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 March 7, 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

	American Eagle Outfitters (NYSE: AEO) 4Q20
Commentary	The company’s total revenues decreased by 2% versus a 3% increase in its previous quarter. Total comps declined by 1%. The company did not post comps in its previous quarter. Aerie posted a 25% increase in sales, versus 34% sales growth in the prior quarter, marking the 25th consecutive quarter of double-digit growth for the brand. Comparable sales increased 29% at Aerie. On the other hand, American Eagle’s (AE’s) revenues decreased by 9%, versus an 11% decline in the prior quarter. AE’s comps declined 8% in the fourth quarter. The company’s digital revenues increased by 35% and accounted for 45% of total revenues in the quarter, versus 29% in the same quarter last year. Aerie’s digital revenues rose by 75% year over year, while AE’s digital revenues increased by 20%. By category, activewear continued to witness the highest growth. The company reported that it was encouraged by improvements in its tops and fleece categories. Furthermore, the company sees a strong opportunity in its bottoms category in 2021 in terms of merchandise margin expansion.
Outlook	In the first quarter of fiscal 2021, the company expects sales and operating income to exceed results from the first quarter of both fiscal 2019 and fiscal 2020. On January 21, 2021, American Eagle Outfitters hosted a virtual investor meeting to present its “Real Power. Real Growth” plan. The company aims to achieve revenues of $5.5 billion and an operating margin of 10% by 2023, led by digital growth and expanding underpenetrated markets (60 to 65 store openings planned annually). The company’s strategy focuses on: Doubling Aerie banner revenues to $2 billion by 2023, with a sales CAGR of mid-20% between 2020 and 2023. It aims to have 500–600 Aerie stores by 2023 from about 350 currently. Revitalizing the AE banner for profit growth through reduced promotions, strong inventory management, and favorable rent costs or relocations (the company is renewing leases on a short-term basis, with around 85% of lease renewals in 2020 lasting for just one year). It expects 2023 revenue for AE to remain almost flat to fiscal 2019 revenues at about $3.5 billion. Closing 200–225 AE stores in North America that are on the lower end of productivity. Management believes a larger portion of sales under this banner can be shifted online. Planned capital expenditure of $250–275 million for the next few years (versus the past five-year average of around $177 million). In 2020, the company closed 57 stores, including more than 50 AE locations. Management said that the sales and customer transfer rates from these locations will inform decision-making around their 2021 lease expirations. Furthermore, the retailer’s management team commented that around 450 of its leases expire in 2021, giving the company significant flexibility over the year. In 2021, the company plans to open 50 Aerie stores and 30 OFFLINE stores—its new activewear brand that launched last quarter.
	Foot Locker (NYSE: FL) 4Q20
Commentary	The company’s total sales declined by 3.0% on a constant currency basis versus a 7.7% increase in the prior quarter, mainly due to store closures in Canada and Europe, in addition to inventory delays from congestion at domestic ports. As of January 30, 2021, the company’s merchandise inventories declined by 25.5% on a constant currency basis. Digital channel sales grew 44.2% in the quarter and accounted for 27.4% of total sales, up from 18.7% in the same quarter last year. Comps decreased by 2.7, versus 7.7% growth in the prior quarter. Management said that the company witnessed sequential improvement in comps as its fourth quarter progressed: After a low-double-digit-decline in November, comps turned positive in December, which continued in January. Within the apparel category, the company’s men’s category saw a mid-single-digit decline in comps, while the women’s and kid’s categories witnessed gains in the double digits and low single digits, respectively. Within the footwear category, men’s footwear witnessed a high-single-digit decline in comps, while women’s and kid’s footwear saw strong comp gains in the high single digits and mid-single digits, respectively. Men’s basketball shoe comps were strongest in the quarter, posting low single-digit comp growth, while men’s running shoe comps were down double digits. During the fourth quarter, Foot Locker opened 19 new stores, relocated or remodeled 39 stores, and closed 53 stores. As of January 30, 2021, the company operated 2,998 stores in 28 countries across Asia, Australia, Europe, North America and New Zealand. In addition, the company operates 127 franchised Foot Locker stores in the Middle East.
