November 11, 2021

U.S. Consumer Spending Preview: Q3 2021

by Jharonne Martis.

Retailers are getting ready to report Q3 2021 earnings. However, there is more negative guidance than positive. Moreover, November’s consumer confidence indicators show a significant decrease from October. The economic recovery has slowed down and consumer expectations are at the lowest level of 2021 due to inflation worries and the ongoing pandemic.

The pandemic also caused many store closures last year, forcing customers to go online for 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.

Crocs continues to see outstanding Q3 comp results, including an impressive 68.9% growth in digital sales for the quarter. Looking forward to next week’s retail earnings releases, Refinitiv is looking at Walmart and Home Depot’s e-commerce estimates of 20.5% and 0.6%, 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 Q3 2021 earnings season:

  • The Refinitiv U.S. Retail and Restaurant Q3 earnings index is expected to show a 26.3% gain, because of easy comparisons from a year ago.
  • The Hotels, Restaurant & Leisure and Household Durables sectors have the highest Q3 2021 earnings growth rates at 234.1% and 37.6%, respectively.
  • Meanwhile, the Internet & Catalog Retail has the weakest anticipated Q3 2021 estimate of -44.8%.
  • The Refinitiv/Ipsos Primary Consumer Sentiment Index for November 2021 is at 53.6, a significant decrease from October.
  • To date, there have been 11 negative EPS preannouncements for Q3 2021, compared to four positive preannouncements
  • The Refinitiv Retail Same Store Sales index is expected to see an 6.8% growth in Q3 2021, below last year’s 9.1% result.
  • The Refinitiv Restaurant Same Store Sales index is also facing easy year-over-year comparison and is expected to see a 16.4% SSS gain for Q3 2021.

Q3 2021 earnings

The Refinitiv U.S. Retail and Restaurant Q3 earnings index is expected to rise by 26.3%.

When looking at the earnings growth rates for Q3 for the 202 retailers tracked by Refinitiv, the Hotels, Restaurant & Leisure sector has the highest earnings growth rates at 234.1%. It’s important to note that due to the pandemic, this sector remained mostly closed and reported weak results last year. As a result, this sector is facing easy comparisons from a year ago. The second strongest sector is Household Durables with a 37.6% earnings growth rate (Exhibit 1). On the flip side, the Internet & Catalog Retail has the weakest anticipated Q3 2021 estimate of -44.8%.

Exhibit 1: The Refinitiv Retail Earnings Growth Rate – Q3 2021

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

Within the Hotels, Restaurant & Leisure sector, Expedia, Hilton Worldwide and Marriott International have the strongest result with 1704.5%, 1200%, and 661.5% earnings growth rates. Thirty-eight retailers in this sector posted double digit or higher earnings growth rates in Q3. In addition to easy year-over-year comparisons, this sector had started to see improvement from consumers who are feeling more comfortable staying at hotels and eating out.

On the flip side, the Internet & Catalog Retail group’s earnings growth rate is being affected by negative earnings growth expectations. Four of the six companies in this group have negative earnings growth rates, mostly due to difficult year-over-year comparisons. During the pandemic, consumers gravitated online to retailers such as Amazon. Due to strong sales last year, Amazon has a -50.5% earnings growth rate this year. The same can be said for Etsy.

Sixty eight percent of companies in our Retail/Restaurant Index have reported Q3 2021 EPS. Of the 138 companies in the index that have reported earnings to date, 75% have reported earnings above analyst expectations, 1% matched, and 24% reported earnings below analyst expectations (Exhibit 2). The Q3 2021 blended earnings growth estimate is 26.3%.

The Q3 2021 blended revenue growth estimate is 13.4%. Of the 138 companies in the index that have reported earnings to date, 65% have reported revenue above analyst expectations, and 35% reported revenue below analyst expectations.

Exhibit 2: Refinitiv Proprietary Research Restaurant & Retail Dashboard – Q3 2021

Source:Refinitiv I/B/E/S

Consumer confidence

American consumer confidence, as measured by the Refinitiv/Ipsos Primary Consumer Sentiment Index, for November 2021 is at 53.6 and marks a significant decrease from October.

“With the economic recovery having slowed since the summer, this month’s Refinitiv/Ipsos Primary Consumer Sentiment Index decreases again, as do all sub-indices. In addition to the pandemic’s lingering effect on the economy, consumers are starting to feel the impact of inflation, giving them increased cause for concern,” Chris Jackson of Ipsos stated. “Consumer expectations for the future are now at their lowest level of 2021, and the Current, Investment, and Jobs indices all drop to levels last seen in February and March.”

