November 16, 2021

Q3 2021 U.S. Retail Scorecard – Update Nov. 16, 2021

by Jharonne Martis.

Seventy-three percent of companies in our Retail/Restaurant Index have reported Q3 2021 EPS. Of the 148 companies in the index that have reported earnings to date, 76% have reported earnings above analyst expectations, 1% matched and 23% reported earnings below analyst expectations. The Q3 2021 blended earnings growth estimate is 28.6%.

The Q3 2021 blended revenue growth estimate is 14.3%. Sixty-six percent have reported revenue above analyst expectations, and 34% reported revenue below analyst expectations.

EXHIBIT 1: Refinitiv Earnings Dashboard

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

Retail earnings

Walmart and Home Depot smashed their Q3 earnings, revenue and same store sales estimates. This is even more remarkable considering last year’s tough SSS comparison, and macroeconomic headwinds including inflation and supply chain issues.

Exhibit 2: Revenue and Earnings Expectations and Results: 2019 – 2021

Source: Refinitiv I/B/E/S estimates

Walmart raised its full-year guidance as it benefited from inflation, as consumers are looking for every-day lower prices. Its store locations and proximity to the consumer also work to its advantage. The discounter uses its stores as warehouses to keep shipping costs down in a time when others face higher shipping costs.

Walmart, Home Depot, Lowe’s and Target are not immune to macroeconomic issues and the supply chain crisis, but are better positioned than others — a key differentiator against other retailers.

Home Depot continues to benefit from its Pro business revival which is outperforming DIY. The Home Improvement sector also continues to benefit from the strength in the housing market driven by consumers spending more time at home vs. pre-pandemic times. Consumers are also remodeling rather than purchase new homes, especially given rising house prices.

Still, Lowe’s is on track to report Q3 earnings tomorrow and is facing very difficult year-over-year comparisons. As a result, e-commerce and SSS growth are expected to come in at 0.1% and -2.9%, respectively. During normal times, a negative SSS would suggest that business is contracting, however because it’s facing very strong comparisons from a year ago, business seems to be holding up well.

Exhibit 3: Same Store Sales and Earnings Estimates/Results –Q3 2021

Source: Refinitiv I/B/E/S estimates

For Q3, the StarMine SmartEstimate data shows investors can expect positive surprises from both Target and Lowe’s. The later currently has an EPS mean forecast of $2.36 a share. However, there’s a five-star rated analyst with a very accurate rating that published a Bold Estimate, which is different (in this case higher) than the consensus estimate. The analyst expects Lowe’s to report earnings of $2.69 a share, above the mean.

Likewise, Target currently has an EPS mean forecast of $2.83 a share. However, there’s a five-star rated analyst with a very accurate rating that published a Bold Estimate, in this case higher, of $3.15 a share, well above the mean.

The Refinitiv data also shows that Target will receive a boost from strong traffic in the third quarter, due to strong back-to-school demand. Its apparel merchandise resonates well with shoppers and beauty sales remains a strong category.

Analyst polled by Refinitiv are bullish on Ulta’s collaboration with Target as beauty products are a favorite category during the holiday season.

Still, discounters are not immune to rising inflation. The Refinitiv estimates for Q3 show that Target’s costs of goods sold are expected to rise about 10%. However, as consumers try to avoid paying higher prices, they will more likely gravitate to the discounters, a trend that will continue to benefit Walmart and Target.

 E-commerce sales

Walmart’s Q3 U.S. e-commerce sales are up 8%, below its 20.5% estimate (Exhibit 4). Initially, this might seem like a huge disappointment. However, because it’s facing very tough comparisons from a year ago, it shows that e-commerce grew an additional 8% on top of a 79% growth last year. Thus, e-commerce business is holding up well.

This earnings season e-commerce sales results will continue to reveal if the flight to online spending looks to become permanent or is fading.

Below are this week’s Q3 digital sales growth estimates. Please note, these retailers are also facing tough comparisons from a year ago:

Exhibit 4: E-commerce Sales Estimates/Results –Q3 2021


Source: Refinitiv I/B/E/S

 

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