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 28, 2021. For most US retail companies, the quarter under review will be the fourth quarter of fiscal 2020. In November 2020, US retail sales saw strong growth of 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 shifting 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. Furthermore, January saw an improvement in traffic trends, with traffic declines easing to 32.1% —the best performance seen in terms of traffic since February 2020. We assess the recent performance of selected retailers and brand owners below.

Apparel Specialty Retailers

	L Brands (NYSE: LB) 4Q20
Commentary	Positive top-line growth at L Brands was driven by a very strong sales increase at its non-apparel banner, Bath & Body Works (BBW). The company reported a 2.4% sales increase, compared to 14.1% growth in the prior quarter. The company’s total comps increased by 10% versus 28% in the prior quarter. By banner, comps grew 22% at BBW and declined by 3% at Victoria’s Secret in its fourth quarter. The company’s sales in the direct channel grew 74% at BBW and 33% at Victoria’s Secret in its fourth quarter. Management said that the company’s omnichannel customers spend three times more than single-channel shoppers. L Brands CEO Andrew Meslow said, “Soaps and sanitizer were a significant growth driver for the business in 2020. But we saw about two-thirds of growth come from outside of soaps and sanitizers, and the biggest trend within that two-thirds has been in our home fragrance business. We have seen that the customer is spending more time at home and spending more attention on making their home a comfortable place to do business and schooling.” Management said that the company is making changes in its portfolio to focus on off-mall stores: Off-mall and digital generated nearly two-thirds of the company’s total revenues in 2020. L Brands noted that its off-mall locations have significantly higher conversion rates than its mall locations, with off-mall comps twice as high as  mall comps in 2020.
Outlook	In the first quarter of fiscal 2021, the company expects earnings per share (EPS) of $0.35–$0.45, versus $(0.99) in the first quarter of fiscal 2020. The company did not provide financial guidance for the full year 2021, owing to continued uncertainty in its business environment, along with the impending separation of the BBW and Victoria’s Secret businesses.

Off-Price Retailers

	The TJX Companies (NYSE: TJX) 4Q21
Commentary	Sales at The TJX Companies declined by 10.6%, versus a 3.8% decline in the prior quarter, primarily due to store closures in Europe for 63% of its fourth quarter and in Canada for 32% of the quarter. Open-only comp store sales were down 3% versus a 5% decline in the prior quarter. By banner, the company saw comps at HomeGoods of 12%; of (7)% at Marmaxx; of (4)% at TJX Canada; and of 2% at TJX International (Europe and Australia). Management said that the home and beauty departments, as well as holiday gift assortments, were strong during the quarter. TJX is aggressively looking to grow its home category, with home accounting for 40% of the company’s overall sales in 2020, up from 33% in the prior year. On the other hand, management said that the apparel trends remain weak during the quarter, with the company’s merchandise mix shifting toward non-apparel categories. Management said that the company faced several significant expense headwinds amid the pandemic, including high freight, supply chain and wage costs.
Outlook	The company plans to expand its HomeGoods division by opening 1,500 stores over the long term and expects to launch home goods on its e-commerce platform homegoods.com later this year. TJX added 43 new stores in fiscal 2021, ending the year with 4,572 stores. In fiscal 2022, the company plans to add 122 net new stores, which would bring its year-end total to nearly 4,700 stores, representing growth of about 3%. By geography, in the US, the company plans to add about 30 net stores at Marmaxx (T.J. Maxx), 34 net stores at HomeGoods and 12 Sierra stores; in Canada, TJX plans to add about 22 net stores; and at TJX International, the company plans to open approximately 15 stores in Europe and nine stores in Australia.

Department Stores

	Macy’s (NYSE: M) 4Q20
Commentary	Macy’s reported a sales decline of 18.7% in the fourth quarter of fiscal 2020 versus a 22.9% decline in the prior quarter. Comparable sales were down by 17.0% versus a 21.0% decline in the prior quarter. By category, apparel sales were down 33%, while home goods sales were up 11% and fine jewelry and fragrances saw double-digit sales growth. Digital sales were up 21% and represented 44% of total sales, with approximately 25% of digital sales fulfilled from stores, including curbside pickup and same-day delivery. Due to high digital sales, delivery expenses impacted the gross margin materially in the fourth quarter, by 310 basis points, mainly due to higher carrier expenses. Management said that the company’s digital channel is contributing higher to profitability than its physical stores, and it is working on its new strategy to reduce its delivery expense by focusing on the supply chain with improvements in inventory allocation.
Outlook	For fiscal 2021, Macy’s forecasts sales growth of 14–20%. In 2021, the company expects its physical stores to represent about 65% of net sales, while digital sales are set to account for the remaining 35% of the company’s total sales. Macy’s expects 2021 to be bifurcated, with continued pandemic challenges in the spring and momentum building in the fall. Macy’s Backstage outperformed comp sales in Macy's stores by more than 3X in 2020. Macy’s plans to open 35 Macy’s Backstage store-within-store locations in 2021. The company affirmed its plans to close 125 stores that it announced in 2020; 60 stores have closed or will be closing so far. Over the next three years, the company expects to witness continued double-digit growth in digital sales, with rising digital channel profitability. Macy’s plans to grow its digital business to $10 billion by 2023. To support this growth, the company plans to spend a large proportion of its capital on the digital experience, supply chain and technology transformation. In fiscal 2021, Macy’s expects its capital spending to be $650 million.

