February 8, 2021

U.S. Consumer Spending Preview: Q4 2020

by Jharonne Martis.

U.S. retailers soon will be reporting Q4 2020 earnings. Since there’s still uncertainty as to how long the pandemic will last, “stay-at-home”-related retailers and restaurant online delivery services continue to benefit. Homes have been converted into offices, gyms and education centers.

Retailers with a solid omnichannel strategy offer shoppers a safe, fast and efficient experience and are seeing strong double-digit e-commerce growth. Meanwhile, others continue to struggle as they remain constrained by limited client capacity, and are navigating through uncharted territory.

E-commerce platforms kept retailers running when COVID-19 forced store closures, but Americans are also telling us that online sales are here to stay even after the pandemic, Refinitiv discovered in a collaboration with Maru/Blue Public Opinion.

During most of the 2020 earnings season, retail winners reported record e-commerce sales. For the first half of 2020, U.S. e-commerce sales jumped 29.7% YoY, and are projected to grow even further to 39.3% YoY in the second half of the 2020, as per Refinitiv IFR.

Here are some highlights as we head into the Q4 2020 earnings season:

  • The Refinitiv U.S. Retail and Restaurant Q4 earnings index is expected to show a -12.0% change.
  • The Leisure Products and Internet & Catalog Retail sectors have the highest Q4 2020 earnings growth rates at 56.8% and 42.6%, respectively
  • Meanwhile, Hotels, Restaurant & Leisure Retail has the weakest Q4 2020 estimate of -119.3%.
  • The Refinitiv Retail Same Store Sales index is expected to see a 7.4% growth in Q4 2020, above last year’s 2.3% result.
  • The Refinitiv Restaurant Same Store Sales index is expected to see a -4.1% change in Q4 2020, the best showing in 2020.

Q4 2020 EARNINGS

The Refinitiv U.S. Retail and Restaurant Q4 earnings index is expected to decline by -12.0%. When looking at the earnings growth rates for Q4 for the 206 retailers tracked by Refinitiv, the Leisure Products and Household Durables sectors have the highest earnings growth rates at 56.8% and 42.6%, respectively (Exhibit 1). On the flip side, the Hotels, Restaurants & Leisure Retail category has the weakest anticipated Q4 2020 estimate of -119.3%.

Exhibit 1: The Refinitiv Retail Earnings Growth Rate – Q4 2020

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

Within the Leisure Products sector, Vista Outdoor Inc. has the strongest result with a 390.5% earnings growth rate. Similarly, the American toy maker Mattel and outdoor manufacturer Yeti Holdings are expected to see earnings growth rates of 109.9%, and 30.0%, respectively. The following companies have also already reported stronger-than-expected earnings: Polaris Inc. and Brunswick Corp. Six out of seven retailers in this sector are expected to see robust earnings growth in Q4.

In the Internet & Catalog sector, Etsy, Liquidity Services and Shutterstock have the strongest triple digit earnings growth rates. Meanwhile, Amazon smashed earnings expectations with a 117.8% earnings growth rate. Seven of the 10 companies in this group have positive earnings growth rates.

Similarly, in the Household Durables sector, Tupperware Brands has the strongest earnings growth rate at 210.2%. Meanwhile, the home furnishing and homebuilding sectors are also expected to post robust earning. Ethan Allen Interiors and D.R. Horton have the strongest earnings growth results of 155.6%, and 87.9%, respectively. Meanwhile, iRobot (-55.4%) has the weakest EPS growth estimate in the sector. Twenty three of the 28 companies in this group have positive earnings growth rates.

The Hotels, Restaurant & Leisure Retail earnings growth rate is being affected by negative earnings growth expectations. Thirty four of the 43 companies in this group have negative earnings growth rates, mostly restaurants. Similarly, the bulk of hotels and casinos in this sector are expected to post weaker earnings vs. last year. Caesars Entertainment and Six Flags Entertainment are on track to post the biggest earnings declines, followed by Royal Caribbean Cruises.

Thirty one percent of companies in our Retail/Restaurant Index have reported Q4 2020 EPS. Of the 64 companies in the index that have reported earnings to date, 72% have reported earnings above analyst expectations, 5% matched, and 23% reported earnings below analyst expectations (Exhibit 2). The Q4 2020 blended earnings growth estimate is -12%.

The Q4 2020 blended revenue growth estimate is 6.8%. Of the 64 companies in the index that have reported earnings to date, 67% have reported revenue above analyst expectations, and 33% reported revenue below analyst expectations.

Exhibit 2: Refinitiv Proprietary Research Restaurant & Retail Dashboard – Q4 2020

 

Source: Refinitiv I/B/E/S estimates

After COVID-19 ends

Americans are telling us that even after the COVID-19 pandemic is over, they intend to continue practicing social distancing measures, ordering online, and avoiding large crowds. These trends would help de-carbonize the economy and increase online sales.

