Overall Market Summary: The last quarter proved to be yet another positive tick in the right direction for many retailers. Vaccines showed promise, and share prices of airlines, cruises, and hotels also all skyrocketed. Yet, the potential of further shutdowns also still remains in the back of many retailers’ minds.
Target & Walmart Show the Value of One-Stop Shopping
“We think these new customer behaviors will largely persist, and we’re well-positioned to serve customers with the value and experience they’re looking for.” Walmart CEO Doug McMillion
“Nearly $700 million of this growth was from our drive up service alone, which increased more than 500% compared with last year. Amazingly, this growth was not at the expense of in-store pickup, which increased more than 50%. And while Shipt remains the smallest of our same-day services, it continues to grow rapidly as Target sales on Shipt increased nearly 280% in the quarter, accounting for more than $200 million of incremental sales.” Target COO John Mulligan
“Within digital, we continued to see the strongest growth in our same-day services, pick up, drive up and ship, which, together, grew more than 200% in the quarter. These services are fast, convenient, reliable and contactless, which explains why they continue to generate very high levels of guest satisfaction. All our financial reporting counts these same-day orders as digital. These services are entirely enabled by our stores.” Target CEO Brian Cornell
E-Commerce Sales Skyrocketed with introduction of Walmart+ and continued drive up services
“We think the service could be a game-changer for WMT, particularly given its size and scale in the U.S. grocery market, and U.S. consumers in general, eliminating the need for frequent trips to the grocery store.” CFRA analyst Garrett Nelson
Investing in new markets
“Walmart’s deal to secure a 7.5% stake in TikTok for a reported price of $4.5 billion. That may help Walmart in the fast-growing “social commerce” space.” Walmart Press Release
“Apparel has been one of our strengths, [and] certainly from a market share standpoint, one of the real highlights for our business throughout the quarter, and we certainly see that continuing as we finish up the year.” Target CEO Brian Cornell
DIY Home Improvement & Furnishings Soar
“The third quarter was another exceptional quarter for The Home Depot as we saw the continuation of outsized demand for home improvement projects. Our results were driven by broad-based strength across the store and geographies. All of our top 40 markets posted double-digit comps, while Canada posted comps above the Company average and Mexico posted its best performance since the onset of the pandemic, with double-digit comps in local currency.” Home Depot CEO Craig Menear
“DIY comps again outpaced Pro comps in the quarter driven by a consumer mindset that remain focused on redesigning the functionality of their home. Consistent with the redefinition, in the third quarter, customers continued to shop at Lowe’s as they took steps to shift their home to serve three primary purposes: a home school, a home office and their primary location for recreation and entertainment.” Lowe’s CEO Marvin Ellison
“Trends across most categories improved materially throughout the quarter as we opened our stores for shopping, especially categories like large appliances and home theater that benefit from more experiential shopping. We also saw very strong digital demand for some of our newer categories such as digital health and fitness, at-home fitness equipment, sustainable living, outdoor activities and camping equipment.” Best Buy Corie Barry
More Signs of Renewed Optimism
“There is no doubt that all markets and many businesses will continue to face the negative impact of COVID in fiscal year ’21, and it is expected that the next two quarters will see difficult trading conditions. However, we are optimistic that we will see a market recovery as the year progresses. In our own businesses, we expect to see a significant improvement in our performance in the second half of the year.” Walgreens CEO Stefano Pessina
“And third, Starbucks partners have risen to the occasion which coupled with an innovation agenda that elevates the customer experience, introduces exciting new beverages and extends our digital customer relationships, leaves us very well positioned, and gives me a tremendous sense of optimism for fiscal ’21 and the future of the Starbucks Coffee Company.” Starbucks CEO Kevin Johnson
“Outside of iPhone, each of our product categories saw strong double-digit year-over-year growth despite supply constraints in several product categories. Our results for this quarter were ahead of our expectations, driven by stronger-than-expected iPhone and services performance.” Apple CEO Tim Cook
“We saw increases in both average ticket and transactions as well as significant growth across each of our three primary categories of hardlines, apparel and footwear. Lastly, our private brands continue to be a significant source of strength with caps outperforming the Company average by over 1000 basis points. I’ll talk a little more about private brands later.” Dick’s Sporting Goods CEO Edward W. Stack
“In summary, we provided perspective on the power of our brands, specifically our four-billion-dollar brands with Old Navy being largest at over $8 billion as of the end of last year. The power of our portfolio, noting the growth synergies that come from each brand being part of our portfolio, and the power of our platform, with just two examples being the digital capabilities and extensive supply chain that all brands benefit from.” Gap CEO Sonia Syngal
New Partnerships and Mobile Investments
“During the quarter, we also unveiled our new Go Mobile asset design in the U.S. These assets will have a smaller footprint with a big emphasis on digital and off-premise with dedicated mobile pickup lanes and bellhops for outside in-person ordering. Better experience for customers and better economics for franchisees is a winning formula.” YUM! Brands CEO David Gibbs
