May 5, 2017

U.S. Retailers and Restaurants See Slow Q1 Growth

by Jharonne Martis

The first quarter of 2017 proved to be sluggish for shopping and dining-out activities.

Of the 117 companies in our Thomson Reuters Proprietary Research Restaurant & Retail Universe that have reported earnings to date for Q1 2017, 70% reported earnings above analyst expectations and 61% reported revenue above expectations.

While that’s good news, there were 57 Q1 negative EPS preannouncements issued by retailers and restaurants compared to 14 positive EPS preannouncements.

Indications are that, overall, first quarter earnings are expected to increase 3.7% from Q1 2016, a good, if not spectacular, figure.

However, the Thomson Reuters Retail Same Store Sales Index is expected to post an anemic -0.2% SSS growth in Q1 2017 (vs. 1.5% in Q1 2016). The Thomson Reuters Restaurant Same Store Sales Index is expected to post a weak 1.6% SSS growth in Q1 2017 (vs. 2.3% in Q1 2016).

Guidance

Retailers are getting ready to report Q1 2017 earnings, but are already warning us not to expect much good news. Negative guidance came from 57 companies, while only 14 companies have issued positive EPS guidance (Exhibit 1). The bulk of the negative guidance (21%) comes from the apparel sector.

Exhibit 1: Q1 and Q2 2017 Earnings and Revenue Guidance

Source: Thomson Reuters I/B/E/S estimates

Outlook and trends

First quarter retail earnings are expected to grow 3.7% over Q1 2016. The internet and catalog retail, and personal products sectors are expecting the highest earnings growth rates for the quarter, while the leisure products and multiline retail sectors have the weakest negative anticipated growth rates compared to Q1 2016 (Exhibit 2).

The internet and catalog retail report is expected to see earnings grow by 28.8%. The strength is being led by Netflix’s 566.7% jump in earnings growth, followed by Nutrisystem’s strong 177.8% earnings results.

The personal products sector is expected to see earnings grow by 24.3%. The strength in this sector is driven by Coty’s 39.3% estimated growth rate, followed by InterParfums’ 29.3% estimated growth rate. Thus, the strength in the beauty market is benefiting the personal products sector.

On the flip side, the leisure products sector has the weakest earnings growth rate at -36.0%.  The weakness is coming from Vista Outdoor Inc. -72.5% estimated earnings growth rate, and Callaway Golf Co -25.0% actual earnings growth rate. Similarly, the multiline retail sector has a weak earnings growth rate at -14.3%. Fred’s Inc. (-150%) and Target Corp.’s (-29.3%) weak earnings estimates are bringing the group down.

Exhibit 2: Q1 2017 Earnings Growth: Retail Industries

Source: Thomson Reuters I/B/E/S estimates

Earnings Growth Winners

Of the 106 companies in the Thomson Reuters Retail and Restaurant group that have yet to report Q1 2016 earnings, MDC Holdings Inc. and Installed Building Products Inc. are on top with 88.9%, and 53.0% estimated earnings growth rates, respectively.

It’s evident from the expected list of winners that home builders and home improvement groups are still profiting from the strong housing trend.

Exhibit 3. Thomson Reuters Strongest Earnings Growth Rate Results: Q1 2017 

Source: Thomson Reuters I/B/E/S estimates

Losers

G-III Apparel Group Ltd. and Fossil Group Inc. are on track to post the weakest earnings growth rates at -761.1%, and -385.4%, respectively. The bulk of the companies below are also hurting from sector specific issues in the apparel group.

Exhibit 4. Thomson Reuters Weakest Earnings Growth Rate Results: Q1 2017

 

Source: Thomson Reuters I/B/E/S estimates

Same Store Sales outlook

We expect an anemic -0.2% SSS growth in Q1 2017 (vs. 1.5% in Q1 2016), suggesting that first quarter 2017 sales were slower than a year-ago. And despite facing easy comparisons from a year-ago, department stores are still struggling with a -4.3% SSS estimate.

Exhibit 5. Thomson Reuters Same Store Sales Index Q1 2017 EST VS. Q1 2016

Source: Thomson Reuters I/B/E/S estimates

Meanwhile, Big Five Sporting Goods and Coach already reported the strongest SSS of 7.9%, and 3.0% for Q1 2017, above their 5.1% and 1.5% final estimate (Exhibit 6). On the flip side, Cato Corp. has the weakest SSS result of -17.0% SSS. Of the 24 retailers that have reported 1Q Same Store Sales, 35% exceeded estimates, while 65% missed.

Exhibit 6. Thomson Reuters Same Store Sales Scorecard – 1Q 2017

 

Source: Thomson Reuters I/B/E/S estimates

Cosmetics and sporting goods

Cosmetic retailer Ulta continues to sport the strongest SSS estimate at 10.8%, below last year’s 15.2%. In sporting goods, Dick’s is also expected to post a strong comp of 3.5%. A 3.0% reflects healthy consumer spending, and when looking at the top estimates for the first quarter, only three retailers are expected to post comps higher than 3.0%, underlining the weakness in the retail sector.

Exhibit 7. Thomson Reuters Same Store Sales – Top Estimates Q1 2017

 

Source: Thomson Reuters I/B/E/S estimates

Retail SSS Losers

Meanwhile, the bulk of retailers (41%) including Gamestop, Express, Sears, and Kors are all expected to see a drop in SSS. Guess has the weakest SSS estimate at -16.7% as its merchandise resonates better in Asia and Europe, rather than the Americas.

Exhibit 8. Thomson Reuters Same Store Sales – Bottom Estimates Q1 2017

Source: Thomson Reuters I/B/E/S estimates

Restaurant SSS Index

We expect a 1.6% SSS growth in Q1 2017 (vs. 2.3% in Q1 2016). The quick service sector is the strongest, while casual dining is still weak.

Exhibit 9. Thomson Reuters Restaurant Same Store Sales Sectors Q1 2017

 

Source: Thomson Reuters I/B/E/S estimates

Meanwhile, Chipotle already reported the strongest SSS of 17.8% for Q1 2017, above its 15.5% final estimate (Exhibit 10). On the flip side, Sonic has the weakest SSS result: -7.3% SSS. Of the 29 restaurants that have reported 1Q Same Store Sales, 66% exceeded estimates, while 34% missed.

Exhibit 10. Thomson Reuters Restaurant Same Store Sales Scorecard – 1Q 2017

 

Source: Thomson Reuters I/B/E/S estimates

Restaurant SSS Winners

Del Taco Restaurants has the strongest SSS estimate at 4.0%, followed by Dave & Buster’s and Wendy’s at 2.7% and 1.2%, respectively.

Exhibit 11. Thomson Reuters Restaurant Same Store Sales – Top Estimates Q1 2017

 

Source: Thomson Reuters I/B/E/S estimates

Restaurant SSS Losers

On the flip side, Famous Dave’s Of America has the weakest SSS estimate at -5.5%. According to StarMine, the company has credit issues.

Exhibit 12. Thomson Reuters Restaurant Same Store Sales – Bottom Estimates Q1 2017

 

Source: Thomson Reuters I/B/E/S estimates

Get In Touch

Subscribe