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 March 6, 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. In January 2022, US retail sales increased by 8.2% year over year and 22.3% on a two-year basis, against strong 2021 comparatives, boosted by a strong month of job creation and continued average hourly wage growth. US retail traffic saw growth of 26.9% year over year in January 2022—lower than December’s growth of 32.6%, reflecting a trend towards shopping-trip consolidation, due to a rise in Covid-19 cases and bad weather conditions. We assess the recent performance of selected retailers below.

Apparel and Footwear Brand Owners

Apparel and footwear brand owners continue to record strong growth, with Carter’s reporting high-single-digit year-over-year sales growth. Last week, Gildan reported double-digit sales growth, year over year. In the week ended February 20, Crocs reported solid double-digit year-over-year revenue growth and Under Armour recorded a high-single-digit year-over-year increase in revenue. Similarly, we saw Columbia Sportswear, Deckers Outdoor Corporation, Ralph Lauren, Skechers and VF Corporation reporting strong double-digit year-over-year revenue growth in the week ended February 6, while Hanesbrands reported single-digit revenue growth. In the week ended January 30, Levi’s reported double-digit year-over-year revenue growth.

	Carter’s, Inc. (NYSE: CRI) 4Q21
Commentary	The company’s total sales increased by 7.3% year over year, accelerating from 2.9% in the prior quarter. EPS increased by 2.0% versus 4Q20 but declined by 18.0% on a two-year basis. Adjusted operating margin was down 170 basis points (bps) year over year to 13.0%, due to higher transportation costs. By segment, US retail revenue increased by 3.0% year over year, driven by improved store traffic; US wholesale revenue increased by 9.0%, as a portion of sales volume moved into the fourth quarter from the third; and international revenue increased by 25.0%, driven by strong demand from Canada and Mexico. The kids’ apparel segment registered over 10% year-over-year sales growth in both sleepwear and playwear products. Baby apparel sales increased by 8.0%. During the quarter, the company invested in omnichannel capabilities in Canada, including same-day pickup and curbside pickup of online purchases—over 30% of Canada’s online purchases were picked up in stores.
Outlook	For fiscal 2022, Carter’s expects net sales growth in the range of 2.0% to 3.0% year over year, and adjusted operating income growth in the range of 4.0% to 6.0%. The company expects adjusted EPS growth of 12.0%–14.0%, year over year. For 1Q22, the company expects net sales of $740–750 million, down 4.7%–6.0% year over year. It expects an adjusted operating income of $85–90 million, down 29.9%–33.9% year over year. It expects adjusted EPS of $1.25–$1.35, a decline of 31.8%–36.9% year over year. For the five-year period fiscal 2021–2026, the company expects low-single-digit sales growth and mid-single-digit adjusted operating income growth. It projects adjusted EPS growth in the high single digits.

