The Financial & Risk business of Thomson Reuters is now Refinitiv

All names and marks owned by Thomson Reuters, including "Thomson", "Reuters" and the Kinesis logo are used under license from Thomson Reuters and its affiliated companies.

May 24, 2016

Analyzing This Week’s Retail Reports

by Jharonne Martis.

This week’s retail quarterly reports indicate continued weakness in the sector, with one or two bright spots:

Tuesday, May 24                        

Best Buy (BBY.N)

This electronics retailer beat estimates for EPS, revenue and same store sales for the quarter — and saw an improvement from the previous quarter. Best Buy is still seeing strength in health and wearable tech, as this remains a popular trend. It also received a boost from appliances. Still, its stock is down on news that its CFO stepped down, and Q2 earnings received a negative impact from Japan’s earthquake, which is delaying inventory.

Earnings and revenue growth are all negative, and StarMine shows a score of 5 out of a possible 100 on the Price Momentum Model (PriceMo) suggesting price stock momentum is very negative, and the stock price is likely to continue to decline.

Exhibit 1: Best Buy Same Store Sales 2015 – 2016

retail1

Source: I/B/E/S estimates

Wednesday, May 25

Tiffany & Co. (TIF.N)

 Analysts polled by Thomson Reuters have been bearish on the stock, and lowering EPS guidance as other luxury retailers have been warning of weak tourism spending, affected by a stronger dollar. What’s more, the company is looking for a new CEO, as Ralph Nicoletti has stepped down. The CEO did a lot for the company’s financials. The company is looking at a -4.8% SSS estimate, an EPS drop of -16.8% YoY, and -5.2% YoY growth in revenue. Its U.S. stores are bringing the company’s revenue down with a -7.5% SSS estimate.

Williams Sonoma Inc. (WSM.N)

 The kitchen and home retailer is on track for a healthy 3.2% SSS estimate, 3.4% YoY growth in EPS, and 4.8% YoY growth in revenue. It has done a good job with its omnichannel strategy and has a loyal customer base. What’s more, it is also benefiting from the improvement in the housing market as shoppers gravitate towards home improvement and furnishing stores.

It has a high score of 93 on the StarMine Earnings Quality Model suggesting earnings are coming from sustainable sources as cash flow and credit look good. However, its low score on the Price Momentum model suggest its stock price is likely to continue falling on soft guidance.

Exhibit 2: Williams Sonoma StarMine Model Scores

retail2

Source: Eikon

Costco Wholesale (COST.O)

According to StarMine Models, credit and price momentum are in the company’s favor. On the flip side, analysts have been bearish on the retailer and earnings quality look weak.

The retailer is on track for a 1.3% SSS, an improvement from the 1.0% SSS result posted in the previous quarter. It also expected to post a low single digit YoY% growth for both EPS and revenue. One advantage is its membership, which continues to grow in the U.S. and has more room for growth internationally. Going forward, the retailer will also benefit from higher gasoline prices, which are expected to continue to rise going into the  Memorial Day weekend.

Exhibit 3: Costco StarMine Model Scores

retail3

Source: Eikon

Abercrombie & Fitch (ANF.N)

 The clothing retailer currently has an EPS estimate of -$0.51 for Q1 2016. However, a StarMine five-star rated analyst, with a greater accuracy rate, projects that EPS can be as low as -$0.60. Teenagers are fickle, and the ANF brand has fallen out of favor, as teenagers have moved away from logo tees. The retailer is looking at a 1.4% SSS estimate, below its 8.0% SSS result from a year-ago. It has also experienced a significant amount of markdowns during the quarter. As a result, EPS and revenue YoY% growth are expected to be almost flat.

Dollar General (DG.N)

The latest reading on the Thomson Reuters/Ipsos Consumer Sentiment tells us that consumers feel uncertain about their economic situation. In times like these, value comes in style. And Dollar General is expected to post a 2.4% SSS, the highest estimate among the discount group. EPS are expected to grow 13.3% YoY, and revenue by 7.6%.  Analysts polled by Thomson Reuters have been revising estimates upward. In the past 90 days stock recommendations have been moving towards “buy.”

Exhibit 4: Dollar General Stock Recommendations

retail4

Source: Eikon

GameStop (GME.N)

The retailer scores in the top decile, earning a score of 98 on a scale of 1 to 100 on the StarMine Intrinsic Valuation Model. Currently, the stock trades at $28, but StarMine suggests it should trade closer to $69. However, be careful. The stock is cheap for a reason and could be a value trap. It’s looking at a -7.7% SSS estimate, below last year’s 8.6% SSS result. Earnings are expected to see a -10.9% YoY growth, and -4.3% YoY growth in Revenue. As technology evolves, more games are available for purchase online and through mobile channels, which has hurt sales at GameStop.

Winners so far

Exhibit 5: Same Store Sales Scorecard – 1Q 2016

retail5

Source: I/B/E/S estimates

 

Get In Touch

Subscribe