U.S. retailers have been reporting negative earnings lately, and the Commerce Department recently reported a 0.3% drop in May vs. expectations of a 0.3% increase. Which begs the question, where are shoppers spending their money?
To see who is benefiting from consumer spending, we looked at the highest performers in terms of Q1 2017 earnings growth rates (Exhibit 1). Not surprisingly, the internet & catalog retail sector posted the strongest earnings growth rate at 33.8%. When looking at the individual winners in terms of earnings, it’s clear that the bulk of positive earnings (about 25%) come from the household related retailers, including household appliances, homebuilding, home furnishing, household products, home improvement and housewares retailers. These categories were followed by restaurants (13%), and specialty retailers (8%).
Exhibit 1: Strongest Q1 2017 Earnings Growth Rates
Source: I/B/E/S estimates
Healthy eating trend
The results further tell us that when consumers left their households they were eating out and trying to stay healthy. Chipotle Mexican Grill reported the strongest earnings growth rate among the restaurants. Its StarMine ARM Model score of 83 suggests analysts polled by Thomson Reuters are becoming bullish on the restaurant. Similarly, Nutrisystem, the weight management company, posted an impressive 177.8% earnings growth rate. Its robust StarMine ARM Score of 98 also signifies bullish analysts’ sentiment.
Another retailer benefiting from the health trend is sporting goods retailer Big 5 Sporting Goods. Royal Caribbean Cruises also posted healthy growth rates. Beauty products retailers were also on top of consumers’ preferences: Coty, Inter Parfums and Ulta all posted robust earnings growth rates (Exhibit 2).
Exhibit 2: Other Positive Earnings Growth Rates: Q1 2017
Source: I/B/E/S estimates
Footwear walking strong
Meanwhile, when it came to apparel, shoes were a priority on consumer’s shopping lists, as the footwear group saw the strongest results. Crocs had the strongest earnings growth rate. When buying clothes, consumers were doing so for their children first. Children’s Place has the strongest earnings growth rate among apparel stores at 47.7%. Parents also bought toys for their children: Hasbro is the winner in the leisure products group with a 42.1% earnings growth rate.
Other winners in the apparel group include retailer Gap which received a boost from its Old Navy division, followed by Ross Stores and underwear maker Haines Brands. Big Lots was the strongest earnings growth rate among general merchandise stores, underlining the important of value for consumers. Finally, Best Buy had a nice comeback among the computer and electronic sector, posting a 36.4% earnings growth rate and 1.6% same store sales (SSS).
The slackers
On the flip side, leisure products posted the weakest earnings growth rate at -33.5%. Individually, 21% of the constituents in our index that posted negative earnings growth rates came from the apparel retailers (Exhibit 2). Other weak results came from SuperValue and restaurant names including Biglari, Fiesta Restaurant and Yum! Brands.
Exhibit 3: Weakest Q1 2017 Earnings Growth Rates
Source: I/B/E/S estimates
Q2 guidance
Retailers are already warning us not to expect much in the next reporting cycle. We continue to receive more negative guidance. For Q2 2017, there have been 53 negative EPS preannouncements issued compared to only 19 positive EPS pre-announcements. This is almost four times the amount of negative guidance from the beginning of the month. The bulk of the negative guidance (43%) comes from the apparel sector. On the flip side, revenue pre-announcements have been less negative (Exhibit 4).
Exhibit 4: Q2 2017 Earnings and Revenue Guidance
Source: I/B/E/S estimates
Q1 estimates and revisions
About 99% of companies in our Thomson Reuters Retail/Restaurant Index have reported Q1 2017 EPS. And so far, first quarter earnings are expected to increase 6.0% from Q1 2016. Of the 220 companies in the Retail/Restaurant Index that have reported earnings to date for Q1 2017, 66% have reported earnings above analyst expectations, 9% matched, while 25% reported revenue below analyst expectations.
The Q1 2017 blended revenue growth estimate is 4.2%. About 57% have reported revenue above analyst expectations, and 43% reported revenue below analyst expectations.
Same store sales
Of the 77 retailers that have reported Q1 same store sales, 42% exceeded estimates, while 58% missed.
Source: I/B/E/S estimates
RESTAURANT SAME STORE SALES:
Of the 39 restaurants that have reported 1Q Same Store Sales, 64% exceeded estimates, while 36% missed.
Source: I/B/E/S estimates
Please note: if you use our earnings data, please source our I/B/E/S data.
Eikon is a complete solution for research and analytics. It places the most comprehensive market information, news, analytics and trading tools available into a desktop as simple to use as the Internet. Our Eikon clients can run fundamental and technical screens against a global dataset representing more than 100 countries and over 200,000 securities.
Republication or redistribution of Reuters content, including by framing or similar means, is prohibited without the prior written consent of Reuters. Reuters and the Reuters logo are registered trademarks, and trademarks of the Thomson Reuters group of companies. For additional information on Reuters photographic services, please visit the web site at http://pictures.reuters.com