Apparel Specialty Retailers

	American Eagle Outfitters (NYSE: AEO) 4Q21
Commentary	Total revenues increased by 14.7% year over year, decelerating from 23.5% in the prior quarter. Comparable sales increased by 14.8%. By banner, Aerie’s sales grew 27% year over year, on the top of 25% growth in 4Q20, and American Eagle’s sales increased by 11%, following a 9% decline last year. The company’s digital revenues declined by 3% year over year, against strong comparatives. On a two-year basis, total digital revenues grew 31%. The company’s gross margin contracted by 160 bps year over year to 32.4%, mainly caused by elevated freight costs amid Vietnam factory closings—but offset by strong product demand, higher full-priced sales, inventory optimization and lower promotions. Its operating margin was 5.3%, up from 0.3% in the year-ago quarter. Adjusted EPS declined by 10.3% year over year. The company continued to expand its Aerie banner, opening 43 new stores in the quarter and bringing its full-year new store openings to 95. Management stated that the company saw strong year-over-year growth across all product categories. President and Executive Creative Director Jennifer Foyle stated, “Demand was strong across core Aerie apparel and intimates as well as OFFLINE activewear, which is showing great momentum just one and a half years into the launch. We have this incredible opportunity in OFFLINE, rooted in leggings, which we’re going to continue to build on and grow.”
Outlook	For 2022, the company expects year-over-year revenue growth to be in the mid-teens and operating income to be $550–600 million, compared to $603 million in 2021. The company expects a decline in operating income in the first half of fiscal 2022, followed by a recovery in the second half as it cycles elevated air freight prices in the second half of 2021, caused by factory closures and inventory challenges.
	Foot Locker (NYSE: FL) 4Q21
Commentary	Total revenues increased by 6.9% year over year, accelerating from 3.9% in the prior quarter. Comparable sales increased by 0.8% year over year. The company’s digital penetration stood at 21.6% at the end of 4Q21, compared to 27.4% in 2020 and 18.7% in 2019. The company’s gross margin declined by 10 bps year over year to 33.0%, due to occupancy deleveraging and higher supply chain costs. Foot Locker’s adjusted EPS increased by 7.7% year over year. During 4Q21, Foot Locker recorded substantial vendor diversity, with the majority of its top 20 vendors reporting gains in their respective categories—comp growth from non-NIKE vendors was over 30%. Management stated that the momentum of brands including Adidas, Crocs, New Balance, PUMA, Timberland and UGG during 2021 showcased the expanding breadth of its consumer sneaker offerings, covering athletic, outdoor and seasonal categories. Foot Locker continued to expand its apparel category. CEO Richard Johnson stated, “Our push into apparel continues to yield strong results, with the category growing 30% in the fourth quarter and reaching $1.4 billion in annual sales for the first time in the company’s history.”
Outlook	For fiscal 2022, Foot Locker expects total sales to be down 4%–6% and comparable sales to decline by 8%–10%. The company forecasts gross margin of 30.1%–30.3% and adjusted EPS of $4.30–$4.60, down 40.8%–44.7% year over year. In fiscal 2022, the company plans to open about 100 new stores, including 40 power and community stores, 27 WSS stores (a US-based apparel and footwear company acquired by Foot Locker in 2021) and nine Atmos stores (a Japan-based apparel and footwear company acquired in 2021), while closing a total of 190 stores. Foot Locker stated that it expects to increase WSS’s sales to $1 billion by 2024, supported by accelerated store openings and strong same-store sales growth. Foot Locker also expects to expand Atmos’s sales by about 50% annually to nearly $300 million by 2024, by expanding internationally and scaling up in the company’s existing markets.
	Gap (NYSE: GPS) 4Q21
Commentary	Total revenues grew 2.0% year over year, compared to a 1.3% decline in the prior quarter. Comparable sales increased by 3.0% year over year. On a two-year basis, fourth-quarter sales declined by 3.0%, while comparable sales increased by 3.0%. By brand, Athleta’s sales increased by 52% on a two-year basis, Banana Republic’s sales declined by 11%, Gap’s sales decreased by 13%, and Old Navy’s sales rose by 2%. In terms of comps, Athleta reported a 42% increase versus 2019, Banana Republic reported a 2% decline, Gap saw an increase of 3% and Old Navy reported almost flat growth. Digital sales were up 44% on a two-year basis and represented 43% of the total business. The company’s adjusted operating margin stood at 0.4%, down 550 bps from 2019 levels. CEO Sonia Syngal stated, “With customers returning to pre-Covid-19 purchasing behaviors, we are pivoting to a more versatile fashion, offering on-trend product across a range of used occasions, while playing to our market leadership in Denim, Active, and Kids and Baby. We saw these trends play out in the rise of Old Navy’s classic workhorse staple, the pixie pants and Athleta’s bestselling elation tight, both now in flare-leg shape.”
Outlook	For fiscal 2022, Gap expects low-single-digit year-over-year sales growth and a mid-to-high-single-digit decline in first-quarter net sales. The company issued adjusted operating margin guidance of 6.0%–6.5% and forecasts adjusted EPS to be $1.85–$2.05. For fiscal 2022, Gap expects capital expenditure of about $700 million, primarily to support growth investments, including digital and supply chain capacity projects, along with investment in store growth for its Athleta and Old Navy banners. CFO Katrina Connell stated, “While we spent an estimated $430 million in air freight in fiscal 2021, we plan to spend about 20%–25% less in 2022. A little more than half of the full-year 2022 air expense is expected to be realized in Q1, as we sell through product we expedited for fourth- and first-quarter flows. Improvements we’ve made to our planning cycle, which we expect to fully come to bear in summer, should reduce air usage beginning in Q2 and through the back half of the year.”
	Urban Outfitters (NasdaqGS: URBN) 4Q21
Commentary	Urban Outfitters reported a revenue increase of 22.4% year over year, accelerating from the previous quarter’s growth of 16.7%. Comparable sales increased by 14% year over year, in line with the prior quarter. By brand, Free People led the way, with comps of 49% year over year—followed by Anthropologie and Urban Outfitters, which posted comp growth of 14% and 3%, respectively. By segment, retail saw total sales growth of 15% year over year, while wholesale’s net sales declined by 22%. Gross margin declined by 97 bps year over year to 27.5%, decelerating from 34.5% in the prior quarter, primarily due to lower initial merchandise markups led by higher inbound transportation costs, and an increase in delivery and logistics expenses. The company’s adjusted EPS declined by 18% year over year, down from a 14.1% increase in the prior quarter. During the fourth quarter, the company witnessed strong demand across all categories, with women’s apparel and home furniture performing strongest. Urban Outfitters stated that demand for dresses and occasion wear is growing substantially as weddings and events are once again being planned.
Outlook	The company did not provide financial guidance, but management remains optimistic for the first quarter. CFO Melanie Marein-Efron stated, “Our URBN first-quarter-to-date comp sales rate is ahead of our fourth-quarter rate. We believe first-quarter total company sales could come in up mid-teens versus fiscal 2019 [prior to the pandemic]. We believe that the Retail segment’s sales could land in the mid- to high teens, while the Wholesale segment’s sales could be approximately flat.” Furthermore, the company stated that gross margins for the first quarter will be down by over 100 bps year over year, owing to ongoing supply chain challenges, which led to the increase in inbound product transportation costs.