Outlook	For 1Q21, the company expects less promotional pressure on merchandise margins compared to last year but expects elevated freight cost to remain a headwind. In 2021, Foot Locker plans to spend about $115 million on expanding its digital capabilities and supply chain initiatives to enhance the customer experience. The company plans to spend around $160 million in 2021 to enhance its store fleet, including opening about 100 new stores, driven by expansion in Asia. The company also plans to carry out approximately 130 relocations and remodels of existing stores. By geography, the company is seeing the fastest sales growth in the Asia-Pacific region, fueled by strong growth in Australia and New Zealand. In 2021 and beyond, Foot Locker expects South Korea to be an important omnichannel growth driver for the Asia-Pacific region.
	Gap Inc. (NYSE: GPS) 4Q20
Commentary	The company’s total sales declined by 5% versus flat growth in the prior quarter, with strong growth at Old Navy but double-digit declines at Banana Republic. Comparable sales were flat versus a 5% increase in the previous quarter. By brand, Athleta’s comps were up 26% versus a 37% increase in the prior quarter; Banana Republic’s comps were down 22% versus a 30% decline in the prior quarter; Gap’s comps were down 6% versus a 5% decline in the prior quarter; and Old Navy’s comps were up 7% versus a 17% increase in the prior quarter. Athleta surpassed $1 billion in sales in 2020. Digital sales increased by 49% and accounted for 46% of the company’s total sales in its fourth quarter, an increase of 17 percentage points compared to last year. In 2020, the company closed 228 Gap and Banana Republic stores—ahead of its closure target of 225 stores. Management said that these store closures, along with rent abatement settlements, lease negotiations and higher online sales, contributed to over 400 basis points of return on debt leverage in its fourth quarter.
Outlook	For fiscal 2021, the company expects sales growth to be in the mid to high teens, assuming that the impacts of the pandemic persist in the first half of 2021 and the second half of 2021 sees a return to more normalized, pre-pandemic sales levels. The company expects an operating margin of about 5% in 2021, consistent with the company’s Power Plan 2023 aim of achieving at least a 10% operating margin by 2023. For 2021, the company expects EPS of $1.20–$1.35 versus $(1.78) in 2020. The company expects that Old Navy and Athleta will continue to gain market share and contribute about 70% of the company’s total sales by 2023, up from 63% in 2020. The company remains confident that Old Navy’s sales will grow to $10 billion over the next three years, from $7 billion in 2020. Gap Inc. plans to incur capital expenditure of around $800 million in fiscal 2021, primarily for investments in digital and supply chain capabilities, loyalty programs, and expanding store bases for Old Navy and Athleta. In 2021, the company plans to open 30 to 40 Old Navy stores and 20 to 30 Athleta stores; and close about 100 Gap and Banana Republic stores.
	Urban Outfitters (NasdaqGS: URBN) 4Q21
Commentary	The company’s total sales decreased by 6.9% versus a 1.8% decline in the prior quarter and comparable sales declined by 7.0%, versus flat in the prior quarter. By banner, comparable sales increased by 6% at Free People versus 17% growth in the prior quarter; Urban Outfitters saw a 6% decline versus a 4% increase in the prior quarter; and comp sales decreased by 11% at Anthropologie versus a 9% decline in the prior quarter. The company’s digital business posted more than 150% sales growth in the quarter. It reported that total new digital customers jumped by 50% during the quarter. Management said that home was its top-performing category during the quarter. Within the apparel category, the demand for traditional apparel, geared for office wear or parties, remained weak, while casual apparel is trending.
Outlook	For the first quarter of fiscal 2022, the company expects sales growth to be positive in the low single digits. However, it expects its gross profit margin to be down several hundred basis points, mainly due to deleveraging in logistics and delivery expenses from increased digital channel penetration within the company’s total business. In fiscal 2022, the company plans to incur about $250 million on capital expenditure, mainly on the construction of a new distribution facility in North America and on automation equipment in its new facility in the UK. The company plans to open about 55 new stores and close 21 stores in fiscal 2022. Management said that the company is successfully negotiating percentage or variable rent on most of its new stores to provide protection against traffic fluctuations. Furthermore, the company is receiving substantial capital reimbursements on many of its renewal or new locations, keeping capital investments in these new stores minimal.