Electronics Retailer

	Best Buy (NYSE: BBY) 4Q21
Commentary	Best Buy's revenues grew 11.4% in its latest quarter, versus 21.4% growth in the previous quarter. Comparable sales increased by 12.6% versus 23.0% growth in the prior quarter. The retailer's domestic sales grew by 11.2%, while international sales grew by 14.0%. In terms of product categories, computing, appliances, gaming, virtual reality and home theater were the biggest contributors to the strong comp sales growth in the quarter. US e-commerce sales grew about 90% and constituted 43% of Best Buy's total domestic sales. The company noted that stores played an integral role in the fulfillment of online sales, with almost two-thirds of online orders being either picked up in-store or curbside, shipped from a store or delivered by a store employee.
Outlook	For the first quarter of fiscal 2021, the company forecasts comps of about 20%. For fiscal 2022, Best Buy expects comparable sales growth ranging between (2)% and 1% on the assumption that customers resume or accelerate spending in areas that were slowed during the pandemic, such as dining out and travel, in the second half of the year. The company expects e-commerce sales to account for about 40% of its total domestic sales. CFO Matt Bilunas said, “The consumer demand for technology products [such as computing and gaming] remains at elevated levels as we start the year. However, there is a high level of uncertainty related to the impacts of the Covid-19 pandemic that makes it difficult to predict how sustainable these trends will be, including, but not limited to, the timing of administration of the vaccine and the subsequent impact to customer demand and shopping patterns, as well as potential government stimulus actions.”

Home and Home-Improvement Retailers

	Home Depot (NYSE: HD) 4Q20
Commentary	Home Depot reported sales growth of 25.1% versus 23.2% growth in the prior quarter, driven by broad-based strength across business segments and geographies. Total comps grew by 24.5% versus 24.1% in the prior quarter, with both ticket and transactions increasing by double digits in the quarter, and the retailer saw strong double-digit growth from both Pro and DIY customers. The retailer's top 40 markets posted double-digit comps, with US comps increasing by 25.0% versus 24.6% in the prior quarter, Canada posting comps above the company average and Mexico posting double-digit comps in local currency. E-commerce sales grew by 83%, with approximately 55% of online orders being fulfilled through a store. The company noted that it had a record holiday season, with its modified customer engagement approach to Black Friday and gift center events proving to be a success with its customers. Management said that its interconnected retail strategy and underlying technology infrastructure continued to support web traffic through 2020.
Outlook	For fiscal 2021, the company expects flat to slightly positive comps and an operating margin of at least 14%, on the assumption that the demand trend in the second half of fiscal 2020 to persist through fiscal 2021.
	Lowe’s (NYSE: LOW) 4Q20
Commentary	Total sales grew 26.7% in the retailer’s latest quarter versus 10.9% growth in the prior quarter. Comps grew 28.1% versus 11.2% in the prior quarter, driven by average ticket growth of 14.2% and transaction growth of 13.9%, with strong repeat rates from both new and existing customers. US comps grew 28.6% versus 12.3% in the prior quarter. In the fourth quarter, DIY comps outpaced Pro comps, in-line with the previous quarter, and the company attributed this to increased interest among consumers in home-improvement projects. E-commerce sales grew 121%, representing the third consecutive quarter of triple-digit sales growth.
Outlook	In 2021, the company expects total sales to be $82–86 billion, representing a decline of 4–8% against the unprecedented, very strong comparatives in 2020. In 2021, the retailer continues to expect that its sales will outperform the market on the strength of its initiatives that are focused on delivering market share gains. Lowe's expects its adjusted operating margin to increase year over year and range between 11.2% and 12.0%, depending on the demand environment. Management plans to invest $2 billion in capital expenditures in 2021.
	Wayfair (NYSE: W) 4Q20
Commentary	Wayfair’s revenues grew by 44.9% in its latest quarter, versus 66.5% growth in the prior quarter. By geography, US revenues increased by 40.1% and international revenues grew 70.7%. Wayfair became profitable for the third time since it went public in 2014, reporting a net profit of $132 million (2Q20 was the first profitable quarter). The number of active customers in the company’s Direct Retail business grew 54%, reaching 31.2 million as of December 31, 2020. Around 60% of total orders delivered for the company’s Direct Retail business in the fourth quarter were placed via mobile devices, versus 54.8% in the year-ago quarter. The company’s repeat customers accounted for 72.5% of total orders in 4Q20, versus 68.6% in 4Q19.
Outlook	For the first quarter of fiscal 2021, the company expects the gross margin to be 26–28% and capital expenditure to be $68–78 million. In terms of long-term margin outlook, the company noted that it can clearly exceed its original 8–10% EBITDA margin target range, which Wayfair had laid out at the time of its initial public offering in 2014. Management expressed confidence that it has a bright runway for continued strong, profitable growth in the future. CFO Michael Fleisher said, “Quarter-to-date, our gross revenue growth is trending roughly in the mid-50s percent year-over-year—though as we look ahead to March, we will almost certainly comp lower as we will start to comp over a very complex moment, particularly the initial Covid-19 period last year when there was an incredible spike in demand from existing and many new Wayfair customers.”