Department Stores

Department stores are witnessing robust sales growth, with both Kohl’s and Nordstrom reporting positive year-over-year sales growth. Last week, we saw Macy’s posted double-digit year-over-year sales growth.

	Kohl’s (NYSE: KSS) 4Q22
Commentary	Total revenues increased by 5.8% year over year, decelerating from 15.5% growth in the prior quarter. Adjusted EPS decreased by 1.0% year over year, and gross margin increased by 124 bps to 33.2%. Digital sales declined by 1% year over year, but increased by 21.0% on a two-year basis. Online sales accounted for 39.0% of the company’s total sales. By category, activewear continues to be a key growth driver of the company’s business, with sales increasing by more than 25.0% year over year. The company saw strong sales growth in men’s and children’s apparel, as well as in the footwear category. Women’s apparel sales growth was affected as its average inventory was down around 45.0% compared to 4Q19. Active national brands Adidas, Champion, NIKE and Under Armour all experienced exceptional sales growth. Additionally, national brands Hurley, Koolaburra by UGG, LEGO, Levi’s, Ninja and Vans also performed well in terms of sales. The shop-in-shop concept, Sephora at Kohl’s, drove significant beauty sales in its first holiday season during the quarter. The company witnessed increased levels of traffic and a mid-single-digit sales lift in the first 200 stores that opened Sephora at Kohl’s locations, compared to the balance of the chain. Additionally, over 25% of customers shopping at Sephora at Kohl’s are new to Kohl’s. Management stated that the company experienced significant additional inventory receipt delays during the quarter, and it was unable to fulfill all the customer demand during the holiday period. The company estimated that sales growth was impacted by around 400 bps due to supply chain disruption.
Outlook	For the full-year 2022, the company expects net sales to increase by 2.0%–3.0% year over year and its operating margin to be in the range of 7.2%–7.5%. Kohl’s expects EPS in the range of $7.00–$7.50, representing growth of (4.5)%–2.3% year over year. The company expects around $850 million in capital expenditures, including the expansion of Sephora at Kohl’s and store-refreshing activity. In 2022, Kohl’s plans to open 400 Sephora at Kohl’s locations and, in 2023, it plans to open another 250. The company also plans to expand clothing brand Eddie Bauer from its current 500 stores to all 1,162 Kohl’s locations by the end of 2022.
	Nordstrom (NYSE: JWN) 4Q22
Commentary	Total revenues increased by 23.4% year over year, accelerating from 17.7% in the prior quarter. Gross merchandise value increased by 24.0% year over year, and EPS increased by 485.7%. By banner, Nordstrom’s net sales increased by 23.3% year over year and Nordstrom Rack’s net sales increased by 23.5%. Geographically, its Nordstrom banner in the Southern US—where 44.0% of the company’s stores are located—outperformed the Northern US markets by 7.0 percentage points. Suburban stores outperformed urban stores by 10 percentage points in terms of sales. Digital sales for the quarter declined by 1.0% year over year and represented 44.0% of total sales during the quarter. Gross margin increased by 500 bps year over year to 38.4%, due to improved merchandise margins from reduced markdowns, as well as increased leverage on buying and occupancy costs. Nordstrom expanded order pickup and ship-to-store to all Nordstrom Rack locations, with order pickup reaching 11.0% of Nordstrom.com sales in the quarter. Sales in activewear, beauty, designer, home and kid’s categories saw the strongest growth as compared to 4Q19. The home category saw a 52.0% increase in sales compared to 4Q19, and activewear was up 22.0%. Core categories in apparel and shoes, which collectively make up more than 70.0% of the company’s business, are recovering but are still lower than 2019 levels.
Outlook	For fiscal 2022, Nordstrom expects revenue growth of 5.0%–7.0% year over year and EPS of $3.15–$3.50, representing growth of 186.4%–218.2%. Management expects that wage growth and higher employment levels will support consumer spending in 2022. It continues to see progress as consumers return to travel, socializing and work.

