The LSEG U.S. Retail and Restaurant Q2 earnings index, which tracks changes in the growth rate of earnings within the sector, is expected to show a 17.6% growth over last year’s levels. Our metrics show that six of 10 consumer-related industries have turned negative (Exhibit 1).
Of the 199 retailers tracked by LSEG, the Broadline Retail sector is headed for the highest earnings growth rate in the second quarter, recording a 1040.5% surge over last year’s level. In fact, it has been the strongest performing sector over the past year as consumers’ preferences have pivoted 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, Leisure Products is facing difficult comparisons and has the weakest anticipated Q2 2023 estimate, with profits expected to decline by 25.6% (Exhibit 1).
Exhibit 1: The LSEG Retail Earnings Growth Rate – Q2 2023
Source: LSEG I/B/E/S
Within the Broadline Retail sector, Amazon and Ollie’s Bargain already recorded the strongest earnings growth rates of 425.0%, and 176.9%, respectively. Analysts polled by LSEG remain bullish on these two companies’ earnings estimates for the current quarter. Still, of the seven companies in this group, four are on track to post negative estimated earnings growth for Q2. Amazon has the biggest weighting in this group.
The second strongest sector is the Hotels, Restaurant & Leisure sector. Of the 47 companies in this group, 39 are on track to post positive estimated earnings growth for Q2. MGM Resorts and Caesars Entertainment already recorded the strongest earnings growth rates of 1866.7%, and 847.4%, respectively. Analysts polled by LSEG remain bullish on these two companies’ earnings estimates for the current quarter.
In contrast, the Leisure 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 seven of the eight companies struggle to match year-ago earnings growth levels. Hasbro already reported a 57.4% decline in earnings growth in the second quarter of 2023, followed by Vista Outdoor, which has also recorded an earnings decline of 51.5%.
So far, 144 companies or 72% of those in our Retail/Restaurant Index, have reported earnings for Q2 2023. Of this group, 79% announced earnings that exceeded analysts’ expectations, while 4% matched those forecasts and the remaining 17% reported earnings that fell below analysts’ predictions (Exhibit 2). The blended earnings growth estimate for Q2 2023 is 17.6%.
To date, 144 companies in the Retail/Restaurant index have reported revenue for Q2 2023. For this group, the Q2 2023 blended revenue growth estimate is 3.1%; 64% have reported revenue above analyst expectations, and 36% reported revenue below analyst expectations.
Exhibit 2: LSEG Proprietary Research Restaurant & Retail Dashboard – Q2 2023
Source: LSEG I/B/E/S
Guidance
So far, 144 retailers have reported Q2 earnings; of this group, 88 mentioned inflation. In addition to the 24 negative preannouncements and five positive EPS forecasts in Q2 2023, 42 retailers posted negative revenue outlooks while eight offered a positive outlook for revenue (Exhibit 3). The bulk of the Q2 2023 negative guidance (54.2%) comes from the apparel retail sector.
Looking ahead to Q3 2023, seven retailers issued negative preannouncements, while one issued positive EPS guidance so far. Of those retailers offering revenue guidance, twelve warned of disappointing results, while only five said revenue might be better than previously expected.
Exhibit 3: Earnings and Revenue Guidance: Q2 2023 and Q3 2023
Source: LSEG 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 LSEG Same Store Sales (SSS) index is expected to see a healthy 2.5% gain in Q2 2023 (Exhibit 4). An increase of 3.0% in SSS signals that consumer spending is healthy. It is certainly at this time considered a modest SSS when considering the difficult comparison the index faces. Last year at this time, Q2 2022 SSS came in at a robust 5.2% growth.
