The Consumer Sector – Latest Developments

The Wall Street Journal reported that retail spending in the United States grew at a slower pace in August than it did in July. Although this was the fourth straight month of growth, the pace was slower as sales increased a seasonally adjusted 0.6%, which is a drop from July's 0.9%. These figures reflect what individuals and households spent on stores, restaurants and online retail. The economy is trying to recover as the world learns how to live with COVID-19 and like in every story, there are winners and losers.

How the mighty have fallen

Burberry Group BURBY has been struggling lately as its earnings have declined faster than most other companies. It might be that many expect the company's recent dismal earnings performance to recover substantially. But in order to justify its high P/E ratio, Burberry Group would need to produce outstanding growth well in excess of the market.

Before the pandemic struck, the beginning of the year showed Burberry's plan to go upmarket were paying off. It was a trend-setter for the modern age. But, in September, the iconic luxury brand tapped the debt markets for the first time in its 164 years. It launched a sustainable bond to boost its liquidity. Burberry also has a green agenda with plans to build a greener infrastructure including its offices and shops as well as improve its cotton sourcing.

The strong become stronger

Meanwhile, Nike NKE shares spiked 8% on Tuesday during after-hour trading as it reported blockbuster sales that managed to beat expectations by more than $1 billion.

During the previous quarter that ended on May 31^st, Nike posted a net loss and 38% decline in revenue. With the latest quarter, the sportswear giant has sent a clear signal that it is making a healthy comeback. Although foot traffic remains lower than usual, this time, nearly all of Nike's stores were open. Nike was also well-positioned to benefit from a boost in digital sales as it abandoned third-party retailers like Amazon.com, Inc. AMZN and focused on a direct relationship with its consumers and its e-commerce ecosystem. Digital sales grew 82% during the quarter, including triple-digit growth in the European, Middle Eastern and African markets, but revenue also returned to growth in Greater China as well.

Catching the wave

Stitch Fix SFIX saw its shares tumble as they dropped 14% during after-hours Tuesday due to a fourth-quarter loss of $44.5 million. In the same quarter last year, it achieved a profit of $7.2 million. What a difference a tiny virus can make as it entirely disrupted its supply chain.

Not all was that bad as the San Francisco-based online personal styling and clothing provider expanded its active client base to 3.5 million which marks a 9% growth YoY. 

Stitch Fix CEO Katrina Lake focused on the achievements as she expressed her pride regarding how her team handled these unprecedented headwinds. The company reported a bigger quarterly loss than expected despite increasing its net revenue per active client by 2% and also growing sales by 11% YoY.

Outlook

The pace of recovery is slow as there is a great deal of uncertainty and change. Retail is no exception. Customers have embraced online retail as well as curbside pickup. By the looks of it, these trends are here to stay in the post-COVID-19 era that is hopefully not too far away.

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