November 15, 2022

Q3 2022 U.S. Retail Scorecard – Update Nov. 15, 2022

by Jharonne Martis.

To date, 146 of the 204 companies in our Retail/Restaurant Index have reported their EPS results for Q3 2022, representing 72% of the index. Of those companies that have reported their quarterly results so far, 69% announced that profits beat analysts’ expectations, while 1% delivered on-target results and 30% reported earnings that fell below estimates. The Q3 2022 blended earnings growth estimate now stands at 2.9%.

The blended revenue growth estimate for the 204 companies in this index is 9.0% for Q3 2022. Of those companies that have reported their quarterly results so far, 64% announced revenue that exceeded analysts’ expectations and the remaining 36% reported that their revenue fell below analysts’ forecasts.

Exhibit 1: Refinitiv Earnings Dashboard

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

This week: Q3 2022 earnings

Retailers are reporting Q3 2022 earnings, and their results and Q4 guidance so far suggests that they might be struggling in a challenging macroeconomic environment. The Retail/Restaurant Index is looking at a 2.9% estimated earnings growth rate for Q3 2022.

Both Walmart and Home Depot beat earnings, revenue and same store sales estimates. Walmart’s eCommerce saw a 16% growth, above its 7.5% estimate. It also improved its inventory position going into Q4, and strong grocery sales helped offset weakness in general merchandise.

Still, the discount giant gave conservative guidance and said that consumers are trading down. It is evident that consumers will be looking for promotions and values this holiday season before they open their wallets.

Meanwhile, Home Depot kept its full-year guidance unchanged. Although shoppers are, on average, spending more per visit, customer transactions were down.

This week’s retail earnings results will help provide better insight into consumers’ concerns as we head into the holiday season. Wall Street is keeping a close eye on inventory levels, markdowns, margins and whether retailers will maintain their guidance. Lowering guidance could potentially indicate that consumers are holding back, or just navigating a challenging environment.

The following chart displays estimates of earnings and same store sales expectations for retailers that are scheduled to release their Q3 2022 results this week.

Exhibit 2: Same Store Sales and Earnings Estimates–Q3 2022

Source: Eikon Workspace

Guidance

So far, 146 retailers have reported Q3 earnings; of this group, 123 mentioned inflation and 125 flagged supply chain issues. In addition to the 29 negative preannouncements and nine positive EPS forecasts in Q3 2022, 39 retailers posted negative revenue outlooks while 22 offered a positive outlook for revenue (Exhibit 3). The bulk of the Q3 2022 negative guidance (44.8%) comes from the apparel and specialty retail sectors.

Looking ahead to Q4 2022, 13 retailers issued negative EPS preannouncements, while only four issued positive EPS guidance so far. Of those retailers offering revenue guidance, 19 warned of disappointing results, while eight said revenue might be better than previously expected.

Exhibit 3: Earnings and Revenue Guidance: Q3 2022 And Q4 2022

Source: Refinitiv I/B/E/S

Consumer confidence and inflation

The Refinitiv/Ipsos Primary Consumer Sentiment Index for November 2022 is at 50.9. Fielded from Oct. 21 ‐ Nov. 4, 2022, the index has now shown month‐to month stability for three consecutive months.

That being said, perceptions of job stability and prospects continues its now two-month trend upward. Thus, the latest reading suggests that consumers’ perceptions of job stability remains positive, which is what fuels consumers’ appetite for spending. However, if the unemployment rate continues to rise, they will put their hands in their pockets and keep those wallets shut.

Exhibit 4: Refinitiv/Ipsos U.S. Consumer Sentiment Index

Source: Refinitiv Eikon

Inventory and discount levels

Retailers were dealing with high inventory levels in Q2 2022, and retailers such as Levi’s were more promotional to get rid of excess inventory.

Now, 38% of the online merchandise for U.S. retailers is on sale in November 2022 (Exhibit 5). Refinitiv discovered this in a collaboration with StyleSage, which analyzes retailers, brands, online trends and products across the globe.

The current discount penetration (how much of the assortment is on sale) is 38%, and is also above the YTD average of 34%, but slightly below the pre-pandemic levels, when the average discount rate was 42%.

Meanwhile, the average percent discount in November is 35.8%; this has come down from the YTD levels of 37.7% and is significantly below the pre-pandemic levels. This means that although more merchandise is on sale, the average discount is less than usual. 

Exhibit 5: US Online Retail: Discount Penetration and Average Discount –2019 – Q3 2022

Source: StyleSage Co.

Q4 2022 holiday outlook

Looking forward to Q4, The Refinitiv U.S. Retail and Restaurant index is expected to show a 4.6% revenue growth over last year’s levels. However, the estimated earnings growth rate is expected to decline 17.5%, due to rising cost pressures.

Our metrics show that 10 of 11 consumer-related industries have turned negative (Exhibit 6). Of the 204 retailers tracked by Refinitiv, the Hotels, Restaurant & Leisure sector is headed for the highest earnings growth rate in the third quarter, recording a 248.7% surge over last year’s level.

In fact, it has been the strongest-performing sector this year. These firms have been benefiting from the fact that consumers feel more comfortable traveling, staying at hotels and eating out.

Exhibit 6: The Refinitiv Retail Earnings Growth Rate – Q4 2022

Source: Refinitiv I/B/E/S

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