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 14, 2021. For most US retail companies, the quarter under review will be the fourth quarter of fiscal 2020 (4Q20). 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. Looking ahead to yet-to-be-reported February sales and projected sales in March, we predict that total retail sales will increase by about 6.3%. We assess the recent performance of selected retailers and brand owners below.

Apparel Specialty Retailers

	Dick’s Sporting Goods (NYSE: DKS) 4Q20
Commentary	Dick’s posted outstanding sales growth in its latest quarter, of 19.8% versus 22.9% growth in the previous quarter. This bucks the trend we saw in the apparel specialty sector last week, when American Eagle Outfitters, Foot Locker, Gap Inc. and Urban Outfitters reported total sales declines of between 2% and 7%. Dick’s reported a comparable sales increase of 19.3% versus 23.2% in the prior quarter. Growth was driven by a 20.3% increase in average ticket spend. The company saw strong growth across each of its three primary categories: apparel, footwear and hardlines. Digital sales increased by 57% in the quarter and accounted for 32% of the company’s total sales, compared to 25% in 4Q19. Stores fulfilled about 70% of online sales; this included curbside and in-store pickup, which increased nearly 250% compared to BOPIS (buy online, pick up in store) sales last year. In 2020, comps of its vertical brands outperformed the company average by over 400 basis points. The retailer’s Calia brand is its second-largest women’s athletic apparel brand, and the DSG brand grew to become its largest vertical brand within one year of its launch.
Outlook	In 2021, Dick’s expects total sales to be $9.5–9.9 billion, with the mid-point representing a year-over-year growth of 2%. The company expects comps to be between (2)% and 2%. In 2021, the company expects to see strong growth in athletic apparel and footwear, and golf and fitness equipment, driven by the favorable shifts in consumer demand across active lifestyle, home fitness and outdoor activities. Dick’s plans to expand its men’s apparel selection, with the launch of VRST, its new premium athletic apparel brand, by the end of March 2021. Dick’s expects VRST to help put the company in a much stronger position to compete with similar offerings from premium apparel brands and specialty retailers. In 2021, the company plans to open six new Dick’s Sporting Goods stores and six specialty concept stores. It also plans to relocate 11 Dick’s Sporting Goods stores and convert two former Field & Stream stores into Public Lands stores this year.

Online Apparel Retailers

	Stitch Fix (Nasdaq: SFIX) 2Q21
Commentary	Total sales at Stitch Fix grew 12% versus 10.3% growth in the prior quarter. The company’s active client base increased by 12% year over year, to 3.9 million. Despite strong growth, management acknowledged that revenues were impacted by carrier and client delays as well as softer-than-anticipated performance of “direct buy” during the holiday period. The company’s gross margin declined by 190 basis points, primarily due to increased shipping expenses. Stitch Fix has outlined three themes that demonstrate its business momentum: Clients are migrating to adopt Stitch Fix’s offering at the highest rates since 2016. The company continues to evolve its Fix offerings, such as by leveraging data science capabilities, to enhance new and existing clients’ conversion and retention. The company is preparing to roll out the “direct buy” service to first-time clients by the end of fiscal 2021. In January 2021, the “direct buy” service helped the company achieve its strongest month-over-month revenue growth of any January on record. The company is also investing in product experiences to drive greater personalization.
Outlook	For fiscal 2021, Stitch Fix expects revenue growth of 18–20%, driven by accelerating active client growth and increasing spending from the newest client cohorts. The company is seeing strong new client acquisition trends and believes that the auto-ship retention levels will be healthy in 2021. Meanwhile, Stitch Fix expects longer cycle times to impact revenue recognition and delay subsequent orders. Overall, Stitch Fix believes that demand for apparel will increase in 2021, creating opportunities for the company.

Beauty Brands and Retailers

	Ulta Beauty (NasdaqGS: ULTA) 4Q20
Commentary	The beauty category continues to see a strong recovery, with Ulta Beauty posting a substantial sequential improvement in its topline trajectory. In the week ended February 21, we saw L’Oréal report flat sales growth versus negative sales growth in the prior quarter. Previously, we witnessed Estée Lauder’s sales growth turn positive (reported in the week ended February 14). Ulta Beauty’s sales decreased by 4.6%, compared to a 7.8% decline in the prior quarter. Comparable sales dropped by 4.8% versus an 8.9% decline in the prior quarter. In the quarter, total transactions fell by 12.2%, but the average ticket value increased by 8.3%. By category, skin care delivered a low-double-digit comp, fueled by the broader wellness trend and increased interest in newer brands, such as The Ordinary and Urban Skin Rx, and established brands including CeraVe and First Aid Beauty. Fragrance and bath delivered strong, double-digit comp growth, driven by newness, growing self-care trends, a strong fragrance portfolio and social media engagement. Comp sales in hair care were down slightly due to the planned changes to Ulta Beauty’s Jumbo Love hair sale event in terms of content and offerings, which negatively impacted the topline but delivered substantial profit improvement. Excluding the event, comps in hair care was positive. Makeup continued to see negative comp sales due to less product newness versus last year, ongoing mask requirements and limitations on makeup-wearing occasions. In the quarter, sales from the company’s services business were down more than 40%, due to a decline in transactions. Its e-commerce business slowed versus the prior quarter but still delivered strong growth of 72%. BOPIS and curbside pickup accounted for 15% of e-commerce sales. Ulta Beauty ended fiscal 2020 with 30.7 million loyalty members, down 10% from last year. The company noted that the reduction was expected given store closures, and it saw a rebound in new membership during the fourth quarter. The company’s mix of omnichannel members nearly doubled to 23% of total members, and the share of online-only members grew to 12%. In the quarter, Ulta Beauty announced major management changes. Dave Kimbell, President, will succeed Mary Dillon as CEO and will be nominated to stand for election to the company’s Board of Directors. Mary Dillon will transition to the role of Executive Chairman of the Board of Directors. Kecia Steelman, currently serving as Chief Store Operations Officer, will be elevated to the role of Chief Operations Officer.
Outlook	For the fiscal year 2021, the company expects revenue growth of 16–17% and comps of 15–17%. Ulta Beauty expects adjusted EPS growth of 92–100%. In 2021, Ulta plans to open 40 net new stores and execute 21 remodels or relocations. Incoming CEO Dave Kimbell discussed Ulta Beauty’s six strategic priorities for fiscal 2021: Build capabilities to win in an omnichannel world, including both physical stores and digital platforms. Reimagine guests’ experience and how consumers discover beauty across all touchpoints. Drive winning category strategies to engage and delight beauty enthusiasts and expand market share. Deepen customer loyalty and engagement across all channels. Drive holistic cost optimization. Develop talent and strengthen company culture.

