About 70% of retailers and restaurants have already reported Q3 earnings. What’s in store for retailers this week? A 3.0% Same Store Sales (SSS) gain reflects healthy consumer spending, and a few retailers are poised to post healthy comps this week, including Home Depot, Best Buy and Williams-Sonoma. On the flip side, Foot Locker is expected to post the weakest SSS estimate this week at -4.2%.
Exhibit 1: SSS and Earnings for Retailers Reporting Week of November 13, 2017
Source: I/B/E/S estimates
Strongest estimates
The robust housing market continues to benefit Home Depot which is on track to post the strongest SSS estimate this week at 5.8%. This is also above last year’s 5.5% SSS result, and on track for a 13.7% jump in earnings. Now that consumers have invested in fixing their homes, they are also hoping to improve the stay-at-home experience. As a result, Williams-Sonoma is expected to post a 3.0% SSS, and 6.2% growth in earnings. Meanwhile, analysts polled by Thomson Reuters are bullish on Best Buy, following the positive earnings results from tech companies Apple and Samsung. Best Buy is on track to post a robust 5.0% SSS, above last year’s 1.8% result.
On the flip side, analysts polled by Thomson Reuters are bearish on Foot Locker, Inc. The retailer is facing difficult comparisons from last year. As a result, earnings are expected to drop 29% vs. last year.
Walmart
Analysts polled by Thomson Reuters are becoming more bullish on this retailer, which continues to experience improvement in its in-store traffic, while competing with Amazon. Over the past month, analysts have been raising earnings estimates for Walmart. It’s on track to post 13 consecutive quarters of positive same store sales and our StarMine Earnings Quality model tells us that Walmart’s earnings are coming from sustainable sources.
However, Walmart has a $0.97 EPS estimate, slightly below last year’s result. In a changing retail landscape, where shoppers gravitate towards online shopping, it will be interesting to see if Walmart reduces, or maintains its vast retail footprint. What’s more, its e-commerce has grown consistently, especially since the Jet.com acquisition (Exhibit 2). It’s allowed Walmart to tap into a bigger and younger audience. Jet.com is more popular among millennials, who make up the biggest proportion of consumers.
Exhibit 2: Walmart E-commerce Growth
Source: I/B/E/S estimates
Target
Target’s second quarter earnings are expected to fall -18.1% from a year ago to $0.85/share. However, the retailer is facing easy SSS comparisons vs. last year. As a result, Same Store Sales are expected to come in stronger at 0.4%, above last year’s -0.2%. Analysts polled by Thomson Reuters also are bullish on this retailer, and have been raising their Q3 earnings estimates. Target’s e-commerce saw healthy gains last quarter, and it will be interesting to see if the division and its merchandise selection remain competitive in this retail climate.
Exhibit 3: Target Earnings Growth Rates
Source: Eikon
Gap
Gap is facing easy comparisons vs. last year. As a result, it is on track to post a 1.1% SSS growth, on top of last year’s -3.0% SSS result. Its Banana Republic division is the only group on track to post a negative SSS at -3.9%, above last year’s -8.0% comp. Gap’s earnings are expected to fall 9.6% compared to Q3 2016. Still, its Old Navy division is on track to post a healthy 2.5% SSS. StarMine Earnings Quality model tells us that the retailer’s earnings are coming from sustainable sources, as good cash flow and operating efficiency.
Exhibit 4: Gap’s Q3 2017 Same Store Sales Estimates
Source: I/B/E/S estimates
However, analysts polled by Thomson Reuters remain cautious about Old Navy’s future performance, as the retailer is and will be facing more difficult SSS comparisons.
Exhibit 5: Old Navy’s Same Store Sales Results and Estimate
Source: I/B/E/S estimates