Accordingly, retailers are getting ready to report Q3 earnings, and are also warning us not to expect too much from them. To date, there have been more negative EPS and revenue preannouncements for Q3 2021.

Exhibit 3: Consumer Confidence as Measured by Refinitiv/IPSOS PCSI

Source: Refinitiv I/B/E/S

Guidance

When the pandemic of 2020 brought the retail world to a grinding halt, the bulk of them stopped providing guidance, mainly due to the uncertainty of what would happen and when they would reopen, which was out of their control. It is clear that the amount of guidance provided is still less, compared to pre-pandemic levels (Exhibit 4).

In addition to the 11 Q3 negative preannouncements and four positive for EPS, retailers posted 16 negative and nine positive revenue forecasts (Exhibit 4). The bulk of the Q3 2021 negative guidance (45.5%) comes from the household durables sector.

Exhibit 4: Q3 Earnings and Revenue Guidance
Retail Sales

Source: Refinitiv I/B/E/S

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 6.8% gain in Q3 2021 (Exhibit 5). A 3.0% SSS gain reflects healthy consumer spending. The 6.8% SSS estimate is robust considering the difficult comparison the index is facing from last year when Q3 2020 SSS came in at 9.1.

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 5: Refinitiv Same Store Sales Index: 2017 – Present

Due to store closures and weak Q3 2020 performance, many retailers are facing easy comparisons from a year ago. As a result, most 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 Q3 2021 SSS estimates (Exhibit 6).

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 due to the COVID-19 pandemic. Regis Corp. has the easiest year-over-year SSS comparison and already reported a 6.5% SSS, above last year’s easy -34.8% SSS result. Likewise, Skechers already reported a 31% SSS, because of its easy comparison from last year’s -22.1% SSS.

Exhibit 6: Retailers facing easy SSS comparisons: Q3 2020 Actual vs. Q3 2021 Estimate

Source: Refinitiv I/B/E/S

On the other hand, there are several retailers that did well during the 2020 pandemic and posted strong SSS. Moreover, despite facing these difficult SSS comparisons, they continue to post healthy SSS estimates for Q3 2021.

One standout was Crocs. The shoemaker posted an impressive 23.8% SSS gain in Q3 2020, and still managed to report an even stronger 60.4% SSS increase in Q3 2021. Consumers continue to gravitate towards comfort during the pandemic.

Consumers also continue to invest in improving the stay-at-home experience. Four out of the ten most difficult comparisons are in the Home category (Exhibit 7). Within this group, Lovesac is facing the most difficult comparison — and still is expected to post double digit Q3 SSS gains with a 33.0% Q3 SSS estimate. Similarly, Williams Sonoma has a 12.4% SSS on top of last year’s robust 24.4% SSS.

Meanwhile, Home Depot and Lowe’s are facing very difficult comparisons from a year ago and are on track to post negative SSS. In normal times, a negative SSS is a sign that business is contracting. However, in this case due to their very difficult SSS comparisons, it is actually a sign that business is holding up well.

Meanwhile, the discounters continue to hold up their business volume well despite facing difficult comparisons.

Exhibit 7: Retailers facing difficult SSS comparisons: Q3 2020 Actual vs. Q3 2021 Estimate

Source: Refinitiv I/B/E/S

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. Given its easy year-over-year comparison, it is expected to see a 16.4% growth in Q3 2021 (Exhibit 8).

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 8: Refinitiv Restaurant Same Store Sales Index: 2019 – Present

Source: Refinitiv I/B/E/S

Due to social distancing practices, Dave & Buster’s Entertainment hurt the most among all the restaurants last year and posted a -66% SSS (Exhibit 9). Due to the easy comparison, the restaurant is on track to post a triple digit SSS growth for Q3 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 9: Restaurants facing easy SSS comparisons: Q3 2020 Actual vs. Q3 2021 Estimate/Actuals

Source: Refinitiv I/B/E/S

Three out of the 10 restaurants facing the most difficult comparisons from a year ago have already posted healthy Q3 2021 comps. The most impressive result came from Chipotle, which posted an impressive 15.1% SSS, above last year’s difficult comparison of 8.3% SSS. Still, Wingstop faced the most difficult comparison and still reported a healthy 3.9% comp. Strong digital sales from a year ago also helped sales at Wingstop, Papa John’s International and Domino’s Pizza (Exhibit 10). 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 perform well.

Exhibit 10: Restaurants Facing Difficult Same Store Sales Estimates/Actuals: Q3 2021

Source: Refinitiv I/B/E/S

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