Luxury E-commerce Retailers

	Farfetch (NYSE: FTCH) 4Q20
Commentary	Total sales grew by 41.0% in Farfetch’s latest quarter versus 71.3% in the prior quarter. Total gross merchandise volume (GMV) grew by 43%, with digital platform GMV increasing by 49%. Strong performance on the company’s digital platform was driven by an increase of 46% in active consumers (to 3 million) and sales from New Guards Group, the brand portfolio that Farfetch acquired in August 2019. In the fourth quarter, digital platform order contribution margin improved 310 basis points to 35%, but gross profit margin remained flat at 46%. Farfetch delivered its first-ever quarter of positive adjusted EBITDA of $10.4 million, representing an adjusted EBITDA margin of 2.2%. During the quarter, Farfetch's top 10 partners and e-concessions, where brands control pricing and promotions, increased their participation on the marketplace and grew their stock listings by over 70%.
Outlook	In 1Q21, Farfetch expects digital platform GMV growth of 50–55% and a digital platform order contribution margin of 32–34%. In fiscal 2021, the company expects a digital platform GMV growth of 30–35% and digital platform order contribution margin of 35–37%. Farfetch estimates an adjusted EBITDA margin of 1–2%. Management said that gaining market share remains the company’s top priority in 2021. CEO José Neves said, “Over the next five years, Mainland China is expected to become the largest luxury market and represents more than $100 billions of luxury spend. Our localized operations in China position us well to attract valuable Chinese customers by enabling them to shop a global supply of luxury fashion from up to 3,500 of the best brands via our app, website and social commerce channels such as WeChat.”
	The RealReal (Nasdaq: REAL) 4Q20
Commentary	The RealReal reported a sales decrease of 10% in its latest quarter, versus a 4% decline in the prior quarter. Consignment and service revenue fell 16%, while direct revenue increased by 38%. GMV fell 1% versus a 3% decline in the prior quarter. In the fourth quarter, the company opened one store in Palo Alto, California. Furthermore, in the first quarter to date, it has opened additional stores in Brooklyn, New York, and Newport Beach, California. In December, roughly 30% of the company’s new consignors came from its retail locations. The company found that consignors who transact at a RealReal retail location consign more than 1.5 times as much retail value as other consignors. Furthermore, the company found that omnichannel customers spend more than three times as much per year than online-only customers.
Outlook	In the first quarter of fiscal 2021, The RealReal expects GMV to be $301–310 million, representing 17–20% growth The company plans to open around 10 neighborhood stores by the end of its 2Q21.

Looking Forward

We continue to see strength in home-related merchandise as consumers continuing to stay indoors: Home Depot, Lowe’s and Wayfair witnessed remarkable sales growth in the quarter. Furthermore, this is benefiting more than home and home-improvement retailers, with a number of companies across sectors each calling out home categories as outperformers—including TJX (off-pricer), Macy’s (department store) and L Brands (specialty retailer). We believe that the home category will continue to see strong growth in the next quarter, and many retailers will adjust their assortment to focus in that direction. On the other hand, the demand for apparel remained weak at L Brands, Macy’s and TJX. Department store Macy’s remains badly hit and looks to ramp up its digital business by investing substantially on the digital experience, supply chain and technology transformation over the next couple of years. Luxury e-commerce retailer Farfetch continued to post outstanding sales growth. The company aims to capitalize on strong opportunities in China over the next couple of years. Meanwhile, The RealReal reported a double-digit decline in sales. The online luxury retailer is looking to expand its brick-and-mortar presence in the US. Electronics retailers Best Buy continued to report outstanding results. The retailer expects double-digit comps in the next quarter, driven by strong demand for technology products, such as computing and gaming.