Discount Stores

	Big Lots (NYSE: BIG) 4Q21
Commentary	Total sales decreased by 0.3% year over year, decelerating from 3.1% in the prior quarter. On a year-over-year basis, comparable sales declined by 2.3% while adjusted EPS declined by 32.0%. In terms of the company’s owned brands, Real Living continues its strong trajectory: Sales were up over 20.0% year over year. Similarly, Broyhill continues to grow strongly, having seen a sales increase of 7.0% year over year. Management stated that the company saw a strong holiday period, offset by soft sales in January due to inclement weather and the Omicron variant spike that caused a slowdown in the company’s business. The gross margin rate declined by 210 bps year over year to 37.3%, due to freight headwinds. The company opened 16 new stores and closed nine during the quarter, bringing its store count to 1,431 and its total selling space to 32.7 million square feet. At the end of 4Q21, inventory was 32.0% higher than 4Q20, due to significantly higher unit costs and a notable increase in in-transit inventory.
Outlook	For 1Q22, Big Lots expects diluted EPS in the range of $1.10–$1.20, down 54.2%–58.0% year over year. The company expects comp sales to decline by low double digits, year over year, as it cycles the impact of government stimulus in 1Q21. The company forecasts 130 bps of comp growth from net new and relocated stores in 1Q22, versus 1Q20, and a decrease in its gross margin rate of 50 bps. For fiscal 2022, the company expects comp sales and gross margin rate to be approximately flat compared to the prior year. It expects capital expenditure for fiscal 2022 to be between $210 million and $230 million, including investments in around 70 store openings, fewer than 10 of which will be relocations.
	Dollar Tree (NasdaqGS: DLTR) 4Q21
Commentary	Dollar Tree reported a revenue increase of 4.6% year over year, accelerating from 3.9% growth in the prior quarter. Comparable sales increased by 2.5%. Diluted EPS decreased by 5.6%. The company’s gross margin was down 160 bps year over year to 30.2%, impacted by higher freight costs. Its operating margin was down 190 bps to 8.2%. By banner, Dollar Tree comp sales increased by 3.1% year over year, driven by an increase in average ticket. The banner’s strongest performing categories included candy, crafts, Christmas seasonal, party celebrations and stationery. Family Dollar comp sales increased by 1.7% year over, driven by an increase in average ticket, and the strongest performing categories included candy, pet, and snack and beverage. The company’s Combo stores, launched in May 2021, performed well in 4Q21—the format allows customers to shop for all Family Dollar and Dollar Tree products in one “easy-to-shop” local store. Management stated that the stores are driving a material comp sales lift, increased productivity, higher gross margins and improved operating performance. During the quarter, Dollar Tree opened 174 new stores, expanded or relocated 24 stores and closed 65. Additionally, the company completed 23 Family Dollar store renovations. Retail selling square footage at quarter-end was around 128.9 million square feet.
Outlook	For fiscal 2022, Dollar Tree expects sales of $27.2–27.9 billion, representing 3.4%–6.1% sales growth, year over year. The company estimates EPS in the range of $7.6–$8.0, representing a growth of 31.0%–37.9%. It expects comp sales growth of low to mid-single digits. In fiscal 2022, the company plans to open 800 Family Dollar H2 stores across the nation and expands its $3 and $5-plus assortment to 1,500 Dollar Tree stores. For 1Q22, the company expects sales to be $6.6–6.8 billion, representing 1.9%–4.9% year-over-year sales growth. Dollar Tree estimates EPS in the range of $1.90–$2.10, representing growth of 18.8%–31.3%, year over year.

E-Commerce

E-commerce players reported slow growth during the quarter. Qurate Retail reported a single-digit year-over-year sales decline. Last week, we saw Alibaba report double-digit year-over-year sales growth; however, its China commerce segment registered slow growth. In the week ended February 6, Amazon reported high-single-digit year-over-year sales growth—but, focusing on online retail-related metrics, Amazon faltered compared to last year.

