May 7, 2019

Consumer Confidence Pushing Q1 U.S. Retail Sales

by Jharonne Martis.

The Q1 2019 retail blended earnings growth estimate is 6.3%. In the U.S. retail landscape, ongoing strength in consumer spending continued in Q1, but is the economy’s strength sustainable?

Let’s dig in and see:

  • The Refinitiv consumer confidence index remained strong in Q1 2019, which benefited retail sales.
  • Globally, the U.S. job index is the strongest, but consumers are questioning whether this strength is sustainable.
  • These trends in consumer confidence are also reflected in the latest earnings guidance numbers, as retailers are providing more negative earnings pre-announcements vs. positive for Q1 and Q2 2019.
  • As a result, the Refinitiv Retail and Restaurant Q1 earnings index is expected to show a rise of only 6.3%.
  • The Internet & Catalog Retail sector shows robust earnings growth rate of 69.7%.
  • On the other hand, the Textiles, Apparel & Luxury Goods sector has the lowest growth rate (-3.6%) of any sector.
  • The Refinitiv Retail Same Store Sales Index is looking at a healthy 2.8% Q1 2019 growth, but below the 3.1% SSS result posted last year.
  • The discount sector continues to be the strongest with a 3.6% comp, while the apparel group is expected to post a 1.1% SSS, below last year’s 3.4% SSS
  • The Refinitiv Restaurant Same Store Sales Index is looking at a healthy 2.5% Q1 2019 growth, but below the 2.7% SSS result posted last year.
  • Quick service has the strongest SSS estimate, while the fine dining group has the weakest SSS estimate.
  • For Q1 2019, there have been 50 retail negative EPS pre-announcements, compared to 12 positive.

Q1 2019 Earnings Growth

The Refinitiv Retail and Restaurant Q1 earnings index is expected to rise 6.3%. When looking at the earnings growth rates for Q1 for the 207 retailers tracked by Refinitiv, the Leisure Products sector, followed by the Internet sector have the highest earnings growth rate at 596.0% and 69.7%, respectively. The Leisure group earnings growth rate is being inflated by Mattel’s negative earnings result of $-0.44 — an improvement vs. last year’s $-0.60 result. If Mattel is excluded from the group, the earnings growth rate drops from 596% to a 2.1%.

Three of the nine retailers in the Internet & Catalog Retail sector already posted higher earnings compared to a year ago. Amazon.com Inc. has seen a 116.8% earnings growth estimate and Ebay, Inc. (26.4%) has the highest EPS growth estimate in the sector.

Four of the 11 sectors are expected to see negative growth this quarter. The Textiles, Apparel & Luxury Goods sector has the worst negative growth rate (-3.6%). Nine of the 20 retailers in the sector are expected to see Q1 earnings declines, led by Deckers Outdoor Corp. (-85.6%).

Exhibit 1: The Refinitiv Retail Earnings Growth Rate – Q1 2019

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

Consumer Confidence

American consumer confidence as measured by the Refinitiv/Ipsos Primary Consumer Sentiment Index is 60.7 for the month of April 2019. The national index is up 0.9 points since last month but remains down 2.9 points compared to last year. The Jobs Index shows a slight decreased of 1-point from 71.3 last month to 70.3 in April. The Expectation Index is also down a point, from 65.3 in March to 64.3 in April. “While the United States continues to be the leader in the Jobs Index worldwide,” reports Chris Jackson, vice president at survey research firm Ipsos. “Questions still remain on whether or not the economy can continue this robust momentum going in the future.”

Retailers are reporting first quarter earnings results for 2019. Both earnings and same store sales expectations suggest that consumer spending remained robust in the first quarter. When consumers feel good about their jobs and economic stability, they feel better about extending themselves. The Refinitiv Same Store Sales Index is expected to see a healthy 2.8% growth for Q1 2019.

Exhibit 2: Consumer Confidence As Measured By Refinitiv/Ipsos PCSI

Source: Eikon

Guidance

In the Refinitiv Retail and Restaurant Earnings Index, there have been 50 negative EPS pre-announcements issued by companies for Q1 2019 compared to 12 positive for EPS preannouncements. Similarly, companies started guiding for Q2 2019. So far, there have been 10 negative EPS preannouncements for Q2 2019 compared to 2 positive preannouncements.