Off-Price Retailers

	Burlington Stores (NYSE: BURL) 4Q20
Commentary	Off-pricers are posting mixed results. Burlington Store’s sales growth turned positive in the latest quarter, while the sales decline at Ross Stores (discussed below) slightly accelerated. Last week, we saw TJX’s sales declines accelerating sequentially. Burlington Store’s sales increased by 4%, versus a 6.4% decline in the prior quarter. Total comparable store sales were flat, versus an 11% decline in the prior quarter. The company’s comps saw improvement throughout the quarter, with comp sales down 10% in November due to unfavorable weather, improving to flat in December and to a 17% increase in January, as weather normalized and federal stimulus payments were disbursed. The company noted that its category mix is shifting toward home goods—the strongest performing category in its recently reported quarters. Management said that the company chased over $100 million of sales above its internal plan in December as actual demand exceeded the company’s forecasted demand. The company is pursuing a major multiyear growth plan across all merchandise categories and in each of its inventory buying offices. Growth is especially significant in its New York City and West Coast buying offices; headcounts in both locations will expand in the next few years. The company updated its real estate strategy, with plans to implement a prototype store format spanning 25,000 square feet. It expects that one-third of its new store openings in 2021 will use this format. Over time, this smaller prototype will grow to represent the majority of new store openings.
Outlook	The company expects flat comps in fiscal 2021 as compared to fiscal 2019. The company expects that higher freight costs will continue to pressurize its gross margin in fiscal 2021, offset by merchandise margin improvement as it continues to plan its comp-store inventories down. In 2021, the company plans to open approximately 100 new stores while closing or relocating approximately 25 stores, with a total increase of 75 net new stores. Burlington raised its long-term store count outlook to 2,000 stores from its previous goal of 1,000 stores, up from 761 stores in 2020.
	Ross Stores (NYSE: ROST) 4Q20
Commentary	The company’s total revenues were down 3.7% versus a 2.5% decline in its prior quarter. Comps declined by 6% versus a 3% decline in the prior quarter, mainly owing to lower traffic, partially offset by an increase in average basket size. The company’s best-performing category was home, which comprised nearly 28% of its total business, up from 25% last year. Within the apparel category, the company is seeing growing trends in activewear and casual, while the demand for traditional apparel remained weak. For the holiday selling season, the Southeast and Midwest were the company’s strongest regions. For the quarter, stores in California, Florida and Texas, where the company has its largest presence, significantly underperformed the chain average.
Outlook	The company only provided guidance for its first quarter, with expected total sales projected to range from (1)% to 4% and comparable sales to be down 1–5%. This sales guidance reflects the potential impacts of lower demand during this year's Easter selling season and ongoing supply chain congestion. EPS are projected to be $0.74–$0.86 in the first quarter. The company expects sales trends to strengthen as it moves through fiscal 2021. The company expects to continue the aggressive expansion of its two chains: Ross Stores and dd's DISCOUNTS. During its first quarter, the company plans to open four Ross Stores locations and three dd's DISCOUNTS stores. For the full year 2021, the company expects to add about 60 stores, consisting of 40 Ross Stores and 20 dd's DISCOUNTS locations. In 2021, the company plans to incur capital expenditure of approximately $700 million, which includes investments for its next distribution center and the resumption of projects deferred from 2020.

Department Stores

	Kohl's (NYSE: KSS) 4Q20
Commentary	Kohl's and Nordstrom (discussed below) provided further evidence of weakness at department stores, following the double-digit decline in sales reported by Macy’s last week. Kohl's reported a sales decline of 10.1%, versus a 13.9% decline in the prior quarter. By category, activewear, beauty and home were strong, with notable strength in its children's business and continued improvement in its women's business. Digital sales were up 22% and accounted for 42% of net sales in 4Q20 versus 31% in the quarter last year. Stores fulfilled nearly 45% of digital sales, up from 35% last year. The company attributed 2 million new unique customers shopping at Kohl's in 2020 to the results of its Amazon Returns program. One-third of these new customers are millennials.
Outlook	For 2021, the company expects its net sales to increase by mid-teens versus 2020. Kohl's plans to open shop-in-shop locations in 850 Sephora stores by 2023, with 400 stores targeted to open in 2022. The company said that the Sephora partnership is a game-changer as it will drive significant beauty sales growth at an accretive margin and will also have a halo effect, driving sales in other categories—including positively impacting its women's business. As part of its plans to become an activewear destination and increase its active category sales (including outdoor clothing and equipment) from 20% to 30% of the business, the company plans to expand its active category space in stores by at least 20% in 2021.
	Nordstrom (NYSE: JWN) 4Q20
Commentary	Nordstrom’s total revenues contracted by 20.0% versus a 15.8% decline in the prior quarter. By business line, Nordstrom’s full-line store sales were down 18.6% and Nordstrom Rack sales were down 22.9%. Digital sales increased by 24% and represented 54% of the company’s total business, versus 33% last year. From a merchandise perspective, Nordstrom reported a strong response to gifting items and double-digit sales growth in both its home and active categories. The company had strong results in beauty, designer handbags, kid’s products and shoes categories. Nordstrom is extending beyond traditional wholesale models to increase its selection and reduce risks. The company highlighted its partnership with Tonal, a smart home gym and personal trainer brand, and sees opportunities to deepen its partnership with ASOS and Topshop to broaden its distribution and drive growth.
Outlook	The company sees the opportunity to reach $17 billion in sales at expanded EBIT margins of over 6% over the next three to five years. Management reiterated that it is implementing the strategy outlined at the company’s Investor Day on February 2, 2021, which includes: 1. Winning in its most important markets and scaling its market strategy by doubling exposure from 10 to 20 markets by the end of March 2021, making up 75% of its business. 2.  Broadening the reach of Nordstrom Rack, which it sees as a $2 billion incremental sales opportunity over time. The company will continue to focus on growing the share of the price-oriented customer segment. 3. Increasing the velocity of its digital business, which means delivering personalization at scale by creating greater linkages between digital and physical experiences.