	Qurate Retail, Inc. (NasdaqGS: QRTE.A) 4Q21
Commentary	Qurate’s sales declined by 9.0% year over year, compared to a 7.0% decline in the prior quarter. Adjusted EPS declined by 75.0% year over year. By banner, QxH’s sales declined by 7.0% year over year, due to supply chain constraints and product scarcity for home and electronics. QVC international’s sales declined by 9.0%, due to supply chain constraints in Europe and low sales in beauty, electronics and home categories. Zulily’s sales declined by 30.0%, due to supply constraints. Cornerstone’s sales increased by 8.0%, driven by strong growth in its home brands (Ballard Design, Frontgate and Grandin Road) and increased demand for apparel and home products at Cornerstone’s clothing and home-furnishings brand Garnet Hill. The company saw 19.0% year-over-year growth in its fashion categories, which partially offset the weakness in home and electronics. Beauty returned to growth, increasing by 4.0% year over year—marking the first quarter of positive growth since 2Q20. According to the company, its fourth-quarter performance was impacted by three main factors: Temporary drivers, which included continued supply chain challenges, including missing key electronics product deliveries; the fire at its Rocky Mount, North Carolina, fulfillment center; and earlier-than-normal holiday shopping by consumers, alongside uncertainty around the Omicron variant and inflation Execution challenges faced by the company as it made merchandise choices that did not perform, particularly in electronics and home Longer-term macroeconomic headwinds faced by the company, including intensifying competition in terms of price and store-traffic growth
Outlook	The company did not provide guidance; however, management stated that it is still benefitting from a strong, free cash flow, despite navigating a challenging execution environment in 2022. The company plans to open three Cornerstone retail stores in the latter half of 2022.

 

Electronics Retailers

	Best Buy (NYSE: BBY) 4Q22
Commentary	Total revenues decreased by 3.4% year over year, down from 0.5% growth in the prior quarter. Adjusted EPS decreased by 21.6% year over year. Comparable sales decreased by 2.3% year over year, with domestic comparable sales declining by 2.1% and international comparable sales declining by 3.8%. The company stated that 4Q22 sales were impacted by constrained inventory, including high-demand holiday items, and a temporary reduction in store hours in January 2022 due to Omicron-related staff challenges. Domestic sales decreased by 2.6% year over year, due to loss of revenue from permanent store closures in 2021 and a comp decline in gaming, mobile phones, tablets and services—but offset by compThe gross profit rate was 20.0%, a slight decrease from 20.7% in the same period International sales decreased by 10.7% year over year, due to the closure of its Mexico business and Canada’s comp decline of 3.8%. The gross profit rate was 22.9%, increasing from 20.8% same period last year.
Outlook	For fiscal 2023, Best Buy expects net sales of $49.3–50.8 billion, a decrease of 1.9%–4.8% year over year. It expects comp decline of 1.0%–4.0% year over year and operating income of 5.4%. It expects adjusted EPS to be $8.85–$9.15, down 8.6%–11.6% year over year.

Food Retailers

Food retailers are witnessing substantial growth in the quarter. In its fourth quarter, Kroger reported low-single-digit sales growth, year over year. Last week, Sprouts Farmers Market posted a single-digit year-over-year sales decline.

	Kroger (NYSE: KR) 4Q21
Commentary	Total revenues, excluding fuel, increased by 3.7% year over year, accelerating from 2.9% growth in the prior quarter. Comparable store sales, excluding fuel, increased by 4.0% year over year. Adjusted EPS increased by 12.3% year over year. Digital sales increased by 105.0% on a two-year stack. The company continues to attract new customers to its digital platforms. During the quarter, the company saw in-store pickup and delivery of online orders increase by 25.0% compared to 3Q21. During 4Q21, the company’s fresh category outpaced total company comp sales, excluding fuel. Floral products, specialty cheese and sushi performed best in terms of sales. CEO William McMullen stated, “During the quarter, industry challenges continued within the supply chain and we remain confident in our ability to navigate these challenges. Within our supply chain, we continue to deploy a wide array of tools, including our owned and operated fleet. We are also partnering with our suppliers to improve product availability using the strength of our data science teams to provide insights that shorten lead times and optimize inventory flow across the extended supply chain. We continue to focus on expanding our transportation contracts and attracting carriers from outside our industry, which has kept product flowing predictably across our network.”
Outlook	For the full-year 2022, Kroger expects comp sales growth, excluding fuel, to be 2.0%–3.0% year over year. It expects adjusted EPS to be $3.75–$3.85, representing growth of 1.9%–4.6% year over year. In 1Q22 and 2Q22, the company expects comp sales growth, excluding fuel, to be above the midpoint of its 2.0%–3.0% range, and it expects continued heightened inflation. Kroger expects EPS growth to be 2.0%–5.0%, year over year, in 1Q22.

