May 13, 2021

U.S. Consumer Spending Preview: Q1 2021

by Jharonne Martis.

U.S. retailers soon will be reporting Q1 2021 earnings. Not all states have fully reopened, but the Refinitiv numbers show that retail business has been picking up and Q1 retail earnings will start to show signs of recovery in areas that had been weak for some time. The stimulus checks put money in consumers’ pockets, and consumer confidence is back at pre-pandemic levels. As a result, there are signs that discretionary spending is up. Retail sales traffic really picked up during the weeks leading into Easter (Sunday, April 4) when shoppers hit the malls to buy apparel other than the traditional athleisure.

This Q1 earnings season is unusual because it marks the one-year anniversary of stay-at-home orders due to the pandemic. Same Store Sales (SSS) are also referred to as Comparable Store Sales. However, there is no comparable year to 2020. Never before has there been a government mandate for retailers and companies to close their physical locations. As a result, several retailers didn’t report SSS and many companies withdrew guidance back in Q1 2020.

Because of store closures, consumers were forced to go online to make purchases. As a result, “online sales” is one of the least disruptive measures. This will be the first year where e-commerce sales results will be telling if the flight to online spending looks to become permanent or is fading.

Looking forward to next week’s retail earnings releases, Refinitiv is looking at Walmart and Home Depot’s e-commerce estimates of 20% and 2.2%, respectively. This is on top of difficult e-commerce results last year, which suggest online business is holding up well.

Here are some highlights as we head into the Q1 2021 earnings season:

·         The Refinitiv U.S. Retail and Restaurant Q4 earnings index is expected to show a 93.0% change, because of easy comparisons from a year ago.

·         The Leisure Products and Multiline Retail sectors have the highest Q1 2021 earnings growth rates at 2137.9% and 736.2%, respectively

·         Meanwhile, Hotels, Restaurant & Leisure Retail has the weakest Q1 2021 estimate of -287.3%.

·         Analysts polled by Refinitiv have been raising their Q1 earnings estimates for 38% of the companies in the Refinitiv retail earnings index.

·         The Refinitiv Retail Same Store Sales index is expected to see a 10.9% growth in Q1 2021, above last year’s 6.5% result.

·         The Refinitiv Restaurant Same Store Sales index is expected to see a 7.8% change in Q1 2021.

Q1 2021 earnings

The Refinitiv U.S. Retail and Restaurant Q1 earnings index is expected to rise by 93.0%. This is due to easy comparisons from a year ago, when most of the world went into lockdown.

When looking at the earnings growth rates for Q1 for the 203 retailers tracked by Refinitiv, the Leisure Products and Multiline Retail sectors have the highest earnings growth rates at 2137.9% and 736.2%, respectively (Exhibit 1). On the flip side, the Hotels, Restaurants & Leisure Retail category has the weakest anticipated Q1 2021 estimate of -287.3%.

Exhibit 1: The Refinitiv Retail Earnings Growth Rate – Q1 2021

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

Within the Leisure Products sector, Polaris, Vista Outdoor Inc. and Yeti Holdings have the strongest result with a 945.5%, 827.3%, and 245.5% earnings growth rates. All eight retailers in this sector are expected to see double digit earnings growth or higher in Q1.

In the Multiline sector, Target has the strongest triple digit earnings growth estimate at 258%, despite facing difficult comparison from a year ago. The discounter gained a lot of market share during the pandemic as it was deemed a key essential retailer. Meanwhile, the department stores are facing easy comparisons from a year ago, and are on track to post earnings growth rates of 27.6% and higher. Seven of the 8 companies in this group have positive earnings growth rates.

On the flip side, the Hotels, Restaurant & Leisure Retail earnings growth rate is being affected by negative earnings growth expectations. Seventeen of the 43 companies in this group have negative earnings growth rates, mostly hotels & casinos. Meanwhile, the restaurants in this sector are expected to post positive earnings vs. last year. Carnival Corp. and Las Vegas Sands Corp. are on track to post the biggest earnings declines.

Sixty eight percent of companies in our Retail/Restaurant Index have reported Q1 2021 EPS. Of the 139 companies in the index that have reported earnings to date, 86% have reported earnings above analyst expectations, 3% matched, and 11% reported earnings below analyst expectations (Exhibit 2). The Q1 2021 blended earnings growth estimate is 93%.

