May 11, 2023

Q1 2023 U.S. Retail Preview: Restaurants Outperform Retail

by Jharonne Martis.

The Refinitiv U.S. Retail and Restaurant Q1 earnings index, which tracks changes in the growth rate of earnings within the sector, is expected to show a 25.5% growth over last year’s levels. Our metrics show that seven of 10 consumer-related industries have turned negative (Exhibit 1). Of the 204 retailers tracked by Refinitiv, the Hotels, Restaurant & Leisure sector is headed for the highest earnings growth rate in the first quarter, recording a 3245.6% surge over last year’s level.

In fact, it has been the strongest performing sector over the past year as consumers’ preferences have changed towards services. Making up for lost time during the pandemic, people are traveling again, staying at hotels and eating out.

At the other end of the spectrum, Personal Care Products is facing difficult comparisons and has the weakest anticipated Q1 2023 estimate, with profits expected to decline by 56.8% (Exhibit 1).

Within the Hotels, Restaurant & Leisure sector, MGM Resorts and Booking Holdings already recorded the strongest earnings growth rates of 4300%, and 197.4%, respectively. Analysts polled by Refinitiv remain bullish on these two companies’ earnings estimates for the current quarter. Of the 47 companies in this group, 39 are on track to post positive estimated earnings growth for Q1.

In contrast, the Personal Care Products group is hampered by difficult year-over-year earnings comparisons. Negative growth expectations are directly responsible for the forecast decline in the overall earnings growth rate within the group, as five of the nine companies struggle to match year-ago earnings growth levels. Nu Skin Enterprises already reported a 3.1% decline in earnings growth in the first quarter of 2023; Estee Lauder, meanwhile, has recorded the deepest earnings decline of 53.2%.

So far, 109 companies or 53% of those in our Retail/Restaurant Index, have reported earnings for Q1 2023. Of this group, 77% announced earnings that exceeded analysts’ expectations, while 2% matched those forecasts and the remaining 21% reported earnings that fell below analysts’ predictions (Exhibit 2). The blended earnings growth estimate for Q1 2023 is 25.5%.

To date, 109 companies in the Retail/Restaurant index have reported revenue for Q1 2023. For this group, the Q1 2023 blended revenue growth estimate is 4.3%; 79% have reported revenue above analyst expectations, and 21% reported revenue below analyst expectations.

Exhibit 2: Refinitiv Proprietary Research Restaurant & Retail Dashboard – Q1 2023

Source: Refinitiv I/B/E/S


So far, 109 retailers have reported Q1 earnings; of this group, 77 mentioned inflation. In addition to the 21 negative preannouncements and six positive EPS forecasts in Q1 2023, 35 retailers posted negative revenue outlooks while 21 offered a positive outlook for revenue (Exhibit 3). The bulk of the Q1 2023 negative guidance (33.3%) comes from the textiles, apparel and luxury goods sectors.

Looking ahead to Q2 2023, nine retailers issued negative preannouncements, while four issued positive EPS guidance so far. Of those retailers offering revenue guidance, nine warned of disappointing results, while only five said revenue might be better than previously expected.

Exhibit 3: Earnings and Revenue Guidance: Q1 2023 And Q2 2023

Source: Refinitiv I/B/E/S

Retail sales

Same Store Sales (SSS) also are commonly referred to as Comparable Store Sales. However, it’s impossible to come up with any years in history that are at all comparable to those that retailers endured in 2020 through 2022. Never before had governments required retailers and other businesses to close their physical locations. As a result, several retailers didn’t report SSS and many companies ceased providing this guidance during most of the pandemic.

The Refinitiv Same Store Sales (SSS) index is expected to see a healthy 3.1% gain in Q1 2023 (Exhibit 4). An increase of 3.0% in SSS signals that consumer spending is healthy. It is certainly at this time considered a healthy SSS when considering the difficult comparison the index faces. Last year at this time, Q1 2022 SSS came in at a robust 5.0%: one of the strongest SSS results recorded during the pandemic.

It’s very important to note that due to the pandemic, the 2022 results don’t offer an apples-to-apples comparison of current trends relative to previous years, as many retailers were closed due to shelter in place regulations.