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: LSEG Same Store Sales Index: 2017 – Present
Source: LSEG I/B/E/S
Lululemon was a favorite during the pandemic and continues to post robust SSS growth estimates for Q2 2023. A few standouts this quarter include Aritzia and Ulta. The upper middle-class consumer remains engaged and is helping SSS at Lululemon, and Aritzia with comps of 11.0%, and 6.0%, respectively. This is impressive considering that these retailers are facing difficult comparisons from a year ago. (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 5.0% comp, despite facing a difficult 14.4% 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 everyday low prices. As a result, discounters continue to demonstrate their ability to maintain business volume despite the difficult comparisons. Walmart is on track to report a gain of 4.2%. The dollar stores are also receiving a boost from a resilient bargain-hunting consumer and are expected to report a 4.6% SSS.
Exhibit 5: Strongest Same Store Sales Estimates: Q2 2023 Estimate vs. Q2 2022 Actual
Source: LSEG 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 Q2 SSS at -32.0%. Restoration Hardware, which announced plans last quarter to lay off about 440 employees, is expected to post a SSS result of -20.0%. 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 Steven Madden are all on track to see negative SSS.
Exhibit 6: Weakest Same Store Sales Estimates: Q2 2023 Estimate vs. Q2 2022 Actual
Source: I/B/E/S data from LSEG
Restaurant Same Store Sales
The LSEG Restaurant Same Store Sales (SSS) index has improved and the index is expected to see a robust 8.1% growth in SSS in Q2 2023, stronger than last year’s 3.7% gain. (Exhibit 7). 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 post-pandemic reopening and eating out more.
Within this industry, the Quick Service sector is on top with a 9.4% SSS estimate, stronger than the Casual Service sector. The Casual Service sector is on track to see a 4.1% 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: LSEG Restaurant Same Store Sales Index: 2019 – Present
Source: I/B/E/S data from LSEG
Easy comparisons
More than 90% of restaurants in our SSS index are on track, or have posted positive Q2 2023 SSS. Yum China took the biggest beating of all the restaurants in this group last year and has already recorded an 15.0% SSS slightly below its 15.8% Q2 SSS estimate (Exhibit 8). Likewise, Brinker International and Wingstop beat their comp estimates with gains in SSS of 10.8% and 16.8%, respectively.
Exhibit 8: Restaurants Facing Easy SSS Comparisons: Q2 2022 Actuals vs. Q2 2023 Estimates
Source: I/B/E/S data from LSEG
Difficult comparisons
Within this category, Potbelly faced the most difficult comparison. Despite this, it still posted a 12.9% comp, slightly below its 13.0% Q2 2023 SSS estimate. (Exhibit 9).
Similarly, a few standouts in this category include Mc Donald’s, Brinker and Texas Roadhouse that despite facing difficult SSS from a year-ago, already beat their estimates and reported strong Q2 2023 SSS of 11.7%, 10.8%, and 9.1% SSS, respectively.
Exhibit 9: Restaurants Facing Difficult Same Store Sales Estimates/Actuals: Q2 2023
Source: I/B/E/S data from LSEG
Barbie drives sales of pink merchandise
This summer, the Barbie movie topped over $1 billion in revenue at the box office, and retailers have been trying to benefit from its success. Mattel is on track to see a 4.7% growth in revenue for the quarter ending September 2023.
Barbie fans have been showing up at the movie wearing Barbie’s signature pink color. Accordingly, demand for pink merchandise has gone up as well.
Several retailers have Barbie collaborations with retailers and brands including Gap, Crocs, Bloomingdales, Zara and others. These collaborations have a completely sold out rate of 36%, and partially sold out rates (at least one core size sold out) are 67%. This data is for the last 30 days, LSEG discovered in a collaborated with Centric Pricing, which analyzes retailers, brands, online trends and products across the globe.
Of these retailer samples, Bloomingdales has seen the highest proportion of its Barbie goods sell out online: 44%.
Pink merchandise is flying off the shelves and has a sold out rate in July 2022 of 8%, while in July 2023, this was 18%. The same can be said during the month of August so far. Sold out rates are up 11% for the first two weeks in August vs. 5% last year (Exhibit 10).
Exhibit 10: Pink Merchandise Sold Out % Rate
Source: Centric Pricing
