces the legacy store delivery model, which is highly inefficient and relies on each store to function as its own distribution node for these products.”

Outlook

For fiscal 2021, Lowe’s expects to generate sales of around $95 billion, representing two-year comps of about 33%.

CFO David Denton stated, “Month to date, November US comp sales trends are materially consistent with October’s performance level on a two-year comparable basis.”

For fiscal 2021, the company expects the gross margin rate to be up slightly versus the prior year. Lowe’s slightly raised its outlook for its operating income margin to 12.4% from 12.2%.

Lowe’s targets total share repurchases of approximately $12 billion. For the full year, the company expects capital expenditure of up to $2 billion.

Farfetch (NYSE: FTCH) 3Q21

Commentary

Farfetch reported a revenue increase of 33% year over year and 128% on a two-year basis. The total revenue increase was driven by a 26.5% jump in Digital Platform revenues, reaching $397.1 million, and a 47.2% increase in Brand Platform revenues, hitting $165.3 million.

In-store revenues increased by 76.6% to $20.2 million. GMV increased by 27.5% year over year to $1 billion during the quarter. Digital Platform GMV grew 22.9% year over year, reflecting both an increase in orders as well as average order values (AOV), which rose from $574 to $593 due to a higher full-price mix and higher average selling price. Brand Platform GMV grew by 47.2%, driven by robust demand for New Guards’ brands Autumn–Winter 2021 collections, as well as a higher mix of shipments in the current quarter compared to the previous year.

In-Store GMV grew 106.3%, driven by additional New Guards store openings over the last 12 months and strong growth from existing stores. The gross profit margin decreased by 450 basis points to 47.8%, due to a lower gross profit in Digital and Brand Platforms. Management stated that the increase in global shipping costs and increased duties led to an overall increase in costs, some of which the company absorbed and which subsequently led to a decrease in Digital Platform gross margins.

The company’s adjusted EBITDA improved to $5 million from $(10) million in the 3Q20.

Outlook

For the full year, Farfetch expects Digital Platform GMV growth of approximately 33% year over year and adjusted EBITDA of approximately $5 million.

Management stated that this is below its original 2021 margin target of 1%–2%, due to the extended impact of unforeseen cost pressures such as digital services taxes, shipping and a multimillion-dollar impact to platform margins caused by Brexit.

The company is migrating its Fulfillment by Farfetch volumes from the UK to the Netherlands, which will help alleviate Brexit costs in the future, management stated.

Management also remarked that the fourth quarter “has started well” thanks to a successful Singles’ Day on its China app as well as its store on Tmall’s Luxury Pavilion.

It expects fourth-quarter Digital Platform GMV growth of 18–22% year over year, representing growth of about 80% on a two-year basis, and Brand Platform GMV growth of between 20% and 25%.

Target (NYSE: TGT) 3Q21

Commentary

Target total sales increased by 13.3% year over year and by 47.7% on a two-year basis. The company’s comparable sales increased by 12.7% year over year, on top of a 21% increase in the same quarter last year. Adjusted EPS increased by 8.7% year over year and grew over 120% on a two-year basis.

Digital comps grew 29% year over year, following growth of 155% year-over-year growth last year. Same-day services, including order pickup, drive-up and Shipt, grew nearly 60%, on top of more than 200% in 3Q20. More than 95% of Target’s customer orders were fulfilled in stores in 3Q21.

By category, third-quarter results were led by beauty, essentials, and food and beverage, all of which delivered year-over-year comp growth in the mid-teens. Within essentials, growth was led by baby care, pet care and over-the-counter healthcare categories. In the food and beverage category, fresh, frozen and snacks and candy performed well. Hardlines saw mid-teens comp growth, on top of last year’s mid-30% comp growth. Growth in the category was primarily driven by strong sales in toys and sporting goods. Electronics delivered low single-digit comp growth, on top of 60% comp last year. In the apparel category, comp sales grew in the low double digits. Within apparel intimates, hosiery, swim and young contemporary registered the strongest growth. In the home category, Target saw year-over-year comp growth of low double-digits, led by seasonal and stationary categories and registered record growth in back-to-school (BTS), back-to-college and Halloween seasons.

The company’s operating margin rate was 7.8%, about 70 basis points lower than a year ago, but more than 2 percentage points higher than two years prior.

The company paid $440 million in dividends in the third quarter, up $100 million from last year, representing a 32% increase in its per-share dividend.

Outlook

For 4Q21, Target raised its guidance and now expects comp growth in the range of high single digits to low double digits year over year, from high-single-digit growth in its prior guidance.

For the full-year 2021, the company continues to expect its operating margin to be 8% or higher, up significantly from 7% in 2020.

Walmart (NYSE: WMT) 3Q22

Commentary

Walmart’s total revenues grew by 4.3% year over year and by 8.8% compared to the corresponding period in 2019. Adjusted EPS increased by 8.2% year over year and 25% on a two-year basis.

Walmart’s US segment (excluding Sam’s Club) reported comp growth of 9.2% year over year or 15.6% on a two-year stack, with market share gains in the grocery category. Its e-commerce sales grew 8% year over year and 87% on a two-year basis. US Sam’s Club posted comp growth of 13.9% (excluding fuel) year over year. Sam’s Club membership income increased by 11.3% and its member count reached an all-time high.

The company continues to strengthen its omnichannel approach across its markets. CEO Douglas McMillon commented, “Our small Sam’s Club depots that extend the reach of our large clubs in China helped deliver e-commerce growth of 96%, with incredibly fast delivery for everyday items. In Mexico, we continue to expand same-day delivery, and express delivery orders quickly reach customers using crowd sourcing capabilities. And in both Mexico and Canada, the expansion of omni capabilities is driven by technology that we have developed to share across markets, further leveraging our scale.”