“In November, we are relaunching our customer loyalty program as My Walgreens. This goes well beyond updating the look and feel of our app to create seamless retail and pharmacy experience. The new program will greatly simplify how customers accumulate and use their rewards and will create a much more engaging health-oriented relationship. Members will earn 5% Walgreens cash in all of our owned brand products and 1% in all other qualifying purchases. Walgreens cash can be applied to future transactions or used to support their chosen causes.” Walgreens COO Alex Gourlay
“We continue to grow our delivery business through our partnership with Uber Eats providing customers the ultimate form of convenience. I cannot be more excited about the upward trajectory and level of innovation, we’re seeing in our US business.” Starbucks CEO Kevin Johnson
“In the early fourth quarter, AE launched a new product collection in partnership with Disney that’s in stores now. This collaboration unites two iconic brand equities in a unique and fun way and customer reception has been fantastic. The capsule [Phonetic] is selling quickly and we are seeing significant engagement on TikTok.” AE CCO Jennifer Foyle
The Retailers You Expected to Struggle Did Struggle
“As you have seen in the press release this morning, we delivered a solid third quarter. Comparable sales declined approximately 21% on an owned basis and approximately 20% on an owned plus licensed basis.” Macy’s CEO Jeff Gennette
“Overall, we delivered omnichannel sales of approximately $4 billion, a decline of 20.2% on an owned plus licensed comparable basis.” Macy’s CFO Adrian V. Mitchell
“We also have some additional $500 million available under our revolver. Now let me discuss our second-quarter results. Net sales declined 23% due primarily to our stores being opened approximately 25% fewer days than last year and operating with limited hours. Digital sales increased 58% and represented 41% of net sales in the quarter, up from 20% last year.” Kohl’s CFO Jim Timm
“Interest expense increased $25 million versus last year due to this $1 billion outstanding on our revolver and the $600 million of bonds issued in April of 2020. We expect interest expense to continue to remain higher than last year as a result of these factors. On a GAAP basis for the quarter, net income was $47 million and diluted earnings per share was $0.30 per share. Excluding nonrecurring items for the quarter, adjusted net loss was $39 million or an adjusted loss of $0.25 per share.” Kohl’s CFO Jim Timm
“Total Company revenues declined 5%, above our forecast for a 15% to 20% decline shared on our second quarter earnings call. Our balanced merchandise assortments resonated with our target customers with all brands, regions, and channels, exceeding internal sales expectations. Our performance was achieved on reduced promotional and clearance activity, driving improved margins…” Abercrombie & Fitch CEO Fran Horowitz
But More Questions Still Remain
Can Target keep up the growth?
“Our third quarter adjusted EPS of $2.79 established another record high for company and was up more than 100% from last year. Third quarter comparable sales increased 20.7%, reflecting a 4.5% traffic growth, combined with an increase in average ticket of more than 15%. Since the pandemic began in March, we’ve experienced a meaningful acceleration in basket growth, both in stores and online, as guests have consolidated their shopping into much larger trips. Across channels, our store comps grew nearly 10% while our digital comp sales grew 155%, contributing nearly 11 percentage points to the company comp.” Target CEO Brian Cornell
What will vaccine distribution and further testing look like?
“In addition, we are pleased to have been selected to partner with the government in administering COVID vaccines when available for long-term care facilities. And our track record with COVID testing, along with our experience in vaccinations, have demonstrated our ability to rapidly scale services and we expect to play a significant role in all vaccination administration.” CVS CEO Larry Merlo
“And finally, in our retail/long-term care segment, we have delivered over 6 million COVID tests across more than 4,000 locations, demonstrating consumer confidence in CVS as a healthcare destination. Now it’s also worth noting COVID-19 had an estimated $0.15 to $0.18 adverse impact on EPS in the quarter, largely reflecting the planned investments we have made in customers and members in our healthcare benefit segment.” CVS CEO Larry Merlo
Is a surge an online sales a reliable bet for the long-run?
“In 2019, digital made up 33% of sales and accelerated to 54% this year. We view this as a fundamental shift in shopping behavior, and we are well-positioned to support our customers across both Nordstrom and Rack with a scalable platform that has been built to support many years of growth. We also know that we must translate the heritage of service that defines us more effectively in this digitally connected world. This means delivering personalization at scale by creating greater linkages between the digital and the physical experience.” Nordstrom CEO Erik Nordstrom
New Lockdowns: A wrench in the plan?
“Obviously, the evolution of the pandemic is uncertain and COVID-19 could present both incremental risks, as well as opportunities. For example, we have not assumed significant new government restrictions or extensive stay-at-home orders, and that could present a risk to our projections. On the other hand, we have not taken into consideration the opportunity from the role we may play in the widespread distribution of vaccines, because those programs and their timing are still being finalized.” Walgreens VP James Kehoe
If you enjoyed this earnings call breakdown, be sure to share your thoughts on social media and to subscribe to Omni Talk to receive our next edition, coming your way in February. Yes, 2021 is almost here!
Special thanks to Peyton Duncan for the reporting!