Exhibit 3: Earnings and Revenue Guidance: Q1 and Q2 2019

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

Outlook: Refinitiv Same Store Sales Index

Retailers are facing tough comparisons from a year ago, as consumer spending was robust in 2018. The Refinitiv SSS index is expected to see 2.8% growth in Q1 2019. A 3.0% SSS reflects healthy consumer spending. The 2.8% SSS estimate is slightly below the 3.1% result seen in Q1 2018. Despite facing difficult comparisons from a year ago, there are a number of sectors expected to post stronger result this time around. The department store sector is facing easier comparisons from a year ago at -0.2% SSS, and is expected to post a 0.3% SSS this time around. The group is on track to post its fourth consecutive quarter of positive comps. Still, the discount sector continues to be the strongest with a 3.6% comp, above last year’s 3.4% SSS. Meanwhile, many apparel stores are expected to post negative SSS, and as a result the group is expected to post a 1.1% SSS, below last year’s 3.4% SSS.

Exhibit 4: Refinitiv Same Store Sales Index

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

Same Store Sales Top Estimates/Results

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 with a 23.0% SSS comp. Home Depot is expected to post another robust quarter with a 4.6% comp. In apparel, the hot athleisure trend continues to help Lululemon, with a 11.3% SSS estimate. Meanwhile, consumers are buying apparel at Aritzia that has a 5.5% SSS estimate. American Eagle is also receiving a boost from Aerie’s 12% comp. Ulta Salon continues to be a favorite among millennials and has a 7.0% SSS estimate. Meanwhile, Target’s initiatives seem to be paying off, and it has a 4.3% SSS estimate vs. 3.0% SSS result from last year. Costco already reported a 5.4% result, slightly below its 5.6% SSS estimate.

Exhibit 5: Top Same Store Sales Estimates – Q1 2019

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

Same Store Sales Weakest Estimates/Results

Pier One already missed its -12.5% SSS, and posted a -13.7% SSS result. Vera Bradley has been one of the weakest performers for more than three years. JC Penney continues to have the weakest SSS estimate among the department stores at -3.9%. Meanwhile, mall stores have been out of favor, and continue to hurt from weak store traffic. These weak performing mall stores include Express, Kirkland’s, and New York & Co, with comp estimates of -10.1%, -8.1%, and -6.4%, respectively. Similarly, The Buckle is on track to post its third consecutive quarter of negative comps at -3.8%

Exhibit 6: Bottom Same Store Sales Estimates – Q1 2019

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

Refinitiv Restaurant Same Store Sales

The Refinitiv Restaurant Same Store Sales Index is looking at a healthy 2.5% Q1 2019 growth, slightly below the 2.7% SSS result posted last year. On the other hand, the casual service sector and fine dining sectors have stronger comp estimates vs. last year’s 1.9%, and 1.0% SSS results. The quick dining has the strongest SSS estimate among the sectors at 2.7%, but slightly below last year’s 3.1% SSS.

Exhibit 7: Restaurant Same Store Sales Sectors – Q1 2019 VS. Q1 2018

Restaurant Same Store Sales Winners

Chipotle already beat its 7.3% SSS, with an outstanding 9.9% result. The restaurant has now posted four consecutive quarters of improving robust comps as digital sales double. Meanwhile, Texas Roadhouse reported a 5.2% comp, slightly below its 5.3% SSS estimate. The same can be said for Domino’s Pizza, which reported a 3.9% SSS result, below its 4.2% SSS estimate. Meanwhile, Wingstop and Diversified Restaurant Holdings are on track to report with 3.4%, and 2.5% SSS estimates, respectively.

Exhibit 8: Top Restaurant Same Store Sales Estimates – Q1 2019

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

Restaurant Same Store Sales Losers

Six out of the 36 restaurants in our Index have negative SSS estimates. Papa John’s International has been one of the weakest performers for some time now. For Q1 2019, the restaurant has the weakest SSS estimate of -7.3%. Likewise, Good Times Restaurant is going through some bad times and has a comp estimate of -6.8%, followed by Red Robin Gourmet Burgers at -2.9% SSS estimate. Meanwhile, Shake Shack blows past its SSS estimate of 0.9%, with a robust 3.6% result.

Exhibit 9: Bottom Restaurant Same Store Sales Estimates – Q1 2019

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

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