August 12, 2021

U.S. Consumer Spending Preview: Q2 2021

by Jharonne Martis.

As U.S. retailers and restaurants report Q2 2021 earnings, the bulk of them will be facing the easiest comparisons from a year ago, when the government required brick and mortar stores to close. As a result, Q2 2021 earnings growth rates are in double digits and above, but are not an indication of organic business growth, simply easy comparisons from a year ago.

As vaccination rates increased during the second quarter, U.S. consumers’ confidence and retail sales saw signs of improvement. Then, as recent Covid-19 cases spiked due to the new delta variant, consumers started canceling their travel plans, reconsidering discretionary spending and giving indications of declining confidence.

Because of last year’s store closures, consumers were forced to go online to make purchases. As a result, “online sales” is one of the least disruptive measures. E-commerce sales results will continue to reveal 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 16.3% and 0%, respectively. This is on top of very difficult e-commerce results last year, which suggest online business is holding up well.

Here are some highlights as we head into the Q2 2021 earnings season:

  • The Refinitiv U.S. Retail and Restaurant Q2 earnings index is expected to show a 143.0% gain, because of easy comparisons from a year ago.
  • The Leisure Products and Textiles, Apparel & Luxury Goods sectors have the highest Q2 2021 earnings growth rates at 391.7% and 348.7%, respectively.
  • Meanwhile, the Household Products has the weakest anticipated Q2 2021 estimate of -9.0%.
  • Back to school season is off to a healthy start and Target is one to watch.
  • The Refinitiv Retail Same Store Sales index is expected to see an 11.3% growth in Q2 2021, above last year’s 8.7% result.
  • The Refinitiv Restaurant Same Store Sales index is facing its easiest year-over-year comparison and is expected to see a 49.1% SSS for Q2 2021.

Q2 2021 earnings

The Refinitiv U.S. Retail and Restaurant Q2 earnings index is expected to rise by 143.0%.

When looking at the earnings growth rates for Q2 for the 204 retailers tracked by Refinitiv, the Leisure Products and Textiles, Apparel & Luxury Goods sectors have the highest earnings growth rates at 391.7% and 348.7%, respectively (Exhibit 1). On the flip side, the Household Products has the weakest anticipated Q2 2021 estimate of -9.0%.

Exhibit 1: The Refinitiv Retail Earnings Growth Rate – Q2 2021

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

Within the Leisure Products sector, Hasbro, Callaway, and Vista Outdoor Inc. have the strongest result with 5150%, 500%, and 241.2% earnings growth rates. All eight retailers in this sector posted double digit or higher earnings growth rates in Q2. Consumers continue to buy games to play indoors with families and gear for outdoor activities, suggesting that they are investing in the stay-at-home experience.

Meanwhile, the Textiles, Apparel & Luxury Goods sector is facing the easiest comparisons from a year ago, especially since most mall stores had to remain closed. The standouts in this group include Crocs and Deckers Outdoor which posted healthy earnings growth of 120.8% and 209.3%, on top of difficult comparisons a year ago.

On the flip side, the Household Products’ earnings growth rate is being affected by negative earnings growth expectations. Four of the nine companies in this group have negative earnings growth rates, mostly due to difficult year-over-year comparisons. During the pandemic, Clorox products were in high demand and selling out fast. Due to strong sales last year, the company has a -60.6% earnings growth rate this year. The same can be said for Kimberly-Clark and Procter & Gamble.

Sixty eight percent of companies in our Retail/Restaurant Index have reported Q2 2021 EPS. Of the 140 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 Q2 2021 blended earnings growth estimate is 143%.

The Q2 2021 blended revenue growth estimate is 23.3%. Of the 140 companies in the index that have reported earnings to date, 84% have reported revenue above analyst expectations, and 16% reported revenue below analyst expectations.

Exhibit 2: Refinitiv Proprietary Research Restaurant & Retail Dashboard – Q2 2021

Source: Refinitiv I/B/E/S

Back-to-school

No matter how the economy is faring, the back-to-school season happens every year and parents are budgeting for it. Several states are requiring children to return to in-person classes and will be offering tax-free savings on back-to-school shopping in August. These sales will likely benefit Q3 2021 earnings. During the first week of August, weather was favorable and store traffic seems to have been pointing to a good start. Analysts polled by Refinitiv are optimistic on the early back-to-school reads for Target.

Notice in the table below, the StarMine Analyst Revisions Model (ARM) is highly predictive of both the direction of future revisions and price movement. Target scores an 88 out of a possible 100, suggesting that analysts are likely to revise earnings estimates upward. Moreover, the StarMine Price Momentum score of 82 shows it has positive stock price momentum in its favor, and its high Earnings Quality score of 94 suggests earnings are coming from sustainable sources.

Exhibit 3: StarMine Model scores for Target

Source: Refinitiv Eikon

Retail sales

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 for most of 2020.

The Refinitiv Same Store Sales (SSS) index is expected to see an 11.3% gain in Q2 2021 (Exhibit 4). A 3.0% SSS gain reflects healthy consumer spending. The 11.3% SSS estimate suggests stronger spending than last year when Q2 2020 SSS came in at 8.7%, when most brick-and mortar stores were closed.

It’s very 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: Refinitiv I/B/E/S

Due to store closures and weak Q2 2020 performance, many retailers are facing easy comparisons. As a result, the bulk of retailers are expected to report double-digit comps, which are not a true indication of organic business growth.

Mall stores, including apparel and department stores, had been struggling with weak traffic before the coronavirus pandemic and continue to be the most vulnerable. Due to easy comparisons from a year ago, comps appear stronger and the bulk of them have double-digit Q2 2021 SSS estimates (Exhibit 5).

Exhibit 5: Retailers facing easy SSS comparisons: Q2 2020 Actual vs. Q2 2021 Estimate

Source: Refinitiv I/B/E/S

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 Q2 2021.

One standout was Crocs. The shoemaker posted an impressive 49.1% SSS gain in Q2 2020, and still managed to report an even stronger 78.6% SSS increase in Q2 2021. Consumers continue to gravitate towards comfort during the pandemic.

Consumers also continue to invest in improving the stay-at-home experience. Three out of the ten most difficult comparisons are in the Home category (Exhibit 6). Within this group, Lovesac is facing the most difficult comparison — and still is expected to post double digit Q2 SSS gains with a 12.9% Q2 SSS estimate. Consumers continue to work on their homes during the pandemic, and that trend is also boosting sales at Home Depot, which is expected to post a 4.0% SSS gain vs. 23.4% SSS in Q2 2020.

Likewise, despite facing difficult comparisons, the discounters are holding up their business volume well.

Exhibit 6: Retailers facing difficult SSS comparisons: Q2 2020 Actual vs. Q2 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 49.4% growth in Q2 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 -87% SSS (Exhibit 8). Due to the easy comparison, the restaurant is on track to post a triple digit SSS growth for Q2 2021. Likewise, due to easy comparisons from a year ago, several restaurants already reported positive SSS, which don’t necessary represent organic business growth.

Exhibit 8: Restaurants facing easy SSS comparisons: Q2 2020 Actual vs. Q2 2021 Estimate/Actuals

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

The top five restaurants facing the most difficult comparisons from a year ago have already posted healthy Q2 2021 comps. Jack in the Box posted an impressive 9.0% SSS this quarter, above its 4.1% Q2 2020 comp result.  A year-ago strong digital sales also helped sales at 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 continue to stay in high demand during the pandemic. Quick Service dining continues to outperform the Casual Dining and Fine Dining sectors.

Exhibit 9: Restaurants Facing Difficult Same Store Sales Estimates/Actuals: Q2 2021

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

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