Mass Merchandisers

Mass merchandisers are witnessing positive sales growth against strong comparatives. In its latest quarter, Target reported high-single-digit year-over-year sales growth. In the week ended February 20, Walmart posted flat sales growth, year over year.

	Target (NYSE: TGT) 4Q21
Commentary	Target’s total sales increased by 9.4% year over year, decelerating from 13.3% in the prior quarter. The company’s comparable sales increased by 8.9% year over year and comparable traffic grew 8.1%. Adjusted EPS increased by 19.5%. Digital sales increased by 9.2%. The company’s gross margin declined by 110 bps, year over year, to 25.7%, reflecting pressure from increased supply chain costs. Its operating income margin was 6.8%, increasing from 6.5% in the year-ago quarter. During the quarter, Target registered strong sales from its Ulta Beauty assortment in stores where the company has added shop-in-shop locations of the beauty retailer—and management stated that sales growth is proving to be incremental. Target stores with an Ulta Beauty shop-in-shop location registered mid-teens sales growth across the beauty category.
Outlook	For fiscal 2022, Target expects low-to-mid-single-digit sales growth, year over year, and adjusted EPS in the high single digits. It expects its operating margin to be over 8.0% and its capital expenditures to be $4–5 billion. The company expects that quarterly year-over-year operating profit performance will be variable during 2022 but will generally improve as the year progresses. Target expects its 1Q22 operating margin rate to be favorable in relation to historical performance but well below its 1Q21 rate of 9.8%.

Off-Price Retailers

Off-price retailers are witnessing a solid quarter, with both Burlington Stores and Ross Stores posting double-digit year-over-year sales growth. Last week, we saw also The TJX Companies post double-digit year-over-year sales growth.

	Burlington Stores (NYSE: BURL) 4Q21
Commentary	Total revenues increased by 14.3% year over year, decelerating from 38.1% growth in the prior quarter. Adjusted EPS increased by 3.7% year over year. Comparable sales increased by 6.0% on a two-year basis. Management attributed the 6.0% comp slowdown to lower store traffic, late delivery of inventory and lower consumer spending per transaction. The gross margin rate declined by 270 bps year over year to 39.8%, due to higher supply chain costs, including freight expenses and product sourcing costs. The company stated that the impact of inflation is both an opportunity and a risk for off-price retailers. The risk is that consumers, particularly lower income consumers, may be more affected as stimulus payments have ended and essential prices of food and gas are rising; the opportunity is that higher inflation affects all consumers and management believes it will benefit from customers trading down, seeking value. At the end of the quarter, in-store inventories were down about 30% on a comp-store basis. Management stated that holiday-sensitive businesses, such as food, holiday decor, gifts and toys, missed critical receipts, which impacted its inventory. However, the company noted that supply chain disruptions have created a strong buying environment for off-price during the quarter. Reserve inventory, which the company holds back in anticipation that it will not be able to be sold, increased by 62.0% versus 2019. During the quarter, Burlington opened net eight new stores, bringing its store count at the end of 2021 to 840.
Outlook	The company did not provide financial guidance for fiscal 2022, due to the continued uncertainty surrounding the pace of consumer demand recovery and the ongoing Covid-19 pandemic; however, the company is projecting a mid-teen comp sales decline in 1Q22. Management stated that the off-price industry will continue to be reshaped by powerful consumer need for value, which should drive further significant growth and market share gains for the sector. Burlington plans to open 120 new stores during 2022, adding 90 net new stores to its fleet. The retailer expects that 80 of those stores will be in its smaller format, spanning 30,000 square foot or under. Over the next five years, 75.0% of the stores that Burlington opens will be in its small format. Management sees productivity gains with the smaller stores, which are easier to operate and more efficient—and also as an opportunity, as the company relocates existing stores to smaller formats.
	Ross Stores (NYSE: ROST) 4Q21
Commentary	Total sales increased by 18.1% year over year, decelerating from 22.0% in the prior quarter. The company’s comparable store sales increased by 9.0% on a two-year basis, driven by growth in average basket size, partially offset by a decline in transactions. Diluted EPS increased by 55.2% year over year. Children’s and men’s clothing were the company’s best-performing categories, while the Midwest and Southeast were the top-performing regions. Its operating margin was down 350 bps on a two-year basis to 9.8%, which the company attributed to an increase in domestic and ocean freight, higher wages and pandemic-related expenses. At quarter-end, inventories were up 23.0% on a two-year basis, caused by an increase in in-transit merchandise due to longer lead times from supply chain bottlenecks. Packaway merchandise, which includes apparel, represented 40.0% of total inventories compared to 46.0% for the same period in 2019. Management stated that there is sufficient merchandise availability in the market, and that it sees more opportunistic buys from closeouts going forward.
Outlook	For 1Q22, Ross forecasts comps to be (2.0)%–(4.0)% year over year, and EPS to be $0.93–$0.99, down 26.1%–30.6% year over year—as management expects larger headwinds from higher freight and wage costs in 2022. For fiscal 2022, the company expects year-over-year comps to be flat to up 3.0% and EPS to be $4.71–$5.12, representing growth of (3.3)%–5.1%, year over year. Ross expects total sales for fiscal 2022 to grow by 2.0%–6.0% year over year. The guidance reflects the company’s expectation for sales and profitability to improve as the year continues. Ross plans to return to its regular store opening cadence of 100 new store openings in 2022, comprising 75 Ross locations and 25 dd’s Discounts. The company also expects to close around 10 older stores.

