by Jharonne Martis.
The all-important holiday season for U.S. retailers mimicked Goldilocks – not too hot, hot too cold. The Same Store Sales Index is looking at a 1.8% growth estimate for Q4 2017. While that’s stronger than last year’s 0.8% SSS result, it’s still below the 3% healthy mark, suggesting spending was modest. Let’s dig in and find out where consumers went shopping and dining:
EARNINGS GROWTH – HOLIDAY SEASON
When looking at the earnings growth rates for the holiday season for the 219 retailers tracked by Refinitiv, the Internet sector continues to have the highest earnings growth rate (14.1%) of any sector. Five of the nine retailers in the sector are anticipated to see higher earnings than a year ago. Netflix already saw a 173.3% jump in earnings, and Nutrisystem (44.3%) has the highest EPS growth estimate in the sector. Amazon is also on track to see a 19.8% jump in earnings.
On the other hand, the Leisure Products sector has the lowest growth rate (-21.7%) of any sector. Four of the seven retailers in the sector are expected to see earnings declines compared to Q4 2016, led by Vista Outdoor, Inc. (-90.8%) and Mattel, Inc. (-67.2%) sub-industries.
Exhibit 1: Refinitiv Retail Earnings Growth Rate – Q4 2017
In addition to the 58 Q4 negative pre-announcements and 23 positive for EPS, retailers posted 41 negative and 31 positive revenue forecasts (Exhibit 2). The bulk of the negative guidance (40%) comes from the apparel sector. Guidance is already starting to come in for Q1.
Exhibit 2: Refinitiv Retail Earnings Growth Rate – Q4 2017
Retailers offered the traditional promotions, and shipping deals to lure shoppers. Still, our consumer confidence index suggests consumers are feeling good about their economic situation, better about extending themselves and spending their discretionary income.
Exhibit 3: Refinitiv IPSOS consumer sentiment index
REFINITIV RETAIL SAME STORE SALES
As the year gets off to a healthy start, U.S. consumer confidence is up vs. a year ago. Likewise, analysts polled by Refinitiv are becoming more bullish on consumer spending as retailers get ready to report their earnings results for the holiday season. Analysts have been raising their Q4 same store sales outlook for several retailers (Exhibit 4). As a result, the Same Store Sales Index is now looking at a 1.8% Q4 2017 growth, up from the 1.5% SSS estimate at the beginning of November. The discounters are doing much better than last year with a 2.9% SSS estimate vs. 1.4% last year.
Exhibit 4: Same Store Sales Sectors – Q4 2017 vs. Q4 2016
Same Store Sales winners
Let’s dig in and find out where consumers went shopping during this holiday season that led to numbers being good for that period. Millennials respect Aerie’s no-Photoshop marketing policy, and as a result it has a strong cult following. The teen retailer has the strongest SSS estimate in our retail universe at 20.3%. Similarly, teen retailer Zumiez was a favorite this past holiday season with a 6.4% SSS, followed by shoe retailer Journeys Group, and Urban Outfitter’s Free People division with SSS estimates of 6.4%, and 5.5% respectively.
Meanwhile, the strong housing market is boosting sales at West Elm and Home Depot, with a 10.4%, and 6.4% SSS estimate. Beauty supplies are always a favorite during the holidays. Ulta is expected to see a 9.2% growth in SSS, while the hot athleisure trend is helping Lululemon with a 7.3% SSS estimate.
Exhibit 5: Top SSS estimates – Q4 2017
Same Store Sales Losers
The usual suspects fall into this category, including Sears, Guess and Kors, which are hurting from company-specific issues. Still, Francesca’s Holdings has the weakest SSS estimate for the holiday season at -13.6% SSS estimate. Like other mall stores, Build-A-Bear sales have been hurting from weak mall traffic, and has a -7.8% SSS estimate. In an effort to lure shoppers in, the retailer now opened its first Build-A-Bear Bakeshop in New York, to offer shoppers an experience and decorate their own cupcakes. Meanwhile Chico’s and Guess fashion have been out of favor for some years now, and have a -7.3%, and -7.0% SSS, respectively.
Exhibit 6: Bottom SSS estimates – Q4 2017
REFINITIV RESTAURANT SAME STORE SALES
The improvement in consumer sentiment has also led analysts to raise their Q4 same store sales outlook for several restaurants (Exhibit 7). As a result, the Restaurant Same Store Sales Index is now looking at a 2.4% Q4 2017 growth, up from the 1.9% SSS estimate at the beginning of November. All sectors are doing better than last year. The quick sector is on top with a robust 3.0% SSS estimate, above last year’s 1.0% SSS result.
Exhibit 7: restaurant Same Store Sales Sectors – Q4 2017 vs. Q4 2016
Restaurant Same Store Sales Winners
Domino’s Pizza and Wingstop traditionally do well during football season, and have the highest SSS estimate at 6.9% and 4.8%, respectively. Yum China continues to outperform its U.S. business with estimates of 3.5%, and 2.3% SSS. Meanwhile, Mc Donald’s is on track to post a 4.3% SSS, and 11.62% EPS growth. Starbucks missed its 3.2% SSS estimate, and reported a 2.0% SSS. Its China division was its strongest with a 6.0% SSS, above its 2.1% final estimate.
Exhibit 8: Top SSS estimates – Q4 2017
Restaurant Same Store Sales Losers
Potbelly has been hurt by weak sales, and operating efficiency has been hurting. As a result, the restaurant has the weakest SSS estimate at -3.9%, followed by Bojangles and Dave Busters with comps of -3.4%, and -2.7%, respectively. Sonic Corp. has been hurt by the cold weather and is expected to post a -2.0% SSS, followed by Del Frisco’s -1.8% SSS estimate.
Exhibit 9: Restaurant Bottom SSS Estimates – Q4 2017
E-commerce sales continue to grow, but its transactions still make up only a fraction of total retail sales; 9.1% as of the end of the third quarter of 2017, compared to 4.2% in early 2010. As a result, the Internet & Catalog Retail sector has the strongest estimated Q4 2017 earnings growth rate at 13.9%.
Although retailers dialed up the average discount after Black Friday, it wasn’t much more that the average discount offered from previous months. What’s more, the average U.S. discount remained around 40% within the 33% – 45% global average discount. However, what did change is the frequency with which retailers engaged in promotional messaging, as we discovered in a collaboration with StyleSage Co., which analyzes retailers, brands, online trends and products across the globe. StyleSage Co. saw an increase of 42% in the number of emails being sent out, and a 12% increase in the number of active promotions during the Black Friday/Cyber Monday holidays.
Exhibit 10: E-Commerce As a Percent of Total Retail Sales: 1999-Present