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 21, 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 a revised 13.0% as stimulus checks boosted consumer spending. In February, US retail sales growth slowed to a still-solid 7.2%, as consumers continued to purchase goods rather than services but pulled back spending in a month that saw no stimulus checks and a nearly nationwide winter storm that kept millions inside for almost one week. We assess the recent performance of selected retailers and brand owners below.

Apparel and Footwear Brand Owners

	NIKE (NYSE: NKE) 3Q21
Commentary	NIKE reported a sequential decline in top-line growth, with sales increasing by 3% versus a 9% increase in the prior quarter. Revenue growth was primarily driven by a 51% sales increase in Greater China. North America’s sales declined by 10% due to supply chain challenges, including global container shortages and US port congestion, which have impacted the flow of inventory and timing of wholesale shipments. EMEA’s sales declined by 4%, mainly due to pandemic-related store closures. NIKE’s direct sales were up by 20%. The company’s digital sales increased by 54%, with strong double-digit increases in all geographies. NIKE’s mix of owned and partner digital sales now account for more than 35% of the company’s total business, up by 10 basis points versus the same quarter last year. In the quarter, NIKE doubled the number of countries with Sneakers Live (product drops via livestreaming) by adding Germany, Italy and Japan, and saw an average viewing duration of 15 minutes—well above industry norms, according to the company. Management said that NIKE continued to innovate its products by incorporating injury prevention functions into footwear offerings. In the quarter, NIKE acquired Datalogue, a data integration platform that will help the company process, analyze and act on data. On store strategy, NIKE is leveraging a monobrand store expansion strategy and believes that its retail concepts will create distinctive NIKE consumer experiences in the marketplace. These include Live (a members-only store concept that focuses on mobile and a two-week merchandise rotation), Rise (which offers personalized shopping and community experience) and Unite (designed to help locals connect more closely through sports). Management said that the company had set ambitious goals around the use of sustainable materials throughout the product line. In February, NIKE launched Cosmic Unity, its first performance shoe under the “Our Move to Zero” initiative (zero waste, zero carbon).
Outlook	For 4Q21, against very weak comparatives, NIKE expects revenue growth of about 75%. This reflects assumptions that government-mandated restrictions in Europe will start to ease in April and that inventory transit times will slowly improve in North America. The company expects its gross margin to expand by 75 basis points, reflecting continued shifts to its more profitable NIKE direct business, partially offset by higher logistics and freight costs, and higher markdowns to liquidate excess inventory in EMEA. For fiscal 2021, NIKE expects low- to mid-teens revenue growth. For fiscal year 2022 and beyond, NIKE expects digital to be its fastest-growing channel, with the digital mix increasing toward 50% of its total sales—the company’s long-term target.