Americans also intend to continue having meal deliveries, a trend that recently helped Chipotle post a 177% growth in digital sales. Refinitiv discovered this in a collaboration with Maru/Blue Public Opinion. The findings and detailed tables can be found here: https://www.marublue.com/american-polls.

Exhibit 3: Thinking about your life after COVID-19, do you anticipate you will do any of the following MORE than you did prior to COVID-19?

Source: Maru/Blue Public Opinion

Retail sales

The Refinitiv Same Store Sales (SSS) index is expected to see a 7.4% gain in Q4 2020 (Exhibit 4). A 3.0% SSS gain reflects healthy consumer spending. The 7.4% SSS estimate suggests spending is robust as it’s above the 2.3% result seen in Q4 2019, when physical stores were open.

It’s important to note that the 2020 results are not an apples-to-apples comparison vs. previous years as many retailers were closed due to shelter in place regulations. As a result, a number of retailers did not report SSS in 2020, while those that reported saw a huge spike in SSS, boosted by key essential items.

Exhibit 4: Refinitiv Same Store Sales Index: 2017 – Present

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

U.S. mall stores, including apparel and department stores, had been struggling with weak traffic before the coronavirus pandemic and are the most vulnerable. They also happen to be in the bottom Q4 SSS performers (Exhibit 5).

Vince Holding and Regis Corp. are both expected to post comps of -25%. However, among the Q4 weak performers, Vince Holdings, Steve Madden and Skechers are the only ones facing difficult SSS comparisons from a year ago. Both Macy’s and Dillard’s are expected to post negative comp of -21.9% and -17.7%, respectively. Apparel retailers Express and Guess are facing easier SSS comparisons from a year ago, but are still expected to see negative SSS results in Q4 2020.

Exhibit 5: Refinitiv Weakest Same Store Sales Estimates: Q4 2020

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

Only 35 out of 89 retailers in our Same Store Sales universe are expected to see positive comps. Five out of the top ten Q4 Same Store Sales (SSS) estimates are coming from the Home Furnishing and Home Improvement sectors (Exhibit 6). Consumers continue to invest in improving the stay-at-home experience. As a result, Lovesac, Lowe’s, Home Depot, Williams-Sonoma and Restoration Hardware are expected to post double digit Q4 SSS. Consumers continue to work on their homes during the pandemic, and that trend is boosting sales at Lowe’s and Home Depot.

Still, Crocs has the strongest Q4 SSS estimate at 60.9%, and discounters continue to benefit from selling key essential items during the pandemic. Target has the strongest SSS estimate in the discount sector at 16% and is also benefiting from selling home furniture and merchandise. Costco already reported a 15.4% result, above its 13.5% SSS estimate. BJ Wholesale is also expected to post a robust 14.1% SSS, above last year’s 0.5% SSS result.

Exhibit 6: Refinitiv Strongest Same Store Sales Estimates: Q4 2020

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

Restaurant Same Store Sales

The Refinitiv Restaurant Same Store Sales (SSS) index took a big plunge into negative territory in 2020, hitting a record low in Q2 2020. Since then, it’s improved somewhat and is expected to see a -4.1% growth in Q4 2020 (Exhibit 7).

It’s important to note that the 2020 results are not an apples-to-apples comparison vs. previous years as many restaurants were closed due to shelter in place regulations. As a result, a number of restaurants did not report SSS in 2020.

Exhibit 7: Refinitiv Restaurant Same Store Sales Index: 2019 – Present

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

Due to social distancing practices, Dave Buster’s Entertainment is hurting the most among all the restaurants (Exhibit 8). The same can be said for fine dining restaurants like Ruth Hospitality. Most restaurants have to comply with state regulations that limit numbers of guests, hurting revenue. Darden missed its -16.5% SSS estimate and posted a -20.6% SSS result for Q4 2020.

Exhibit 8: Weakest Restaurants Same Store Sales Estimates: Q4 2020

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

Only nine out of 32 estimates in our Restaurant Same Store Sales universe are expected to see positive comps. Only three are expected to post double digit comps, all boosted by strong digital sales: Wingstop, Papa John’s International, and Domino’s Pizza (Exhibit 9). Carry-out and delivery make up a big portion of these companies’ revenue, and have been in high demand during the pandemic. Quick Service dining continues to outperform the Casual Dining and Fine Dining sectors. Chipotle slightly missed its SSS estimate with a 5.7% SSS result. Likewise, Yum Brands reported a -1.0% SSS result, below its 0.3% SSS estimate.

Exhibit 9: Strongest Restaurants Same Store Sales Estimates: Q4 2020

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

 

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