The Q1 2021 blended revenue growth estimate is 12.4%. Of the 139 companies in the index that have reported earnings to date, 70% have reported revenue above analyst expectations, and 30% reported revenue below analyst expectations.

Exhibit 2: Refinitiv Proprietary Research Restaurant & Retail Dashboard – Q1 2021  

Source: Refinitiv I/B/E/S estimates

Analyst revisions

The latest Refinitiv Consumer Confidence reading for May spiked to pre-pandemic levels, suggesting American confidence is high. Similarly, analysts polled by Refinitiv have been raising their earnings estimates for 38% of the companies in the Refinitiv retail earnings index, including the reopening names. This suggests that consumers are feeling better about spending their discretionary income.

Notice in the table below, the StarMine Analyst Revisions Model (ARM) is highly predictive of both the direction of future revisions and price movement. Ethan Allen, Citi Trends, Under Armour and Dave & Buster’s Entertainment score a100 out of a possible 100 suggesting that analysts are likely to revise earnings estimates upward.

Exhibit 3: StarMine ARM Model scores, Mean Estimate Percentage Change and Price Change

Source: Refinitiv Eikon

Retail sales

The Refinitiv Same Store Sales (SSS) index is expected to see a 10.9% gain in Q1 2021 (Exhibit 4). A 3.0% SSS gain reflects healthy consumer spending. The 10.9% SSS estimate suggests stronger spending than last year when Q1 2020 SSS came in at 6.5%, when physical stores were open in February then were asked to close in March 2020.

It’s important to note that the 2021 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

Mall stores, including apparel and department stores, had been struggling with weak traffic before the coronavirus pandemic and continue to be the most vulnerable. This year, however, they happen to have double-digit Q1 2021 SSS estimates (Exhibit 5).

However, it’s important to note that this is because they are facing easy comparisons from a year ago when they were abruptly asked to close their physical stores in mid-March due to the impact of COVID-19. Therefore, their SSS growth rates are not necessarily indicative of organic business growth.

Exhibit 5: Retailers facing easy SSS comparisons: Q1 2020 Actual vs. Q1 2021 Estimate


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

On the other hand, there are several retailers that did well during the 2020 pandemic and now are facing difficult SSS comparisons. Despite these difficult SSS comparisons, they continue to post healthy SSS estimates for Q1 2021.

Two out of the ten most difficult comparisons are in the Home Furnishing and Home Improvement sectors (Exhibit 6). Consumers continue to invest in improving the stay-at-home experience. As a result, Lovesac, and Lowe’s are expected to post double digit Q1 SSS gains. Lovesac is facing the most difficult comparison — and still has an impressive 24.4% Q1 SSS estimate. Consumers continue to work on their homes during the pandemic, and that trend is boosting sales at Lowe’s and Home Depot, which is expected to post an 18.2% SSS gain vs. 6.4% SSS Q1 2020.

Consumers also continue to gravitate towards comfort. As a result, Crocs has one of the strongest Q1 SSS estimates at 10.9%, and despite facing difficult comparisons, the discounters are holding up their business volume well.

Meanwhile, Zumiez, Brown Shoe and Crocs continue to gain market share and are on track to post impressive double digit SSS growth on top of difficult comparisons last year.

Exhibit 6: Retailers facing difficult SSS comparisons: Q1 2020 Actual vs. Q1 2021 Estimate

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 facing easy comparisons from a year ago. It is expected to see a 7.8% growth in Q1 2021 (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 hurt the most among all the restaurants last year and posted a -58.6% SSS (Exhibit 8). Due to the easy comparison, the restaurant is on track to post a double digit SSS growth for Q1 2021. Still, despite facing easy comps from a year-ago, several restaurants still reported negative SSS.

Exhibit 8: Restaurants facing easy SSS comparisons: Q1 2020 Actual vs. Q1 2021 Estimate/Actuals

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

The top three restaurants facing the most difficult comparisons from a year ago, posted double digit Q1 2021 comps. A year ago their strong digital sales helped their sales: Wingstop, Papa John’s International, and Chipotle (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.

Exhibit 9: Strongest Restaurants Same Store Sales Estimates/Actuals: Q1 2021

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

Get In Touch

Subscribe

We have updated our Privacy Statement. Before you continue, please read our new Privacy Statement and familiarize yourself with the terms.×