The Covid-19 Delta variant continues to trigger shifts in consumer sentiment, and this is reflected in retail sales and earnings results. Ninety‐nine percent of companies in the Refinitiv Retail/Restaurant Index have reported Q2 2021 earnings. During Q2 earnings calls, the Delta variant was mentioned by 65 different retailers.
As people cope with the Delta variant, it is clear that their spending is focused on improving the stay‐at‐home experience. The latest U.S. retail sales numbers show that the strongest spending happened at non-store retailers, suggesting that consumers are still gravitating online and might still be avoiding in-person shopping.
The latest Census Bureau reading on e-commerce posted record sales of $225 billion in the second quarter of 2021. This represents a 9.1% growth from a year ago – which is a deceleration from the stellar 30%+ growth we’ve been seeing over the past year (Exhibit 1).
Still, the Refinitiv IFR data suggest that the amount of money consumers spend online will pick up and continue to grow in the double digits for the remainder of the year — 22.3% and 27.6% in Q3 and Q4 2021, respectively.
Exhibit 1: E-commerce growth data
Source: Refinitiv IFR
The second biggest improvement in August retail sales from July was in home furniture. Retailers in this sector are expected to continue posting much stronger revenue this year than their 2019 pre-pandemic levels (Exhibit 2). The strength is expected to continue in the fourth quarter.
Exhibit 2: Home Sector Revenue 2019 – 2021
Source: Refinitiv I/B/E/S
The end of unemployment benefits
Moreover, the first week of September marked the end to expanded unemployment benefits in several states that account for nearly eight million claimants. Government aid helped low-income consumers coping with higher prices due to inflation. However, many low-income consumers now are shopping for groceries at dollar stores rather than traditional supermarkets.
The dollar stores are facing very difficult comparisons from a year ago. However, two large dollar store chains are expected to see stronger sales than their 2019 pre-pandemic levels in Q3 (Exhibit 3). The same can be said for Q4. Because of the strong demand, Dollar General plans this year to open more than 1,000 new stores, and to remodel about 1,750. Moreover, it plans to continue expanding its fresh groceries offerings in these stores.
Exhibit 3: Dollar Stores Revenue: 2019 – 2021
Source: Refinitiv I/B/E/S
The consumer remains value-oriented, which has benefited the discounters for the most part this year. The dollar stores were also a favorite destination for the back-to-school season.
Still, retailers told us during Q2 2021 earnings calls that consumers are very much looking forward to the holiday sales and retailers are working with their suppliers to make sure they can meet demand. The Refinitiv Retail/Restaurant Index is looking at a Q3 2021 estimated revenue growth of 23.6% and is expected to improve to 28.7% in Q4 2021, respectively.
Nike is set to report Q1 earnings for the quarter ending August 2021. About 43% of its products are manufactured in Vietnam and due to rising Covid cases, its production has slowed down. Still, despite the supply issues, the retailer is on track to see an 18% growth in revenue for the quarter, with North America, Europe and China expected also to see double digit growth for the quarter (Exhibit 4).
Exhibit 4: Nike Revenue: 2019 – 2021
Source: Refinitiv I/B/E/S
