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 fourth-quarter 2020 performance (ended January 31, 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 February 21. For most US retail companies, the quarter under review will be the fourth quarter of fiscal 2020. In November 2020, US retail sales grew strongly by 8.1% despite several states reinstituting more restrictive mandates owing to the surge in new coronavirus cases. In December, US retail sales continued to rebound strongly, with consumers continuing to shift spending away from services and experiences to retail goods.In January, US retail sales growth accelerated to 10.8% as stimulus checks boosted consumer spending. We assess the recent performance of selected retailers and brand owners below.

Beauty Brand Owners

	L'Oréal (ENXTPA: OR) 4Q20
Commentary	L’Oréal’s sales were flat year over year versus a 2.0% decline in the prior quarter. Last week, we saw Estée Lauder’s sales growth turn positive, while Coty reported a double-digit decline in sales, with declines accelerating sequentially. L’Oréal’s sequential sales increase was primarily driven by the company’s Active Cosmetics and L’Oréal Luxe divisions, which posted sales growth of 20.4% and 3.3%, respectively. Its Consumer Products division sales fell by 6.9%, while its Professional Products division sales decreased by 1.4% in its fourth quarter. By region, Asia Pacific was the only region that returned to positive growth in the quarter, with sales increasing by 12.5%, driven by Mainland China. North America recorded a sales decline of 6.7% and Western Europe saw sales decrease by 4.2% in the quarter. For the full-year 2020, total sales tumbled by 6.3%. By region, sales in the Asia Pacific region increased by 1.5%, while North America’s sales declined by 8.8% and Western Europe’s sales declined by 9.2%. Active Cosmetics was the only division that achieved positive sales growth for the full year 2020, with sales growth across all regions. CFO Christophe Babule stated that skincare is growing in all divisions. L’Oréal’s skincare category rose by 8.7% in 2020 and now accounts for almost 40% of the company’s total sales versus 35% in 2019. Makeup was heavily impacted by the pandemic, with sales plunging by 21.6% in 2020, representing 21% of total sales versus 26% in 2019. Haircare remained fairly stable, while fragrance posted a decline of 15.4% in 2020. The company’s online sales spiked by 62% in 2020 and accounted for 27% of total sales. The surge was seen across all categories, divisions and regions.
Outlook	The company did not provide specific financial guidance for 2021, but Nicolas Hieronimus, the Deputy CEO & Head of Divisions, shared the following long-term visions for L'Oréal: The company's top priority is always to outperform the market. Currently, L'Oréal's global market share is around 13%, which the company plans to expand by pursuing Chinese sales growth momentum and accelerating growth in the US. It is also looking to expand in emerging markets. L'Oréal will continue to focus on skincare, whether it is dermatological, high-tech, natural or premium. L'Oréal believes that e-commerce will continue to be a strong growth engine, potentially representing 50% of its business in the long term—split between direct-to-consumer sales, e-retailers and pure online players. The company will scale social commerce to reach and engage with consumers and invest in developing loyalty to increase customer lifetime value. L'Oréal aims to deliver profitability improvement through topline growth.

 

Drugstores

	CVS Health (NYSE: CVS) 4Q20
Commentary	Total sales grew 4.0% versus a 3.5% increase in the prior quarter, driven by strong growth in the company’s Retail/Long-Term Care and Health Care Benefits segments. Retail/Long-Term Care’s revenues grew 6.6% in its fourth quarter, owing to the increased prescription volume of 2%, including strong levels of flu immunizations, Covid-19 diagnostic testing and brand inflation. CVS revenue was partially offset by a 1.6% decline in front store sales. Revenue in the Health Care Benefits segment increased by 11.4%, driven by membership growth. CVS sees Covid-19 testing and vaccination services as opportunities to expand its customer base and deepen relationships with existing consumers. Since March 2020, CVS has delivered over 15 million Covid-19 tests across 4,800 locations nationwide. The company has administered more than three million vaccine doses in over 40,000 long-term care facilities and is on track to complete administration of both doses of vaccines for the assisted living facilities it is serving by mid-March 2021. Furthermore, as one of the national partners for the federal pharmacy partnership program, CVS is administering 250,000 vaccines across 11 states in over 350 retail locations each week. Management said that the company will continue to add stores for vaccinations as the supplies increase. The company continued to convert its existing stores to healthcare destinations, called HealthHUBs. In 2020, CVS added over 600 new HealthHUBs in the US.
Outlook	For the full-year 2021, CVS expects to see a revenue increase of 3.0–4.5%, with expected growth across all segments. The company expects sales from its Retail/Long-Term Care segment to increase by 2.75–4.25%. CVS noted that Covid-19 testing and vaccinations will benefit the Retail/Long-Term Care segment’s revenues by $400–500 million in 2021. In 2021, the company expects adjusted EPS of $7.39–7.55, representing a growth of 4–6%. Going forward, management said that the company will focus on advancing strategy through digital enhancements, producing value from integrated offerings, and providing new innovative and consumer-driven products.