Warehouse Clubs

	BJ’s Wholesale Club (NYSE: BJ) 4Q21
Commentary	Total sales increased by 10.4% year over year, decelerating from 16.2% growth in the prior quarter. Total comparable sales for the quarter increased by 8.8% year over year, excluding gasoline sales, and comp sales increased by 0.9% year over year. Adjusted EPS increased by 14.3% year over year. The company’s merchandise gross margin rate, which excludes gasoline sales and membership fee income, increased by 10 bps year over year. The company’s food business continued to perform very strongly, while sales of sundries and general merchandise lagged. Comp sales in grocery increased by 2.0% and its perishables and sundries division’s comp sales increased by 19.0% on a two-year stack. Delving deeper into the topline results, perishable and dry grocery items continuing to perform well, generating a 5% comp year over year and 23.0% on a two-year stack—but this strength was offset by weaker sales in sundries. During the quarter, the company launched ExpressPay across its stores, which enables customers to skip checkout lines using their phone. BJ’s Wholesale Club expects that ExpressPay will help the company in delivering a more convenient experience for its members in the long-term. In 4Q21, the company made two key investments, both in the logistics area: The company opened its fourth perishable distribution center in Kentucky. The facility is currently operated by food distribution company Burris Logistics, and will serve the company’s new markets in the Midwest. It will also take on some of its core market volume, allowing the company to better balance its facilities. The company announced that it will acquire all its perishable distribution centers from Burris Logistics.
Outlook	For the full-year 2022, the company expects a low-single-digit year-over-year increase in merchandise comp sales and a mid-single-digit increase in total sales, year over year. It expects membership fee income to grow by mid-single digits and merchandise margins and EPS to be flat, year over year. The company expects to open 11 clubs in 2022 in new and existing markets. The new markets are expected to include Columbus, Indianapolis and Nashville, and it will expand in its existing markets of Atlanta, Detroit, Miami, New York Metro, Orlando and Richmond.
	Costco (NasdaqGS: COST) 2Q22
Commentary	Costco’s total sales increased by 16.1% year over year, slightly decelerating from 16.7% growth in the prior quarter. EPS increased by 36.4% year over year. Total comparable sales, excluding fuel, increased by 11.1% year over year and US comparable sales, excluding fuel, increased by 11.3% year over year. Canada comp sales, excluding fuel, increased by 12.4% and other international comp sales increased by 9.0% year over year. The company noted that traffic (or shopping frequency) increased by 9.3% at its stores worldwide and was up 8.3% year over year in the US. The average transaction or ticket was up 4.6% worldwide and up 6.9% in the US. Membership fee income increased by 9.8% year over year. In terms of membership renewal rate, the US and Canada’s stood at 92.0%, up 0.4 percentage points, sequentially. The worldwide renewal rate came in at 89.6%, up 0.6% sequentially. E-commerce sales, excluding foreign-currency impact, increased by 12.6% year over year. In e-commerce, stronger performing departments were home furnishings, jewelry, patio and garden, special or kiosk items, and tires. The company’s gross margin for the first quarter, excluding gas inflation, increased by 6.0 bps, year over year. During 2Q22, Costco opened five new warehouses, one each in China, France, Mexico, Spain and the US (in Florida).
Outlook	For fiscal 2022, Costco plans to open 32 new warehouses, four of which will be relocations, replacing existing units with larger and better-located facilities. The company estimates its full-year capex spend to be about $4.0 billion.

