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August 13, 2018

Strong U.S. Consumer Spending Seen Boosting Q2 Retail Results

by Jharonne Martis.

In the U.S. retail landscape, the strength seen in consumer spending continued into the second quarter of 2018. In fact, analysts polled by Thomson Reuters are becoming more bullish on consumer spending as retailers get ready to report their earnings for Q2 2018.

The Thomson Reuters Same Store Sales Index is now looking at a 3.3% Q2 2018 growth, up from the 1.2% SSS result posted in Q2 2017. All sectors are expected to post stronger comps this time around. The specialty group is one of the strongest with a 4.0% SSS estimate, on top of a difficult 3.5% comparison from last year.

Let’s dig in and find out where consumers went shopping and dining:

  • The Thomson Reuters consumer confidence index has ticked up, suggesting consumers are feeling good about their economic situation, and therefore about spending their discretionary income.
  • The upward trend in consumer confidence is also reflected in the latest earnings guidance numbers, as retailers have been providing more positive earnings pre-announcements compared to a year ago.
  • As a result, the Retail and Restaurant Index Q2 earnings are expected to rise 26.0%.
  • The Internet sales sector continues to have the highest earnings growth rate (211.3%) of any sector.
  • On the other hand, the Leisure Products sector has the lowest growth rate (-35.5%) of any sector.
  • The Thomson Reuters Restaurant Same Store Sales Index is looking at a 1.9% Q2 2018 growth, below the 3.6% SSS result posted last year.
  • Casual dining is doing better than last year. On the other hand, the fine dining sector is struggling with a weak 0.3% SSS estimate, below last year’s 0.5% SSS result.
  • For Q2 2018, there have been 35 retail negative EPS preannouncements, compared to 23 positive.

Q2 2018 Earnings growth

The Thomson Reuters Retail and Restaurant Index Q2 earnings are expected to rise 26.0%.When looking at the earnings growth rates for the Q2 2018 period for the 218 retailers tracked by Thomson Reuters, the Internet sector continues to have the highest earnings growth rate (213.8%) of any sector. Eight of the nine retailers in the sector are anticipated to see higher earnings, compared to a year ago. Netflix already saw a 466.7% jump in earnings, and Booking Holdings, Inc. (14.5%) has the highest EPS growth estimate in the sector. Amazon already posted a 1167.5% jump in earnings.

On the other hand, the Leisure Products sector has the lowest growth rate (-35.5%) of any sector. Three of the eight retailers in the sector are expected to see earnings declines compared to Q2 2018, led by Vista Outdoor, Inc. (-147.9%).

Exhibit 1: Retail Earnings Q2 2018 Growth Rate

Source: I/B/E/S data

Consumer confidence

Consumer spending has remained healthy since the strength of this past holiday season. The Thomson Reuters consumer confidence index suggests consumers are feeling good about their economic situation, better about extending themselves and spending their discretionary income. There have been slight increases across the board in the indices, and American consumer confidence, as measured by the Thomson Reuters/Ipsos Primary Consumer Sentiment ticked up by 0.9 points to 62.7. This is in line with our retail guidance data, suggesting the strength of consumer spending is well positioned going into the second half of the year.

Exhibit 2: IPSOS Consumer Sentiment Index

Source: I/B/E/S data

Guidance

When consumers feel good about their careers and economic situation they feel better about extending themselves. The upward trend in consumer confidence is also reflected in the latest earnings guidance numbers, as retailers have been providing more positive earnings pre-announcements compared to a year-ago. As a result, the Thomson Reuters Retail and Restaurant Earnings Index is now expected to see double digit growth in Q2 2018.

Retailers are less pessimistic than last year. There are fewer negative EPS and revenue guidance reports for Q2 2018 vs. Q2 2017 — and more positive EPS and revenue guidance. In addition to the 35 Q2 negative pre-announcements and 23 positive for EPS, retailers posted 16 negative and 39 positive revenue forecasts (Exhibit 3). The bulk of the negative guidance (37%) comes from the apparel sector.

Exhibit 3: Q2 2018 Retail Earnings Growth Rate


Source: I/B/E/S data

Retail same store sales

Consumer spending improved in the second quarter of 2018. Likewise, analysts polled by Thomson Reuters are becoming more bullish on consumer spending as retailers get ready to report their earnings results for the second quarter of 2018. The Thomson Reuters Same Store Sales Index is now looking at a 3.3% Q2 2018 growth, up from the 1.2% SSS result posted in Q2 2017. Retailers are also expected to post stronger comps this time around. The specialty group is on top with a 4.0% SSS estimate vs. 3.5% last year. Likewise, the discount group has a healthy 3.3% SSS estimate, above its 2.3% final SSS result.

Exhibit 4: Same Store Sales Sectors – Q2 2018 vs. Q2 2017

Source: I/B/E/S data

Same store sales winners

Let’s dig in and find out where consumers went shopping in the second quarter. 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. Tiffany & Co. is receiving a boost from its Asia Pacific division significantly above its -7.0% SSS result from last year. Likewise, Urban Outfitters and its divisions all have strong SSS estimates. The hot leisure trend continues to help Lululemon with a robust SSS estimate, while the improvement in the housing market is benefiting West Elm.

Exhibit 5: Top SSS Estimates – Q2 2018

Source: I/B/E/S data

Same store sales losers

The usual suspects fall into this category, including Francesca’s Holdings and Gamestop, which are both hurting from company-specific issues. Still, Pier 1 Imports Holdings has the weakest SSS estimate for the second quarter . Like other mall stores, Sterling Jewelers and Chico’s White House Black Market have been hurting from weak mall traffic and have anemic SSS estimates, respectively.

Exhibit 6: Bottom SSS Estimates – Q2 2018

Source: I/B/E/S data

Restaurant same store sales

Restaurants are facing difficult comparisons from last year. The Thomson Reuters Restaurant Same Store Sales Index is now looking at a 1.9% Q2 2018 growth, below the 3.6% SSS result posted last year. Casual dining is doing better than last year. On the other hand, the quick service sector has a 2.1% SSS estimate, below last year’s 4.4% SSS result.

Exhibit 7: Restaurant Same Store Sales Sectors – Q2 2018 vs. Q2 2017

Source: I/B/E/S data

Restaurant same store sales winners

Domino’s Pizza, Texas Roadhouse, BJ’s Restaurant, Wingstop already posted the strongest SSS results at 6.9%,5.7%, 5.6%, 5.1% and 4.3% respectively. McDonald’s beat its  SSS estimate, with a 4.0% SSS result. Starbucks slightly beat its SSS estimate, and reported a 1.0% SSS. Its Americas division was its strongest with a 1.0% SSS. Of those left to report, Famous Dave’s of America has the strongest SSS estimate at 2.5%.

Exhibit 8: Restaurant Top SSS Results – Q2 2018

Source: I/B/E/S data

Restaurant sale store sales losers 

Papa Murphy’s Holdings already missed its SSS estimate, and posted a -2.4% SSS result. Likewise, Del Frisco’s, YUM China Holdings and El Pollo Loco have the weakest SSS results at -1.4, -1.0%, and -0.9%, respectively. Meanwhile of those left to report, Dave and Buster Entertainment and Red Robin Gourmet Burgers have the weakest SSS estimates.

Exhibit 9: Restaurant Bottom SSS Estimates – Q2 2018

Source: I/B/E/S data

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