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 2021 performance (ended January 31, 2022, for most companies). Companies featured are those within our Coresight 100 coverage list, and we focus on those that reported in the week ended February 13, 2022. For most US retail companies covered in this series, the quarter under review will be the fourth quarter of fiscal 2021 (4Q21). In October 2021, US retail sales saw a double-digit year-over-year increase, fueled by strong growth in several sectors, and sales increased by 23.2% on a two-year basis. In November 2021, US retail sales continued to see double-digit growth, with sales increasing by a strong revised 14.7% year over year and revised 24.7% on a two-year basis. In December 2021, US retail sales increased by 13.3% year over year and 22.3% on a two-year basis. However, sales growth slowed sequentially in December 2021, possibly reflecting some holiday season shopping being pulled forward into November 2021. US retail traffic saw growth of 32.6% year over year in December 2021—lower than November’s growth, reflecting a trend towards the consolidation of shopping trips due to the increasing number of Covid-19 cases. We assess the recent performance of selected retailers below.

Beauty Brands and Retailers

The beauty category continues to see strong growth momentum, with Coty and L’Oréal both reporting double-digit year-over-year sales growth. Last week, Estée Lauder also reported a year-over-year double-digit sales increase.

	Coty (NYSE: COTY) 2Q22
Commentary	Coty reported a 12.0% year-over-year revenue increase, but a decline of 5.9% on a two-year basis. Comparable store sales increased by 13.0% year over year. Adjusted EPS increased by 30.8% year over year and by 240.0% on a two-year basis. By segment, prestige reported 12.0% year-over-year growth in both revenues and comparable store sales. Prestige fragrance sales continued to grow at a double-digit pace in the second quarter, with nearly all brands particularly Burberry, Chloe, Gucci and Hugo Boss. Prestige cosmetics sales nearly doubled in the first half of fiscal 2022, led by global momentum in and the continued expansion of Kylie Cosmetics. The consumer beauty segment saw 11.0% year-over-year sales growth and comparable store sales growth of 12.0% in the second quarter. By geography, the company saw growth across all regions and travel retail—with the US and China continuing to be standout performers. The Americas’ sales grew 9.0% year over year, supported by strength in Canada, Mexico and the US. Sales in Europe, the Middle East and Africa (EMEA) increased by 13.0% year over year, recording growth in all key markets, alongside local travel retail. Asia-Pacific sales increased by 16.0% year over year, . Adjusted gross margin increased by nearly 590 basis points year over year to 64.6% and 120 basis points from the last quarter. The increase was driven by a favorable product and category mix, pricing and higher absorption.
Outlook	For fiscal year 2022, Coty raised its comparable sales guidance, now expecting growth at the upper end of the previously guided The company continues to expect adjusted EBITDA of $900 million for fiscal 2022, as it navigates the inflationary environment, while intentionally reinvesting gross margin gains and costs savings in its brands to maximize value and fuel sustained topline sales growth. Coty raised fiscal 2022 adjusted EPS guidance and now expects it to be between $0.22 and $0.26, up from previous guided range of $0.20–$0.2

 

	L’Oréal (ENXTPA: OR) H2 2021
Commentary	L’Oréal reported a 15.4% year-over-year increase in revenues and 13.5% growth on a two-year basis. EPS increased by 20.1% year over year and by 59.9% on a two-year basis. All divisions posted strong double-digit year-over-yeaThe professional products division recorded 18.5% year-over-year sales . Consumer products’ sales were up 10.0%. L’Oréal Luxe’s sales increased by 16.5% and active cosmetics’ sales grew 28.4%. By geography, North Americvery strong momentum throughout the year and recorded the stronges. Europe f 11.5%, with Sales in the South Asia Pacific, the Middle East, North Africa and Sub-Saharan Africa regionwith strong performance in India, the Middle East and South Africa. Latin America saw 16.2% sales growth, which was broad-based across all countries, with the exception of Argentina. North Asia recorded year-over-year sales growth of 12.9%, led
Outlook	L’Oréal did not provide specific guidance for 2022, but is optimistic stated that desire mong the rising upper middle-class worldwide is still extremely strong. The company expects L’Oréal Luxe to outperform as it continues investing in the division, aiming to make the most desirable, creative and admired products, according to the company. The company stated that it aims for continuous investment in maintaining its digital edge, and that its brands are already exploring the new frontiers of gaming and the metaverse.

 

Drugstore Retailers

Drugstore owners continue to report strong topline expansion. CVS Health reported double-digit sales growth year over year. In the week ended January 30, Walgreens posted strong double-digit year-over-year sales growth.