Discount Stores

	Dollar Tree (NYSE: DLTR) 4Q20
Commentary	The company’s total sales increased by 7.2%, versus 7.5% growth in the previous quarter and comparable sales increased by 4.9%, compared to 5.1% growth in the prior quarter. Comps at Family Dollar grew 8.1% versus a 6.4% increase in the prior quarter. At Dollar Tree, comps increased by 2.4% versus 4.0% in the prior quarter. During the quarter, the retailer’s strongest-performing categories were beauty, crafts, eyewear, floral, home products, kitchenware and seasonal merchandise. In its fourth quarter, the company completed more than 280 real estate projects, including 124 new stores, 11 relocations, 106 Family Dollar renovations and 45 store closings, ending the year with 15,685 stores. Management said that its Combination Store concept, which leverages both Dollar Tree and Family Dollar brands to serve small towns across the US, is working remarkably well. As compared to other small Family Dollar stores, Combination Stores are reporting a comparable sales lift of more than 20% on average. The Combination Store concept was initially tested in late 2019.
Outlook	For fiscal 2021, the company plans to open 600 new stores and renovate 1,250 Family Dollar H2 format stores, which incorporate expanded cooler and freezer sections. The company expects the new stores to consist of 400 Dollar Tree stores and 200 Family Dollar stores. The new Family Dollar stores will be comprised of H2 and Combination Store formats based upon market locations.
	Grocery Outlet Holding Corp (NasdaqGS: GO) 4Q20
Commentary	The company’s total sales grew 23.1% as compared to 17.1% in the prior quarter. Comparable store sales increased by 7.9% versus 9.1% growth in the prior quarter, driven by larger basket sizes, with consumers continuing to consolidate their shopping trips. Grocery Outlet opened eight new stores in its fourth quarter, ending the fiscal year with 380 stores in six states.
Outlook	For its first quarter of fiscal 2021, Grocery Outlet expects its comparable sales to decline in the negative high-single digits, reflecting the impact of cycling the initial demand surge in March 2020. The company expects its 2021 gross margin to be in line with 2019 levels as it returns to normalized levels of inventory shrink. Management said that the company is investing in infrastructure to expand its presence in West Coast and Mid-Atlantic regions. In 2021, Grocery Outlet plans to open 36–38 stores, including three to five stores in the mid-Atlantic region.

Food Retailers

	Kroger (NYSE: KR) 4Q20
Commentary	The company’s total sales (excluding fuel and disposition) grew 10.7%, as compared to 11.3% growth in the prior quarter. Total comparable store sales (excluding fuel) grew 10.6% versus 10.9% in the prior quarter. Kroger noted that its private-label brand Our Brands achieved a high 2020, exceeding $26.2 billion in sales—up 13.6%. The company’s organic private-label brand Simple Truth exceeded $3 billion in annual sales for the first time since it launched. Kroger’s digital sales soared 118% in its fourth quarter. The company expanded its pickup service to 2,223 stores and its delivery service to 2,472 locations.The company expanded its partnership with Ocado with plans to construct a new customer fulfillment center in the southwest of the US. The first Ocado center will open in April in Monroe, Ohio.Fiscal 2020 brought saw the end of the company’s three-year Restock Kroger transformational plan, which was centered on cutting costs, expanding digital channels and investing in new profit streams.
Outlook	Kroger expects comps to decline by 3–5% in 2021 but expects an increase of 9.1–11.1% on a two-year basis. The company expects trends in at-home eating and digital shopping to continue, even as restrictions ease and vaccinations are distributed, playing in its favor.

