The LSEG U.S. Retail and Restaurant Q3 earnings index, which tracks changes in the growth rate of earnings within the sector, is expected to show a 2.1% growth over last year’s levels. Our metrics show that seven of 10 consumer-related industries have turned negative. (Exhibit 1)
Of the 193 retailers tracked by LSEG, the broadline retail sector is headed for the highest earnings growth rate in the third quarter, recording a 19.4% surge over last year’s level. The second strongest sector is the household products with a 6.5% growth estimate. Consumer Confidence remained volatile in the third quarter. In the latter half of the year, consumers are worried about the uncertainty around the election, job security, and have become budget conscious in the face of elevated prices.
At the other end of the spectrum, Leisure Products has the weakest anticipated Q3 2024 estimate, with profits expected to decline by -19.3% (Exhibit 1).
Exhibit 1: The LSEG Retail Earnings Growth Rate – Q3 2024
Source: LSEG I/B/E/S
Within the Broadline Retail sector, Amazon is on track to record the strongest earnings growth rates of 21.2%. 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 Q3, while Macy’s and Kohl’s have the weakest estimated earnings growth rates.
The second strongest sector is Household Products. Of the nine companies in this group, 5 are on track to post positive estimated earnings growth for Q3. Colgate-Palmolive, Procter & Gamble, and Kimberly-Clark already recorded the robust earnings growth rates of 5.8%, 5.5% and 5.2%, respectively. Still, Clorox is on track to post the strongest earnings growth rate of 184.7%.
In contrast, the Leisure Products group is on track to post the weakest year-over-year earnings comparisons. Negative growth expectations are directly responsible for the forecast decline in the overall earnings growth rate within the group. Four out of seven companies struggled to match year-ago earnings growth levels. Polaris and Brunswick Corp. already reported a 73.1%, and 51.7% decline in earnings growth in the third quarter of 2024.
So far, 51 companies or 26% of those in our Retail/Restaurant Index, have reported earnings for Q3 2024. Of this group, 59% announced earnings that exceeded analysts’ expectations, while 6% matched those forecasts and the remaining 35% reported earnings that fell below analysts’ predictions (Exhibit 2). The blended earnings growth estimate for Q3 2024 is 2.1%.
To date, 51 companies in the Retail/Restaurant index have reported revenue for Q3 2024. For this group, the Q3 2024 blended revenue growth estimate is 3.3%; 47% have reported revenue above analyst expectations, and 53% reported revenue below analyst expectations.
Exhibit 2: LSEG Proprietary Research Restaurant & Retail Dashboard – Q3 2024
Source: LSEG I/B/E/S
This week in retail
Looking forward this week, analysts polled by LSEG are already bullish on Amazon’s Q3 performance. The consensus for Amazon’s Q3 2024 EPS is $1.14. However, there’s a five-star rated analyst with a very accurate rating that published a Bold Estimate, which is different (in this case higher) than the consensus estimate. The analyst expects Amazon to report EPS of $1.26, well above the mean. This suggests that it’s likely that Amazon will beat earnings and post a positive surprise.
The StarMine SmartEstimate is a weighted average of analyst estimates, with more weight given to more recent estimates and more accurate analysts. Our studies have shown that when the SmartEstimate differs from the consensus (I/B/E/S mean) by more than 2%, the company is likely to post subsequent earnings surprises directionally correct 70% of the time. This percentage difference is referred to as the Predicted Surprise (PS%) (Exhibit 3).
Exhibit 3: Amazon StarMine SmartEstimate and Predicted Surprise %: Q3 2024
Source: LSEG Workspace
AMZN is ranked in the top decile for the StarMine Smart Holdings and Short Interest models (Exhibit 4). The retailer scores a notable 92 out of 100 on the Short Interest Model, indicating that investors are not betting against the company. Additionally, Amazon scores an impressive score of 87 out of 100 on the StarMine Earnings Quality (EQ) Model, reflecting sustainable earnings.
Buy-side analysts are increasingly optimistic about Amazon, as evidenced by the StarMine Smart Holdings Model, which highlights key investor concerns, notably, Amazon’s high return on equity (ROE) and return on assets. The online-giant retailer is profitable and therefore is attractive to the buy side.
