EC The Retail Sector's Strong Earnings Performance

The common view about the Retail sector is a space that has been particularly hit hard by the COVID-19 pandemic. This view gets reconfirmed when we see that Macy’s (M - Free Report) Q3 revenues declined by -21.9% or Kohl’s (KSS - Free Report) dropped by -14%. But then we have others like Target (TGT - Free Report) that saw its quarterly revenue jump +31.3% and Home Depot (HD - Free Report) whose top line increased +23.2%.

Walmart (WMT - Free Report), Lowes (LOW - Free Report) and a number of other operators are also in the latter category that doesn’t fit the aforementioned common view of a space in distress. Given this, it is reasonable to expect this week’s lineup of results from the likes of Nordstrom (JWN - Free Report), Gap (GPS - Free Report), Best Buy (BBY - Free Report), and others to give us additional evidence of both developments.

The COVID-19 pandemic and associated lockdowns did cause havoc in parts of the broader retail space, with restaurants and department stores particularly hard hit. But department stores were hardly in good shape in the pre-pandemic period, with many of these players struggling to come to grips with the secular shift to the online medium. The reality is that the pandemic only accelerated trends that were already in place.

The department store business model was already under stress before the pandemic and the added pressure of operating in such a tough environment will push some over the brink and others to make the needed adjustments to survive. Macy’s online sales increased +27% in Q3, with digital sales now accounting for 38% of the total. Macy’s and its peers have to continue investing in the digital offering while at the same time bringing its physical footprint to reflect the changed ground reality.

But there is more to the Retail sector than just department stores and many of those other parts of the space are very good under the circumstances. These include the big-box discounters like Walmart, Target, and others and the home improvement operators like Home Depot, Lowes, and others. All of these players have vibrant digital offerings that represent growing parts of their business. And then, of course, we have Amazon (AMZN - Free Report) and other pure-play digital players that have thrived in the pandemic.

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