Walmart International saw 10.3% sales growth year over year and profit increased to 17.5% from last year. In a two-year stack, sales increased by 91%, led by Flipkart and China.

The company’s operating income was up 6.3% on a constant-currency basis.

Outlook

Walmart has raised its fiscal 2022 guidance. The company now expects US comp sales growth (excluding fuel) of around 5% for 4Q22 and over 6% for the full year.

Adjusted EPS is expected to be around $6.4 compared to prior guidance of $6.20–$6.35, representing 17% growth.

The company expects full-year capital expenditure to be around $13 billion, compared to prior guidance of $14 billion, as some investments planned for this year have moved to next year.

Ross Stores (NasdaqGS: ROST) 3Q21

Commentary

Total sales increased by around 22% year over year and by 19% on a two-year basis. The company’s comparable store sales increased by 14% on a two-year basis.

Management attributed the strong quarter to larger average basket size, as traffic was down slightly on a two-year basis. Children’s and men’s clothing were the best-performing categories while the Midwest and Southeast were the top-performing regions.

At quarter end, total consolidated inventories were up 3%, while average selling store inventories were down 1% on a two-year basis. Packaway levels ended at 31% of the total, compared to 39% for the same period in 2019, as Ross used a substantial amount of packaway merchandise to support ahead-of-plan sales. In addition, there were receipt delays due to supply chain congestion.

The company’s operating margin of 11.4% was well above its guidance range. The decline in overall profitability compared to 2019 was mainly due to ongoing headwinds from higher freight, wage and pandemic-related costs.

The company completed its store expansion program for 2021, opening 18 new Ross stores and 10 dd’s DISCOUNTS in the third quarter. For the full year, they added 65 locations, comprising 44 Ross stores and 21 dd’s DISCOUNTS, and plan to close one store by the end of the year.

Outlook

For 4Q21, Ross expects comparable store sales to be up 7%–9% on a two-year basis with EPS projected in the range of $0.83–$0.93, representing a decline of 10%–19% on a two-year basis.

The company projects full-year comparable store sales of 12%–13% and earnings per share in the range of $4.65–$4.75 compared to $4.60 in FY19.

Ross expects to return to its normal annual opening program of approximately 100 stores in 2022. Management stated that supply chain congestion should create more closeout opportunities in the future. It also stated that consumers’ increasing focus on value and convenience, along with a large number of recent retail closures and bankruptcies, make the company confident about its prospects for continued market share gains in the future.

The TJX Companies (NYSE: TJX) 3Q22

Commentary

Total sales increased by 23.9% year over year and by 19.9% on a two-year basis (versus 3Q20). EPS increased by 18.3% year over year and 24% on a two-year basis.

TJX’s overall open-only comp sales grew by 14% on a two-year basis supported by “phenomenal” comp growth in home and a high-single-digit increase in the overall apparel business.

By banner, Marmaxx (US Marshalls and US T.J. Maxx) comps increased by 11% on a two-year basis, HomeGoods comps increased significantly by 34%, TJX Canada comps increased by 8%, and TJX International comps increased by 10%.

In terms of categories, casual brands have shifted to make up a greater percentage of its apparel mix, while dressy brands, including luxury brands, comprise less. Home is also a greater percentage of the business.

TJX saw an increase in its average basket across all divisions. The company launched HomeGoods online in September and plans to add more home categories to HomeGoods.com.

Total inventories were $6.6 billion, compared with $6.3 billion at the end of the 3Q20, representing growth of 4.8%. The company reported that for the holiday season, most of the inventory needed has already been delivered or is scheduled to arrive in its stores and online on time.

The company increased its store count by 19 to a total of 4,684 stores.

Outlook

TJX did not provide financial guidance, owing to the continued uncertainty of the current environment.

The company stated that for the start of the fourth quarter of fiscal 2022, overall open-only comp store sales growth is up mid-teens over the fourth quarter of Fiscal 2020.

The company plans to open over 170 stores in FY22, and then return to a 4% store opening growth rate, opening 200 stores per year and closing 3–5 stores per year on average.

The company reported that the supply chain challenges that other retailers may experience this holiday (for late deliveries that do not make it in time) may provide buying opportunities and packaway opportunities for next year.

BJ’s Wholesale Club (NYSE: BJ) 3Q21

Commentary

Total sales increased by 16.2% year over year or by 36.5% on a two-year basis. Total comparable sales for the quarter increased by 13.1%, reflecting a two-year stacked comp of 27.2%. Adjusted EPS declined by 1.1% year over year but increased significantly by around 122% on a two-year basis.

During the quarter, the company saw a membership increase of 3% year over year and 15% on a two-year basis, driven by record renewals.

Digitally enabled sales grew by 44% year over year and over 240% in a two-year stack, driven by strong growth in “buy online, pick up in club” (BOPIC) and curbside offerings.

The company’s adjusted EBITDA declined by about 6% year over year to $228 million, due to wage investments and incentive compensation, along with higher freight, logistics and sanitation expenses.

The company registered robust growth across all divisions in the third quarter. However, the performance was again led by grocery, which reported 6% comp year over year and a 25% two-year stack.

Outlook

The company did not provide financial guidance, citing uncertainty related to the pandemic. However, the company expects low-single-digit positive comps for 4Q21, based primarily on assumptions of strong momentum and membership results, offset by lower stimulus payments which will impact members.

From a membership standpoint, BJ’s Wholesale Club expects its total member count to grow by low-single digits versus its previous outlook of flat to slightly better.

The company expects continued investments in price as well as significant increases in distribution, freight and labor expenses.

BJ’s Wholesale Club also expects merchandise gross margin rate pressure of approximately 50 basis points compared to the fourth quarter last year.