Exhibit 4: Amazon StarMine Model Scores
Source: LSEG Workspace
Retail sales
The LSEG Same Store Sales (SSS) index is expected to see a robust 3.5% gain in Q3 2024 (Exhibit 5). An increase of 3.0% in SSS signals that consumer spending is healthy. Last year at this time, Q3 2023 SSS came in at a 2.4% 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 5: LSEG Same Store Sales Index: 2019 – Present
Source: LSEG I/B/E/S
Abercrombie & Fitch is on track to post its sixth quarter of double-digit SSS growth. The teen retailer has a 10.0% SSS estimate for Q3. Its double-digit comp estimate is a sign that teenagers are still willing to pay $100 for a “must have” pair of distressed denim jeans.
The apparel sector appears to have performed better in Q3. However, it is important to note that the top performers are facing easy SSS comparisons from a year-ago. Six of the top ten SSS performers are from the apparel group. A few standouts this quarter include Zumiez, Lands’ End, and Aritza, which are on track to report comps of 5.0%, 5.0% and 4.0%, respectively. Zumiez and Aritza are facing easy comparisons from a year-ago.
Meanwhile, Lululemon was a favorite during the pandemic and is still in the top ten SSS for the quarter. The yoga pants maker is expected to post another robust SSS growth of 3.4% for Q3 2024, despite facing very difficult comps from a year-ago.
Outside of the top ten, Gap is on track to post a 1.9% SSS for Q3 2024 and is receiving a boost from its Global and Old Navy division’s 3.0% and 2.4% SSS estimates. Our StarMine Model also suggests that Gap is likely to beat its Q3 earnings estimate and post a positive surprise.
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 3.6% SSS. Meanwhile, Costco already reported a Q3 gain of 5.4%, matching it’s SSS estimate.
Exhibit 6: Strongest Same Store Sales Estimates: Q3 2024 Estimate vs. Q3 2023 Actual
Source: LSEG I/B/E/S
On the other hand, the home goods group received a boost during the pandemic, but sales have slowed down since. As a result, Havertys Furniture, the Container Store, and Home Depot are all in the bottom ten SSS performers for Q3 (Exhibit 7).
Exhibit 7: Weakest Same Store Sales Estimates: Q3 2024 Estimate vs. Q3 2023 Actual
Source: LSEG I/B/E/S
Likewise, Lovesac, Williams Sonoma, and Lowe’s are all on track to see negative comps of -3.4%, -3.3% and -3.0%, respectively. Home Depot’s -3.4% SSS is a slight improvement from the previous 6 quarters. In fact, Home Depot is a top performer for both the StarMine Short Interest, and the Smart Holdings models (Exhibit 8). The retailer scores an 84 out of a possible score of 100 for the Short Interest Model, suggesting that investors are not betting against the company.
Exhibit 8: Home Depot StarMine Models Scores
Source: LSEG Workspace
Restaurant Same Store Sales
The LSEG Restaurant Same Store Sales (SSS) index is expected to see a 0.6% contraction in SSS in Q3 2024, on top of facing last year’s difficult comparison of 5.6% gain. (Exhibit 9).
Within this industry, the Casual Dining sector is on top with a 2.1% SSS estimate, stronger than the Quick Service sector. The Quick Service sector is on track to see a -1.5% SSS.
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 9: LSEG Restaurant Same Store Sales Index: 2019 – Present
Source: LSEG I/B/E/S
About 56% of restaurants in our SSS index are on track or have posted positive Q3 2024 SSS. Still, restaurants are facing very difficult comparisons from a year ago. Starbucks currently has the weakest SSS estimate of -6.2%, as it faces a tough 8.0% SSS from last year. Likewise, Papa John’s has a -5.1% SSS estimate, below last year’s 2.2% comp result.
Exhibit 10: Weakest Restaurant Same Store Sales Estimates: Q3 2024 Estimate vs. Q3 2023 Actual
Source: LSEG I/B/E/S
On the other hand, Wingstop faced the most difficult comparison from a year ago at 15.3%. Still, the restaurant reported a much stronger 20.9% SSS result, in line with its SSS estimate. Meanwhile, Chipotle reported a 6.0% SSS result, slightly below its 6.3% comp estimate, and stronger than last year’s result.
Exhibit 11: Strongest Restaurant Same Store Sales Estimates: Q3 2024 Estimate vs. Q3 2023 Actual
Source: LSEG I/B/E/S
