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 recently updated Coresight 100 coverage list, and we focus on those that reported in the week ended March 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. 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 Specialty Retailers

Overall, apparel and footwear brand owners are witnessing strong topline expansion, with Dick’s Sporting Goods reporting high-single-digit year-over-year sales growth. Last week, we saw American Eagle, Foot Locker, Gap and Urban Outfitters post positive year-over-year sales growth.

	Dick’s Sporting Goods (NYSE: DKS) 4Q21
Commentary	Total revenues increased by 7.3% year over year, a deceleration from 13.9% in the prior quarter. Total comps grew 5.9% year over year, on the top of a 19.3% increase in the same period last year, driven by strong growth in apparel and footwear, and sporting equipment categories, along with a 4.8% increase in average ticket and 1.1% growth in transactions. E-commerce penetration stood at 27.0%, down from 32.0% in 4Q20 but in line with 27.0% in 4Q19. Management stated that its private-label brands have become a significant source of growth. In 2021, the company reported that these brands, including CALIA, DSG and VRST, saw more than $1.7 billion in sales, comprising about 14.0% of Dick’s total revenues. These private labels represent the company’s largest brands in fitness, golf, team sports and outdoor equipment categories. The company’s adjusted EPS grew by 49.8% year over year, driven by strong sales and merchandise margin rate expansion. Executive Chairman Edward Stack stated, “2021 has been the most transformational year in our company’s history. Among our accomplishments, we drove strong growth in our core Dick’s business; launched Dick’s House of Sport, a completely new experiential destination that’s redefining sports retail; we reengineered Golf Galaxy and launched the Golf Galaxy Performance Center, a new immersive experience for golf enthusiasts of all levels; and finally, we unveiled Public Lands, a new omnichannel specialty concept, to better serve the outdoor athlete.” Furthermore, Dick’s noted that lifestyle trends beneficial to the company, including health and fitness, casualization of the workplace and greater participation in outdoor activities, remain elevated.
Outlook	For the full year 2022, Dick’s expects adjusted EPS to be down by 16.6%–25.5% year over year and comp sales to be (4.0)% to flat year over year. It plans to spend $400–425 million on capital expenditure on a gross basis in 2022, compared to $308 million capital expenditure in 2021.

 

Beauty Brands and Retailers

The beauty category continues to see strong growth, with Ulta Beauty reporting double-digit sales growth year over year. In the week ended February 27, Bath & Body Works reported double-digit year-over-year sales growth and, in the week ended February 13, Coty and L’Oréal both reported double-digit year-over-year sales growth. Similarly, Estée Lauder also reported a double-digit sales increase in the week ended February 6.

	Ulta Beauty (NasdaqGS: ULTA) 4Q21
Commentary	Total revenues increased by 24.1% year over year, a deceleration from 28.6% in the prior quarter. Comp sales increased by 21.4% year over year, driven by EPS increased by 78.5% year over year. Gross margin increased by 250 basis points (bps) year over year to 37.6%, driven by leveraging fixed costs and a higher merchandise margin. By category, bath, fragrance, haircare, makeup and skincare all delivered strong double-digit comp growth year over year, which the company attributes to strong execution of holiday plans and inventory management. The company’s beauty services business accelerated in the quarter, increasing by more than 30.0% year over year, driven by growth in sales transactions. During the quarter, the company expanded its salon capacity to 100% in all its salons and Benefit Brow Bars, a brow shaping and waxing store. It also launched salon services such as Express Color and OLAPLEX Repair & Protect, which continue to bring in new members to Ulta Beauty salons, according to the company. During the quarter, the company launched four new brands such as prestige haircare brand OLAPLEX, makeup brand N°1 DE CHANEL, skincare brand Supergroop! and fragrance brand Billie Eilish. Management stated that the company has so far experienced a strong sales response for these new brands. The company opened six new stores, relocated three and remodeled one during the quarter.
Outlook	For fiscal 2022, Ulta Beauty expects sales of $9.05–9.15 billion, representing growth of 5.2%–6.5% year over year. It expects year-over-year comp sales growth of 3.0%–4.0% and operating margin of 13.7%–14.0% of sales versus 15.0% in fiscal 2021. The company expects diluted EPS of $18.20–$18.70, representing growth of 1.2%-4.0% year over year. In fiscal 2022, Ulta Beauty plans to open 50 new stores and remodel or relocate 35.

  E-Commerce E-commerce players are witnessing a mixed sales recovery in the quarter. JD.com reported double-digit sales growth year over year. Last week, we saw Qurate Retail report a single-digit sales decline year over year. In the week ended February 27, Alibaba reported double-digit sales growth year over year; however, its China commerce segment registered high-single-digit 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’s online stores’ sales (representing first-party online sales) declined by 1.0% year over year.