	CVS Health (NYSE: CVS) 4Q21
Commentary	CVS Health reported revenue growth of 10.1% year over year and 14.5% on a two-year basis. Its adjusted EPS was up by 52.3% year over year or by 14.5% on a two-year basis. By segment, health care benefits’ revenue increased by 10.1% year over year, driven by membership growth in the government services business, slightly offset by the repeal of the health insurer fee. Its pharmacy segment’s revenues increased by 8.2% year over year, which the company attributed to increased pharmacy claims volume, growth in specialty pharmacy and brand inflation, and was partially offset by the impact of continued client price improvements. Its retail business delivered strong results, witnessing a 12.7% year-over-year sales increase, driven by the administration of Covid-19 vaccines and testing, and strong front store sales, including demand for over-the-counter Covid-19 test kits and related treatment categories, alongside strong Covid-19-related prescription volume. CEO Karen Lynch stated, “We are progressing on optimizing our retail portfolio and pivoting our stores into three formats: primary care clinics, enhanced health hubs and traditional CVS Pharmacy locations. We are executing our plan to de-densify stores based on consumer health and buying needs, omnichannel preferences and shifts in the US population.” During the quarter, the company administered over eight million Covid-19 tests and more than 20 million Covid-19 vaccines nationwide. Adjusted operating income increased by 8.1% year over year, due to increased prescription and front store volume, the administration of Covid-19 vaccinations in the retail segment, and growth in specialty pharmacy in the pharmacy services segment.
Outlook	For the full year 2022, the company expects an adjusted of $8.1–$8.3, representing growth of (1.2)%–(3.7)% year over year. CVS revised down cash flow from operations guidance to $12.0–13.0 billion from its prior $12.5–13.0 billion. In 2022, the company expects vaccine volumes to decline by 70.0%–80.0% year over year and in-store diagnostic testing volumes to decline by 40.0%–50.0%. For over-the-counter test kits, the company expects modest full-year volume growth versus 2021.

 

Luxury

Luxury companies are witnessing strong sales growth. Tapestry reported double-digit year-over-year sales growth in its latest reported quarter. Last week, we saw Capri Holdings report double-digit sales growth.

	Tapestry (NYSE: TPR) 2Q22
Commentary	Tapestry reported 27.0% year-over-year growth in its second quarter and 18.0% growth on a two-year basis, driven by strong performance for its brands Coach and Kate Spade. Adjusted EPS increased by 15.7% year over year. Digital sales jumped by 30.0% year over year and tripled compared to pre-pandemic levels. By brand, Stuart Weitzman’s revenues were up 37.0% year over year, but were flat comparing to pre-pandemic levels. Kate Spade’s revenues were up 33.0% and 16.0% on a two-year basis, while Coach revenues were up 24.0% year over year and 20.0% on a two-year basis. By geography, North America revenues were up 35.0% year over year and up 25.0% on a two-year basis. In Mainland China, sales were up in the mid-single digits year over year and over 35.0% compared to pre-pandemic levels. Gross margin declined by about 150 basis points year over year to 68.1%, due to higher freight costs resulting from supply chain disruptions. new customers during the quarter, with transactions taking place across channels in North America—a low double-digit increase compared to last year, with growth in both stores and online.
Outlook	Tapestry raised sales and EPS guidance for fiscal 2022. It now expects revenues to be $6.75 billion, an increase from the previous outlook of $6.6 billion, representing annual sales growth of 20.0% year over year. For fiscal 2022, the company now expects diluted EPS to come in at $3.60–$3.65, an increase from the previously guided $3.45–$3.50, representing year-over-year growth of 22.0%–23.7%. The company expects strong momentum in North America in the second half to be slightly offset by near-term pandemic-driven headwinds impacting sales in China.

 

Looking Forward

Beauty brand owners are seeing solid sales growth—both Coty and L’Oréal reported double-digit year-over-year sales growth. Coty raised its comparable sales guidance, now expecting growth at the upper end of its previous guidance of low to mid-teens. The company also raised its fiscal 2022 adjusted EPS guidance. L’Oréal stated that the desire for luxury amongst the rising upper-middle-class worldwide is still extremely strong and it expects L’Oréal Luxe to outperform the luxury beauty market. Last week, Estée Lauder raised sales guidance for full fiscal 2022. Drugstore owners continue to report strong topline expansion, with CVS Health reporting double-digit sales growth in the fourth quarter of fiscal 2021. For the full year 2022, the company revised down its cash flow from operations guidance. In 2022, CVS expects vaccine volumes to decline but anticipates modest growth for over-the-counter test kits. In the week ended January 30, Walgreens raised its full-year guidance for adjusted EPS. Luxury retailers are sustaining their growth momentum, with Tapestry reporting double-digit year-over-year sales growth. For the full year 2022, the company raised its sales and EPS guidance. As we reported last week, Capri Holdings raised sales and EPS guidance for the full fiscal 2022.