February 5, 2019

Robust U.S. Holiday Sales Point to Strong Q4 Earnings

by Jharonne Martis.

In the U.S. retail landscape, ongoing strength in consumer spending continued through the holiday season. In fact, analysts polled by Refinitiv are becoming more bullish on consumer spending as retailers get ready to report their earnings for Q4 2018, which ended January 31.

The Refinitiv Same Store Sales Index is now looking at a 3.3% Q4 2018 growth, up from the 3.2% SSS result posted in Q4 2017. The discount group is one of the strongest with a 3.8% SSS estimate, on top of a robust 4.0% comparison from last year.

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

  • The Refinitiv consumer confidence index remained strong in 2018, which benefited holiday sales.
  • However, the outlook for 2019 is a little different. Consumers are content with present conditions, but concerned about what’s ahead.
  • These trends in consumer confidence are also reflected in the latest earnings guidance numbers, as retailers have been providing fewer negative earnings pre-announcements compared to the previous two years.
  • As a result, the Refinitiv Retail and Restaurant Q4 earnings index is expected to show a rise of 14.3%, but then decline to a 5.5% gain in Q1 2019.
  • The Leisure Products and Internet & Catalog Retail sectors continue to have the highest earnings growth rate at 81.8%, and 75.0%, respectively.
  • On the other hand, the Personal Products sector has the lowest growth rate (9.6%) of any sector.
  • The Refinitiv Restaurant Same Store Sales Index is looking at soft 2.2% Q4 2018 growth, below the 2.9% SSS result posted last year.
  • Fine dining is doing better than last year. On the other hand, the casual and quick service sectors are struggling with comps below last year’s results.
  • For Q4 2018, there have been 54 retail negative EPS pre-announcements, compared to 24 positive.

Same store sales

The Refinitiv Same Store Sales Index posted an impressive 4.0% average for the first half of 2018. This momentum continued into the third and fourth quarters. The strong economy and employment market have all fueled positive consumer confidence. Consumers felt good about their economic situation and spent more freely last year. The 2018 holiday SSS estimate is in line with 2017’s results. For Q4 2018 the Refinitiv Same Store Sales Index is looking for a 3.3% growth, slightly above the 3.2% SSS Q4 2017 result. A 3.0% SSS reflects healthy U.S. consumer spending.

Exhibit 1: The Refinitiv Same Store Sales Index:  2017 -2018

Source: I/B/E/S data from Refinitiv

Q4 2018 earnings growth

The Refinitiv Retail and Restaurant Index Q4 earnings is expected to rise 14.3%. When looking at the earnings growth rates for Q4 for the 207 retailers tracked by Refinitiv, the Leisure Products sector, followed by the Internet sector continue to have the highest earnings growth rate at 81.8% and 75.0%, respectively. Within the Leisure group, Sturm Ruger & Company Inc. has the strongest earnings growth rate estimate at 41.1%, followed by Brunswick Corp., which already posted a 40.0% earnings growth.

Seven of the ten retailers in the Internet & Catalog Retail sector are expected to see higher earnings compared to a year ago. Amazon.com Inc. has seen a 179.6% earnings growth estimate and Shutterstock, Inc. (60.7%) has the highest EPS growth estimate in the sector.

Most sectors are expected to see positive growth this quarter. The Personal Products sector has the only negative growth rate (-9.68%). Three of the seven retailers in the sector are expected to see Q4 earnings declines, led by Avon Products, Inc. (-40.3%).

Exhibit 2: The Refinitiv Retail Earnings Growth Rate – Q4 2018

Source: I/B/E/S data from Refinitiv

Consumer confidence

American consumer confidence, as measured by the Refinitiv/Ipsos Primary Consumer Sentiment Index, remains steady after seeing a very small 0.3 percent increase in January 2019. “The beginning of 2019 shows contentment with the current economic situation, prompting some willingness to invest,” reports Chris Jackson, vice president of public affairs at survey research firm Ipsos.”Despite this, slightly lowered expectations and much lower job market confidence suggest consumers still have some concern over what the year will hold.”

Accordingly, analysts polled by Refinitiv are also lowering their 2019 retail earnings expectations. The holiday season saw a robust rise in consumer spending and an estimated earnings increase of 14.3% for Q4 as measured by Refinitiv. However, the Refinitiv retail earnings index is expected to decline to show a 5.5% gain in Q1 2019 and remain in the single digits for most of 2019.