Mass Merchandisers

	Walmart (NYSE: WMT) 4Q21
Commentary	The company’s total revenues increased by 7.5% on a constant-currency basis in its fourth quarter, versus 6.1% growth in the prior quarter. Walmart continues to see elevated sales levels related to customers eating more at home than before the pandemic, investing in home decor and garden products, and educating and entertaining at home. With a combination of high margin and growing sales, home-goods remains one of the top categories that is driving increases in the total contribution margin for Walmart.com. The Walmart US segment (which excludes Sam’s Club) reported comp growth of 8.6% in its fourth quarter, versus 6.4% in the prior quarter (ex. fuel), while its e-commerce sales grew 69% compared to 79% in the prior quarter. Sam’s Club posted comp growth of 14.9% in its fourth quarter, versus 15.3% in the prior quarter (ex. fuel and tobacco), driven by an increase in transactions and average ticket size. In its fourth quarter, Sam’s Club membership income increased by 12.9%, the strongest growth witnessed in last six years—boosted by robust new member sign-ups and high renewal rates. In its integrated omnichannel strategy, the company revealed the following aims: Be the primary destination for consumers and providing value on items, supported by efficient delivery and pick up. Ensure a seamless digital customer experience to deepen customer relationships and increase the share of wallet. This includes diversifying the company’s business model by growing related businesses with accretive margins, such as advertising, data monetization, financial services and marketplace. Deploy capital to priority areas, such as automation and capacity in distribution centers and market fulfillment centers to accelerate sales and profit growth. Create shared value for all stakeholders, including, associates, customers, business partners, shareholders suppliers and the planet. Continue to invest in associates, including increasing wages for an additional 425,000 frontline associates following a wage rise for 165,000 associates in fall 2020. Continue to invest in providing more consumers with access to affordable, high-quality and preventative healthcare services to complete the company’s other healthcare offerings, including providing Covid-19 vaccinations across the country and accessing medically underserved geographies.
Outlook	The company has provided the following guidance for fiscal 2022: Net sales, excluding divestitures of businesses in Argentina, Japan and the UK, to grow by low single digits Walmart’s US comps (which excludes Sam’s Club) to be up by low single digits Sam’s Club’s comps to be up by low single digits Walmart International sales growth be higher than Walmart US growth, with strength in China, India and Mexico Operating income and EPS to be flat or slightly up Incur capital expenditure of around $14 billion, with a focus on automation, customer-facing initiatives, supply chain and technology Going forward, Walmart’s management said that the company will advance more aggressively in key international markets, such as China, India and Mexico, with increased investment in automation, fulfillment capacity, supply chain and technology. In India, Walmart sees strong growth opportunities for its subsidiaries, Flipkart and PhonePe, with the country’s emerging middle class rapidly embracing mobile e-commerce to use insurance, money transfer and other services.

Looking Forward

Mass merchandiser Walmart sustained the strong growth momentum in its latest quarter. Walmart continues to benefit from persistent, strong at-home consumption trends and witnessed strength in the education and entertainment, food and consumables, and categories. Walmart remains uniquely positioned to capitalize on its strong store footprint combined with emerging digital capabilities. Furthermore, we see Walmart’s plans to bolster its omnichannel capabilities, including expansion and automation of fulfillment centers, as steps in the right direction. Like Walmart, drugstore CVS Health also stand strong. CVS Health’s sales growth accelerated in its latest quarter, driven by increased prescription volume and membership growth. CVS maintained its aggressive push into healthcare offerings by converting its stores to healthcare destinations. Beauty brand owners are witnessing a mixed recovery overall. This week, L’Oréal reported flat sales growth versus a 2% decline in the prior quarter, with skincare continued to trend well, but demand for makeup remains weak. On the other hand, as we reported last week, Estée Lauder’s sales growth turned positive, but Coty continued to post a double-digit decline in sales, with declines accelerating sequentially.