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May 14, 2024

Q1 2024 U.S. Retail Preview: Sales Picked Up

by Jharonne Martis.

The LSEG 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 20.6% growth over last year’s levels. Our metrics show that six of 10 consumer-related industries have turned positive. (Exhibit 1)

Of the 201 retailers tracked by LSEG, the broadline retail sector is headed for the highest earnings growth rate in the first quarter, recording a 165.6% surge over last year’s level. The second strongest sector is the restaurants & leisure group with a 28.0% growth estimate. In fact, it has been consistently the strongest performing sector over the past two years as consumers’ preferences have pivoted towards services. It is still seeing double digit growth on top of last year’s strong growth rates. 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 Q1 2024 estimate, with profits expected to decline by -13.8% (Exhibit 1).

Exhibit 1: The LSEG Retail Earnings Growth Rate – Q1 2024

Source: LSEG I/B/E/S

Within the Broadline Retail sector, Amazon already recorded the strongest earnings growth rates of 216.1%. Analysts polled by LSEG remain bullish on the online giant’s earnings estimates for the remainder of this year. The online retailer has the biggest weighting in the group and is boosting the sector’s growth rate. Still, of the seven companies in this group, only three are on track to post positive estimated earnings growth for Q1.

The second strongest sector is Hotels, Restaurants & Leisure. This sector has consistently posted strong gains over the past two years. Of the 49 companies in this group, 34 are on track to post positive estimated earnings growth for Q1. Shake Shack, Royal Caribbean and Wynn Resorts already recorded the strongest earnings growth rates of 1400.0%, 869.9% and 448.3%, respectively. Analysts polled by LSEG believe Vail Resorts and Dave & Buster’s are expected to post positive estimated earnings growth for Q1.

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 five of the eight companies struggle to match year-ago earnings growth levels. Polaris already reported an 89% decline in earnings growth in the first quarter of 2024. On the flip side, Hasbro recorded the strongest earnings growth within the group of 6000%.

So far, 139 companies or 69% of those in our Retail/Restaurant Index, have reported earnings for Q1 2024. Of this group, 73% announced earnings that exceeded analysts’ expectations, while 1% matched those forecasts and the remaining 26% reported earnings that fell below analysts’ predictions (Exhibit 2). The blended earnings growth estimate for Q1 2024 is 20.6%.

To date, 139 companies in the Retail/Restaurant index have reported revenue for Q1 2024. For this group, the Q1 2024 blended revenue growth estimate is 3.8%; 51% have reported revenue above analyst expectations, and 49% reported revenue below analyst expectations.

Exhibit 2: LSEG Proprietary Research Restaurant & Retail Dashboard – Q1 2024

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 robust 4.7% gain in Q1 2024 (Exhibit 3). An increase of 3.0% in SSS signals that consumer spending is healthy. Last year at this time, Q1 2023 SSS came in at a 4.2% growth.

It’s very important to note that due to the pandemic, the 2020-2022 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 3: LSEG Same Store Sales Index: 2019 – Present

Source: LSEG I/B/E/S

Consumer confidence has improved and Americans are feeling better about stretching their spending. Abercrombie is on track to post its fourth quarter of double-digit SSS growth. The teen retailer has a 10.9% SSS estimate for Q1. Its double-digit comp estimate is a sign that parents aren’t frowning as much when they pay for their kids to spend $100 for a “must have” pair of distressed denim jeans. It’s a sign that the U.S. consumer remains resilient.

Lululemon was a favorite during the pandemic and is expected to post another robust SSS growth with a 7.8% SSS estimates for Q1 2024. A few other standouts this quarter include American Eagle, TJX and Ross Store. These off-price retailers are receiving a boost from the upper middle-class consumer, who wants designer clothing for less. Meanwhile, American Eagle is receiving a boost from its Aerie division, which is on track to report an impressive 7.5% comp. Urban Outfitters is also receiving a boost from its Free People and Anthropologie divisions, which are on track to report comps of 13.2% and 7.6%, respectively.

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 has a loyal customer following that is looking to save money and is expected to report a 3.0% SSS. Meanwhile, Costco already reported a gain of 4.7%.

Exhibit 4: Strongest Same Store Sales Estimates: Q1 2024 Estimate vs. Q1 2023 Actual

Source: LSEG I/B/E/S

The home goods group received a boost during the pandemic, but sales have slowed down since. As a result, Lovesac, the Container Store, Haverty’s Furniture, Williams Sonoma and Lowe’s are all in the bottom ten SSS performers for Q1 (Exhibit 5).

Exhibit 5: Weakest Same Store Sales Estimates: Q1 2024 Estimate vs. Q1 2023 Actual

Source: LSEG I/B/E/S

Restaurant Same Store Sales

The LSEG Restaurant Same Store Sales (SSS) index is expected to see a healthy 2.4% growth in SSS in Q1 2024, despite facing last year’s difficult comparison of 9.9% gain. (Exhibit 6). 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 Casual Dining sector is on top with a 3.3% SSS estimate, stronger than the Quick Service sector. The Quick Service sector is on track to see a 2.4% 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 6: LSEG Restaurant Same Store Sales Index: 2019 – Present
Source: LSEG I/B/E/S

About 63% of restaurants in our SSS index are on track or have posted positive Q1 2024 SSS. Still, retailers are facing very difficult comparisons from a year-ago. Red Robin currently has the weakest SSS estimate of -6.8%, followed by Dave & Buster’s -3.7% SSS. Meanwhile, Potbelly faced the most difficult comparison. As a result, it posted a -0.2% comp. Still, the restaurant said it saw traffic improve during the quarter.

Exhibit 7: Weakest Restaurant Same Store Sales Estimates: Q1 2024 Estimate vs. Q1 2023 Actual

Source: LSEG I/B/E/S

On the other hand, a few standouts include Chipotle, Burger King and Brinker International, that despite facing difficult SSS from a year ago, already reported strong Q1 2024 SSS of 7.0%, 3.8%, and 3.3% SSS, respectively.

Exhibit 8: Strongest Restaurant Same Store Sales Estimates: Q1 2024 Estimate vs. Q1 2023 Actual

Source: LSEG I/B/E/S

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