Exhibit 3: Consumer Confidence as measured by Refinitiv/Ipsos PCSI

Source: I/B/E/S data from Refinitiv

Guidance

When consumers feel good about their careers and economic situation, they feel better about extending themselves. The upward trend in 2018 consumer confidence was also reflected in the latest earnings guidance numbers, as retailers have been providing fewer negative and more positive earnings pre-announcements compared to the previous two years (Exhibit 4). As a result, the Refinitiv Retail and Restaurant Earnings Index is now expected to see double digit growth in Q4 2018.

In addition to the 54 Q4 negative pre-announcements and 24 positive for EPS, retailers posted 50 negative and 33 positive revenue forecasts (Exhibit 4). The bulk of the negative guidance (35.2%) comes from the apparel sector.

Exhibit 4: Q4 Earnings and Revenue Guidance


Source: I/B/E/S data from Refinitiv

Refinitiv retail same store sales

Holiday spending remained robust in the fourth quarter of 2018 vs. last year. Analysts polled by Refinitiv are becoming more bullish on consumer spending as retailers get ready to report earnings for the fourth quarter of 2018. The Refinitiv Same Store Sales Index is now looking at a 3.3% Q4 2018 growth, up from the 3.2% SSS result posted in Q4 2017. The department store sector is facing easier comparisons from a year ago, and is expected to post stronger comps this time. The group is on track to post its third consecutive quarter of positive comps. On the flip side, the discounters need to match healthy comps from last year but are still on top with a good 3.8% Q4 2018 estimate vs. 4.0% last year.

Exhibit 5: Same Store Sales Sectors – Q4 2018 vs. Q4 2017

Source: I/B/E/S data from Refinitiv

Same Store Sales winners

Furniture retailers seem to have benefited from the housing boom. As a result, the Lovesac company, dubbed the “world’s most adaptable couch,” is on top the strongest SSS estimate. In apparel, the hot athleisure trend continues to help Lululemon. Meanwhile, consumers are buying apparel at Aritzia, and American Eagle with comps of 9.4%, and 5.9% SSS, respectively. The latter is receiving a boost from its Aerie division which is expected to post an impressive 22.0% Q4 2018 SSS gain. Ulta Salon continues to be a favorite among millennials and has a 7.9% SSS estimate. Meanwhile, Restoration Hardware is looking at a robust 5.1% SSS estimate, above its 2.0% SSS result from last year.

Exhibit 6: Top same store sales estimates – Q4 2018

Source: I/B/E/S data from Refinitiv

Same Store Sales Losers

Vera Bradley has been one of the weakest performers for more than three years. For Q4 2018, the retailer has the weakest SSS estimate of -14.6%. Likewise, Francesca’s Holdings is on track to post its eighth consecutive quarter of negative comps at -13.0%. Meanwhile, other mall stores, including Chico’s, Express and J. Jill have been hurting from weak mall store traffic and are all in the bottom performers. JC Penney has the weakest SSS estimate among the department stores at -3.8%.

Exhibit 7: Bottom Same Store Sales estimates – Q4 2018

Source: I/B/E/S data from Refinitiv

Refinitiv restaurant same store sales

Restaurants are facing difficult comparisons from last year. The Refinitiv Restaurant Same Store Sales Index is looking at 2.2% Q4 2018 growth, below the 2.9% SSS result posted last year. Fine dining is the only sector facing an easy comparison from last year and is doing better with a 0.6% SSS estimate, above its 0.3% final result from last year. On the other hand, the quick service and casual dining sectors have a 2.5% and 1.5% SSS estimates, below last year’s SSS result.

Exhibit 8: Restaurant Same Store Sales Sectors – Q4 2018 vs. Q4 2017

Source: I/B/E/S data from Refinitiv

Restaurant Same Store Sales winners

Domino’s Pizza currently has the strongest SSS estimate among the restaurants at 6.9%, above its 4.2% SSS result posted last year. Likewise, Wingstop, Chipotle and Texas Roadhouse have healthy comps, with estimates of 4.3% and higher. McDonald’s already beat its 3.9% SSS estimate with a 4.4% result. Similarly, Starbucks and Darden beat their estimates with comp results of 4.0% and 2.1%, respectively. Other restaurants expected to post healthy SSS include BJ’s Restaurant and El Pollo Loco with comp estimates of 4.2% and 2.8%.

Exhibit 9: Top Same Store Sales Estimates – Q4 2018

Source: I/B/E/S data from Refinitiv

Restaurant Same Store Sales losers

Papa John’s International has the weakest SSS estimate at -6.3%, followed by Good Times Restaurant at -6.1%. Likewise, Papa Murphy’s, Red Robin and Potbelly have now posted more than three quarters of negative SSS. Shake Shack is on track to post its second straight consecutive quarter of negative SSS.

Exhibit 10: Restaurant Bottom Same Store Sales Estimates – Q4 2018

Source: I/B/E/S data from Refinitiv

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