Exhibit 4: Refinitiv Same Store Sales Index: 2017 – Present 

Source: Refinitiv I/B/E/S

Some of the pandemic’s outperformers continue to post robust SSS growth estimates for Q1 2023. A few standouts within this select group include Lululemon, Aritzia and Hibbett Sporting Goods. The upper middle-class consumer remains engaged and is helping SSS at Aritzia and Lululemon with comps of 18.0% and 14.3%, respectively. Meanwhile, Hibbett Sporting Goods is on track to report a 7.7% SSS gain in Q1 2023 (Exhibit 5).

As offices and public places reopened, consumers also wanted to look good and Ulta is benefiting from this trend. The beauty store is on track to report a robust 8.7% comp, despite facing a difficult 18.0% comparison from last year.

Consumers continue to feel the pressure of higher food prices on their spending power and continue to gravitate towards the discounters for every day low prices. As a result, discounters continue to demonstrate their ability to maintain business volume despite the difficult comparisons. BJ’s Wholesale, Walmart and Costco are all on track to report gains of 6.0%, 5.5% and 5.0%, respectively. The dollar stores are also receiving a boost from a resilient bargain-hunting consumer.

Exhibit 5: Strongest Same Store Sales Estimates: Q1 2023 Estimate vs. Q1 2022 Actual

Source: Refinitiv I/B/E/S

On the flip side, Bed Bath & Beyond filed for Chapter 11 bankruptcy protection in April and is expected to post the weakest Q1 SSS at -36.5%. Restoration Hardware, which announced plans last month to lay off about 440 employees, is expected to post a SSS result of  -18.9%. Mall stores, including apparel retailers and department stores, had been struggling with weak traffic even before the coronavirus pandemic forced most to shut their doors in the spring of 2020. Now, they remain the most vulnerable to underwhelming SSS growth. (Exhibit 6). Accordingly, Zumiez, Tilly’s, Carter’s and Shoe Carnival are all on track to see negative SSS.

Exhibit 6: Weakest Same Store Sales Estimates: Q1 2023 Estimate vs. Q1 2022 Actual

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

Restaurant Same Store Sales

The Refinitiv Restaurant Same Store Sales (SSS) index has improved and the index is expected to see a robust 7.0% growth in SSS in Q1 2023, in spite of the difficult comparison offered by a 9.6% gain in SSS last year. (Exhibit 7).

Within this industry, the Casual Dining sector is on top with a 7.7% SSS estimate and continues to outperform the Quick Service sector, as consumers prefer to have a dining experience vs. takeout. The Quick Service sector is on track to see a 6.8% SSS growth.

It’s important to note that, once again, the 2020-2021 results don’t offer an apples-to-apples comparison over previous years, given that quarantine rules and other pandemic restrictions forced many restaurants to close. As a result, a number of restaurants didn’t report SSS data during the pandemic.

Exhibit 7: Refinitiv Restaurant Same Store Sales Index: 2019 – Present

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

Easy comparisons

The Restaurant SSS data is in line with the restaurant earnings data suggesting that despite difficult comparisons from last year, they are still on track for healthy profits. This is due to consumers feeling more comfortable with the reopening and eating out.

As a result, more than 90% of restaurants in our SSS index are on track, or have posted positive Q1 2023 SSS. Yum China took the biggest beating of all the restaurants in this group last year and has already recorded an 8.0% SSS above its 3.8% Q1 SSS estimate (Exhibit 8). Likewise, Dominos Pizza and Wingstop beat their comp estimates with gains in SSS of 3.6% and 20.1%, respectively.

Exhibit 8: Restaurants facing easy SSS comparisons: Q1 2022 Actuals vs. Q1 2023 Estimates

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

Difficult comparisons

Within this category, Dave & Buster faced the most difficult comparison. As a result, it is the only one in the group on track to post a negative Q1 2023 SSS Last year, it recorded a SSS gain of 71.1% for the first quarter; this year, it still has a SSS growth estimate of -1.7% (Exhibit 9).

Similarly, a few standouts in this category include Darden, Brinker and BJ’s Restaurant that despite facing difficult SSS from a year-ago, already beat their estimates and reported strong Q1 2023 SSS of 11.7%, 10.8%, and 9.0% SSS, respectively.

Exhibit 9: Restaurants Facing Difficult Same Store Sales Estimates/Actuals: Q1 2023

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

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