Mass Merchandisers

	Target (NYSE: TGT) 4Q20
Commentary	Topline growth remained very strong at Target, with comp sales growth remaining above 20%. The company’s total sales grew 21.0% versus 21.3% growth in the prior quarter. Total comparable sales increased by 20.5% versus 20.7% in the prior quarter. Digital comps grew 118%, while store-based comps increased by 6.9%. Same-day services, including order pick up, drive up, and Shipt, grew 212%, led by growth of more than 500% in its Drive Up collection service. More than 95% of Target’s customer orders were fulfilled by stores in its fourth quarter. Management said that Target gained unprecedented market share in 2020 across all five of its core merchandise categories (apparel, essentials and beauty, food and beverage, hardlines, and home). The company focused on promoting its owned brands in 2020 and plans to continue doing so in the future: 10 owned brands in 2020 each generated more than $1 billion in sales. Owned brands represented more than one-third of the company's business in 2020.
Outlook	The company highlighted its plans to introduce Ulta Beauty at Target, starting with 100 stores later in 2021. Target plans to open two new distribution centers in 2021 to support replenishment, as the company aims to expand its fulfillment capacity. Between 2016 and 2020, average sales per square foot supported by the company's distribution centers (DCs) rose by nearly 30%, despite Target not opening any new DC during that. With 95% of sales now driven by stores and increasing online demand, the company is pivoting slightly to a model that includes more distribution centers.

Warehouse Clubs

	BJ’s Wholesale Club (NYSE: BJ) 4Q20
Commentary	The company’s total revenues increased by 13.7% versus 15.6% growth in the prior quarter. Comparable sales (excluding gasoline) increased by 15.9%, compared to 18.5% growth in the prior quarter. Digital sales surged by 168% in the fourth quarter, continuing momentum from the 350%, 300% and 200% growth in the first, second and third quarters, respectively. Buy online, pick up in club (BOPIC), curbside pickup and same-day delivery were the most popular channels, representing 80% of the company’s digital growth. In the fourth quarter, the company added about 80,000 net new members relative to the third quarter. Management said that digitally engaged members buy more categories, have average baskets that are 30% larger and make on average five more trips per year than members who shop traditionally. During the fourth quarter, the company rapidly expanded its assortment in categories it has historically underpenetrated, including consumer electronics, fitness equipment, household goods and sporting goods.
Outlook	The company expects consumer demand to remain elevated in the first half of fiscal 2021 as compared to the pre-pandemic levels, implying high teens stacked comps in the first quarter. The company expects the member count to be flat or better in 2021 compared to 2020. After opening four clubs in 2020, the company plans to open six clubs in 2021. BJ’s expects to open 10 more clubs in 2022.

Looking Forward

We continued to see evidence that the crisis will support, and likely accelerate, structural changes in US retail, such as store expansion among discount retailers. Dollar Tree and Grocery Outlet, for instance, both reported strong topline growth and are continuing to expand their store portfolio. We expect discount stores’ comps to slightly decline in the next quarter, reflecting the impact of cycling the initial demand surge in March 2020. Warehouse club BJ’s also continued to benefit from the crisis, reporting strong double-digit comps and continuing to expand its store estates in its fourth quarter.

This week, we saw more evidence that department stores are seeing very weak recoveries from the crisis, with Kohl's and Nordstrom continue to witness double-digit declines in sales. Last week, Macy’s reported a double-digit decline in sales. These stores are looking to ramp up their digital businesses by investing substantially in digital experiences, supply chains and technology transformation over the next couple of years.

Apparel specialists are witnessing weak demand, with American Eagle Outfitters, Foot Locker, Gap Inc. and Urban Outfitters posting sequential declines in toplines. However, most of these retailers expect positive sales growth in the next quarter. Off-price retailers are posting mixed results: Burlington Stores saw its sales growth turn positive in its latest quarter, while the decline in sales at Ross Stores slightly accelerated. Last week, we saw TJX’s sales declines accelerate sequentially.

Mass merchandiser Target’s topline growth remained exceptionally strong, with comp sales growth above 20%, supported by very strong digital growth in all five of its core merchandise categories: apparel, essentials and beauty, food and beverage, apparel, hardlines and home. The company continues to expand its digital capabilities, including opening new distribution centers.

Food retailer Kroger delivered robust results, with strong comps continuing from its third quarter into its fourth quarter. The company expects ongoing digital shopping and at-home eating trends to support its top line, although it anticipates a decline in comparable sales in the current fiscal year. That guidance aligns with our own view that total US food retail sales are likely to decline in 2021.