Discount Stores

	Big Lots (NYSE: BIG) 4Q20
Commentary	The crisis continues to support discount formats, with Big Lots reporting high-single-digit growth in comps. Last week, we saw Dollar Tree and Grocery Outlet report mid- to high-single-digit comp growth. Big Lots reported total sales growth of 8.1% versus 18.0% growth in the prior quarter. Comparable sales grew 7.9% versus 17.8% growth in the prior quarter. Except for food and seasonal, the company witnessed double-digit comp growth across all of its categories, with home-related merchandise performing extremely well. Total digital sales grew 130%. The company offered improved delivery times through same-day delivery and curbside pickup, driven by its recent collaborations with delivery service providers Instacart and Pickup. The retailer now has ship-from-store capabilities in 47 stores to ensure a two-day delivery service to 90% of its customers across the US. During the quarter, the company closed three stores, ending the quarter with 1,408 stores and total selling space of 32 million square foot. For the full year, the company opened 24 stores and closed 20 stores.
Outlook	For 1Q21, Big Lots expects comps to be in the low single digits and EPS growth to be 3–15%. For the full-year 2021, the company expects ongoing pressure from higher freight costs to impact gross margins. In 2021, the company plans to incur capital expenditures of $180–190 million, which will include investments in omnichannel capabilities, store space-planning technology and customer analytics capabilities. Big Lots plans to open 50–60 stores this year, of which about 20 will be relocations.

E-Commerce Retailers

	JD.com (NasdaqGS: JD) 4Q20
Commentary	The Covid-19 crisis continues to support e-commerce formats, with JD.com reporting strong double-digit sales growth. In the week ended February 7, we saw Alibaba, Amazon and eBay report strong sales growth in their latest quarters. JD.com’s revenues grew by 31.0% in 4Q20, versus 29.2% growth in the prior quarter. By category, sales of general merchandise rose by 34%, led by the healthcare, home goods, FMCG, cosmetics and supermarket categories. Order volumes for the supermarket category grew by 45% in the quarter. Electronics and home-appliance sales increased by 25%. The strong sales growth was driven by an increase in new users from lower-tier cities in China and increased purchases from existing users: About 80% of users added in the quarter came from lower-tier cities. In the past 12 months, annual active customers increased by 110 million (30%) to reach 472 million—the largest expansion in JD.com’s history.
Outlook	The company did not provide financial guidance, but in 2021 and beyond, JD.com reported that it will continue to focus on three key strategies: Enhance its middle-platform capacities for supply chain and technology. Expand its omnichannel business. Enhance its online marketplace ecosystem, improving merchants’ quality and user experience.

Looking Forward

This week, we saw more evidence that the crisis will support, and likely accelerate, structural changes in US retail, such as store expansion among discount retailers. Big Lots reported solid topline growth in the week ended March 14, and we saw Dollar Tree and Grocery Outlet report strong topline growth in their latest quarters too. These retailers are continuing to expand their store portfolio. We expect discount stores’ comps to slightly decline in the next quarter, reflecting the impact of lapping the demand surge in March 2020. The Covid-19 crisis continued to support e-commerce formats, with JD.com posting strong double-digit sales growth. In the week ended February 7, we saw Alibaba, Amazon and eBay report strong sales growth in their latest quarters. These retailers continue to invest in consumer engagement and digital transformation. We expect e-commerce retailers to maintain their winning streak in the next quarter, as consumers’ structural shift toward online retail continues amid the recent surges in coronavirus cases. In the discretionary category, beauty continues to see a strong recovery, with Ulta Beauty posting a substantial sequential increase in its toplines. In the week ended February 21, we saw L’Oréal report flat sales growth, versus negative sales growth in the prior quarter. Estée Lauder’s sales growth turned positive in its latest quarter, reported in the week ended February 14. In the apparel and footwear categories, demand for casualwear and athleisure remains strong, while tailored clothing is seeing weakness. Dick’s Sporting Goods reported outstanding comps, but we saw American Eagle Outfitters, Foot Locker, Gap Inc. and Urban Outfitters post total sales declines of between 2% and 7% in their latest quarters—however, most of these retailers expect positive sales growth in the next quarter.