Looking Forward

Apparel and footwear brand owners continue to record strong revenue growth, with Carter’s reporting high-single-digit year-over-year sales growth. The company expects low-single-digit year-over-year sales growth in fiscal 2022. Last week, Gildan reported that it expects net sales growth at a CAGR of high single digits to double digits for the next three years. In the week ended February 20, we saw Under Armour raise revenue guidance for the transition quarter ending March 31, 2022, now expecting mid-single-digit revenue growth—an increase from its prior expectation of low-single-digit growth. In the same week, Crocs reported that it is expecting strong double-digit sales growth year over year for fiscal 2022. In the week ended February 6, we saw Columbia Sportswear, Deckers Outdoor Corporation, Ralph Lauren, Skechers and VF Corporation report strong double-digit revenue growth year over year, while Hanesbrands reported single-digit revenue growth. Levi’s also reported double-digit year-over-year revenue growth in the week ended January 30. However, these brand owners expect to see continued cost increases from freight and wages. Overall, apparel specialty retailers continue to report strong topline expansion. In the latest quarter, American Eagle, Foot Locker, Gap and Urban Outfitters all posted positive year over-year-sales growth. For fiscal 2022, these retailers, except Foot Locker, forecast positive year-over-year sales growth. Department stores are witnessing robust sales recoveries. Both Kohl’s and Nordstrom reported positive year-over-year sales growth in the fourth quarter. For fiscal year 2022, both companies expect single-digit year-over-year sales growth. While Kohl’s expects EPS growth in low single digits year over year, Nordstrom expects strong triple-digit EPS growth year over year. Last week, we saw Macy’s anticipate almost flat sales growth year over year for fiscal 2022. E-commerce platform Qurate Retail reported a high-single-digit sales decline year over year in its latest quarter. The company did not provide financial guidance for fiscal 2022. Last week, we saw Alibaba report revenue growth expectations of low to high single digits in its first quarter of fiscal 2022. In the week ended February 6, we saw Amazon report that it expects revenue growth of low to high single digits in its first quarter of fiscal 2022. Electronics retailer Best Buy reported a low-single-digit year-over-year sales decline in its fourth quarter. For fiscal 2023, it expects total sales and comparable sales to decline by low single digits year over year. Food retailers are witnessing substantial growth. In its latest quarter, Kroger posted low-single-digit year-over-year sales growth. For fiscal 2022, the company expects comp sales growth in low single digits year over year, with low-to-mid-single-digit EPS growth, year over year. Last week, Sprouts Farmers Market recorded that it expects year-over-year sales growth to in the mid-single digits and that comparable sales growth will be flat to low single digits, year over year, for full-year 2022. Overall, discount stores are witnessing a positive trend in sales growth. Dollar Tree posted mid-single-digit sales growth year over year, whereas Big Lots posted almost flat sales growth year over year. For fiscal 2022, Big Lots expects flat year-over-year sales growth and Dollar Tree expects mid-single-digit year-over-year sales growth and low-to-mid-single-digit year-over-year comp sales growth. Mass merchandisers are witnessing positive sales growth against strong comparatives. Target reported high-single-digit year-over-year sales growth in the fourth quarter. It expects sales growth in mid-single digits, year over year, and EPS in high single digits in fiscal 2022. In the week ended February 20, we saw Walmart note that it expects total sales to increase by low single digits in fiscal 2023. Off-price retailers are witnessing a solid quarter—both Burlington Stores and Ross Stores posting double-digit year-over-year sales growth. For the fiscal year 2022, Ross Stores expects year-over-year total sales growth in low single digits and comp sales growth to be flat to low single digits, year over year, while Burlington Stores projects a mid-teen comp sales decline in the first quarter of fiscal 2022. Last week, The TJX Companies recorded that it expects sales growth to be in high single digits, year over year, for fiscal 2023. All three retailers continue to expand their store estates. Warehouse clubs are witnessing solid growth, with both BJ’s Wholsale Club and Costco posting double-digit year-over-year sales growth in the latest quarter. For fiscal 2022, BJ’s Wholesale Club expects mid-single-digit year-over-year total sales growth and low-single-digit year-over-year comp sales growth. Costco plans to spend $4.0 billion in capital expenditure in fiscal 2022.