	JD.com (NasdaqGS: JD) 4Q21
Commentary	Total revenues increased by 23.0% year over year, decelerating from 25.5% in the prior quarter. Adjusted EPS increased by 48.3% year over year. The company attributed revenue growth to increasing shopping frequency among its users and technology-driven improvements in efficiency. JD.com’s net product revenues increased by 22.0% year over year and net service revenues increased by 28.0% year over year. The company’s core business segment, JD Retail, delivered solid topline growth and healthy margin improvement as revenues increased by 21.0% year over year. By category, the company continues to see resilience in its electronics and home appliance category, which saw 22.0% revenue growth year over year. General merchandise revenues grew 23.0% year over year. Management said order volume in its supermarket category grew at a CAGR of 30.0% between 2019 and 2021. In the fourth quarter, the company’s marketplace and marketing revenues exceeded ¥20 billion ($3.15 billion) in a single quarter for the first time in its history, growing at 27.0% year over year. Logistics and other services revenues increased by 30.0% year over year. As of December 31, 2021, the number of annual active user accounts stood at 569.7 million, increasing by 20.7% year over year.
Outlook	JD.com did not provide financial guidance; however, the company stated that it remains mindful of near-term macroeconomic volatility. It aims to continue gaining market share via proactive sustainable and high-quality growth strategies, while simultaneously remaining on track improvement trajectory, according to the company.

 

Petcare Retailers

	Petco Health and Wellness Company, Inc. (NasdaqGS: WOOF) 4Q21
Commentary	Total revenues increased by 13.0% year over year, decelerating from 15.0% in the prior quarter. Comparable sales increased by 14.0% year over year. Adjusted EPS increased by 65.0% year over year. The company’s gross margin was down 59 bps year over year to 42.0%, due to supply chain headwinds. In the fourth quarter, the company added around 800,000 net new customers, bringing its total active customer count to 24.1 million at the end of 2021. The company’s digital revenue increased by 25.0% year over year or by 143.0% on a two-year basis. Petco has developed hich led to digital services bookings’ growth of over 75.0% year over year. By category, supplies and companion animal on a two-year basis. Services and other grew 31.0% year over year and by 64.0% on a two-year basis, benefiting from the expansion of the company’s membership and subscription programs. By segment, pharmacy registered sales growth of 66.0% year over year, with strong growth in both health-related Rx Food and pets’ prescription foods. Within pet care center merchandise, sales increased by 10.0% year over year.
Outlook	For full year 2022, the company expects sales growth of 6.0%–8.0% year over year and adjusted EPS growth of 6.6%–9.9% year over year. It expects adjusted EBITDA growth of 7.0%–9.0% year over year. Petco plans to spend $275–325 million in capital expenditures in 2022, which includes investments in digital platforms, the expansion of vet hospitals and enhanced supply chain capacity.

 

Looking Forward

Overall, apparel and specialty retailers continue to witness solid sales growth. In the latest quarter, Dick’s Sporting Goods reported high-single-digit year-over-year sales growth. However, for the full year 2022, the company expects adjusted EPS to decrease by double digits year over year and comps to be (4.0)% to flat year over year. Last week, we saw American Eagle, Gap and Urban Outfitters expect positive sales growth in fiscal 2022. Foot Locker expects a mid-single-digit sales decline year over year. Beauty brand owners and retailers are seeing solid sales growth. Ulta Beauty reported strong double-digit year-over-year sales growth in its latest quarter. For fiscal 2022, the company expects net sales growth of mid-single digits year over year and EPS in low single digits. In the week ended February 27, Bath & Body Works reported that it expects year-over-year sales growth to be flat to up low single digits for full year 2022. In the week ended February 13, Coty raised its comparable sales growth guidance for fiscal 2022, and now expects growth at the upper end of its previous guidance of low to mid-teens. Similarly, in the week ended February 6, Estée Lauder raised its sales growth guidance for its full year fiscal 2022, and now expects sales growth to be in double digits—increasing from its prior guidance of single- to double-digit growth. Overall, e-commerce players are witnessing a mixed sales recovery in the quarter. In its latest quarter, JD.com reported strong, double-digit year-over-year sales growth. The company did not provide financial guidance for fiscal 2022. In the week ended February 27, Alibaba reported that it expects revenue growth in low to high single digits in its first quarter of fiscal 2022. In the week ended February 6, Amazon reported that it expects revenue growth of low to high single digits in its first quarter of fiscal 2022. Petcare retailer Petco Health and Wellness reported strong double-digit year-over-year sales growth in its fourth quarter. For the full year 2022, the company expects mid- to high-single digit growth in its sales and adjusted EPS.