Discount Stores

	Dollar General (NYSE: DG) 4Q20
Commentary	Dollar General’s sales grew by 17.6% versus 17.3% growth in the prior quarter. Comp sales increased by 12.7% versus 12.2% growth in the prior quarter. Comps increased in each of the consumable, seasonal, home products and apparel categories. In 2020, the company opened 1,000 new stores, remodeled 1,670 stores and relocated 110 stores. In 2020, Dollar General also launched five Popshelf stores—a new concept that aims to engage customers by offering a fun and differentiated experience through continually refreshed merchandise, with about 95% of items priced at $5 or below. Management said that Popshelf has far exceeded its initial expectations for both sales and gross margin. As a result, the company now targets to reach a total of 50 Popshelf stores in 2021 versus its previous target of 30. In the long-term, the company estimates that Popshelf could add about 3,000 additional store opportunities in the Continental US, with approximately 1,000 additional opportunities for the company’s smaller-footprint DGX format.
Outlook	For fiscal 2021, the company expects between a 2% revenue decline and flat revenues, and a comp decline of 4–6%. Dollar General expects capital expenditure of $1.05–1.15 billion, including investments in its strategic initiatives. Dollar General plans to open 1,050 new stores, remodel 1,750 stores and relocate 100 stores in 2021. Furthermore, the company plans to add produce in about 700 stores, bringing the total number of stores carrying produce to over 1,800.
	Five Below (NasdaqGS: FIVE) 4Q20
Commentary	Total sales at Five Below increased by 24.9% versus a 26.3% increase in the prior quarter. Comparable sales grew 13.8% versus 12.8% growth in the prior quarter – the strongest fourth-quarter comps ever achieved by the company. Growth was driven by a 15.9% increase in comp average ticket, partially offset by a 1.8% decrease in comp transactions. Management said that e-commerce sales were strong in the fourth quarter but still represent a low-single-digit share of total sales. Five Below is offering a same-day delivery service in about 350 stores, in partnership with Instacart, and is also pilot testing curbside pickup at select stores. During the fourth quarter, the company opened two new stores, bringing its 2020 net-new store openings to 120 and its total store count to 1,020—representing a roughly fivefold increase since the company went public in 2012.
Outlook	For 1Q21, Five Below expects sales growth of 168–179% year over year, based on plans to open about 60 new stores during the quarter and against a very weak 1Q20, when sales fell 44.9%. The company expects EPS of $0.56–0.68 versus $(0.91) in the same quarter last year. In fiscal 2021, Five Below plans to open 170–180 stores and remodel 30–35 stores across 33 states. The company expects capital expenditure of about $315 million in 2021, with investments in the opening of new distribution centers and new stores, as well as spending on technology and infrastructure.
	Ollie’s Bargain Outlet (NasdaqGM: OLLI) 4Q20
Commentary	Total sales increased by 22.1% versus 26.7% growth in the prior quarter. Comps increased by 8.8% versus 15.3% growth in the prior quarter. The company’s top-performing categories were housewares, bed and bath, health and beauty aids, flooring and food. In 2020, Ollie’s Bargain Outlet opened a total of 46 new stores, ending the year with 388 stores in 25 states—a 12.5% increase from 2019. The company reiterated its stance of e-commerce not being a priority as it is difficult to duplicate the “treasure hunt” experience online.
Outlook	Ollie’s Bargain Outlet did not provide specific financial guidance. However, management said that the company is off to a good start in 2021, with year-to-date comps tracking in the high single digits. The company noted that the second, third and fourth quarters of 2021 will be its most difficult comparisons from sales and net profit standpoints, owing to very strong comparatives. In 2021, the company is expecting headwinds of 20–30 basis points in gross margin owing to ongoing supply chain pressures, such as increased import and trucking costs. Ollie’s Bargain Outlet plans to open 50 stores, including three to four relocations. The company also plans to introduce the Ollie’s brand to three new states: Kansas, Missouri and Vermont.

Home & Home-Improvement Retailers

	Williams-Sonoma (NYSE: WSM) 4Q20
Commentary	Williams-Sonoma’s sales grew by 24.4% versus 22.4% sales growth in the prior quarter. The company’s comps grew by 25.7% versus 24.4% growth in the previous quarter. The company noted that demand comp growth (which includes orders placed but not yet filled in the quarter) was even stronger, at almost 30%. E-commerce comps grew by 47.9% in the fourth quarter, and e-commerce continued to generate nearly 70% of total net revenues. In terms of brands, Williams Sonoma was again the strongest banner, delivering comp growth of 26.2%, while Pottery Barn’s comps grew by 25.7%. The retailer’s Pottery Barn Kids and Teens business registered comp growth of 25.7%, and West Elm’s comps grew by 25.2%.
Outlook	For fiscal 2021, the retailer expects net revenue growth in the mid-to-high single digits and expansion of its adjusted operating margin. Guidance is based on an expectation of continued strength in business in 2021, recovery in retail traffic and inventory levels going forward in the year, and favorable macro trends. Management remains optimistic for the long-term prospects of the company. CEO Laura Alber said, “For the long term, we are planning for continued net revenue growth of mid-to-high single digits and non-GAAP operating margin expansion. Our strong results, combined with our three key differentiators of in-house design, digital-first channel strategy and values, and the macro trends that should benefit our business over the long-term, give us confidence in these future growth projections and an accelerated path to $10 billion in net revenues and 15% non-GAAP operating margins in the next five years.”

Looking Forward

With consumers spending time at home, we continue to see strength in home-related merchandise: Williams-Sonoma posted strong double-digit sales growth. In the week ended February 28, we saw Home Depot, Lowe’s and Wayfair report remarkable sales growth. 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), which reported in the week ended February 28. We believe that the home category will continue to see strong growth in the next quarter, and many retailers will adjust their assortment in that direction. This week, we saw further evidence that the crisis will support, and likely accelerate, structural changes in US retail, such as store expansion among discount retailers. The crisis continues to support discount formats: Dollar General, Five Below (below) and Ollie’s Bargain Outlet (below) reported outstanding comp growth. Last week, we saw Big Lots report high-single-digit growth in comps; we also witnessed Dollar Tree and Grocery Outlet report mid- to high-single-digit comp growth in its latest quarter (reported in the week ended March 7). 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. Apparel and footwear brand owners witness a mixed recovery, with NIKE reporting a sequential decline in top-line growth. In the week ended February 14, we saw Hanesbrands’ sales growth turn positive for the first time since the start of the pandemic, but Under Armour reported a sales decline in its latest reported quarter versus flat growth in the prior quarter.