May 7, 2018

U.S. Retailers Saw Strong Holiday Results Roll into Q1

by Jharonne Martis.

In the U.S. retail landscape, the strength seen this past holiday season continued into the first quarter of 2018. In fact, analysts polled by Thomson Reuters are becoming more bullish on consumer spending as retailers get ready to report their earnings for Q1 2018.

The Thomson Reuters Same Store Sales Index is now looking for stronger  Q1 2018 growth vs. the SSS result posted in Q1 2017. Retailers are also facing easier comparisons from a year ago, and all sectors are expected to post stronger comps this time around, with the discounter group on top with a stronger

Let’s dig in and find out where consumers went shopping and dining:

  • The Thomson Reuters consumer confidence index suggests consumers are feeling good about their careers and economic situation, and therefore about extending themselves.
  • The upward trend in consumer confidence is also reflected in the latest earnings guidance numbers, as retailers have been providing more positive earnings pre-announcements compared to a year ago.
  • As a result, the Thomson Reuters Retail and Restaurant Earnings Index is now expected to see double digit growth in Q1 2018, after a spectacular holiday season.
  • The Internet sales sector continues to have the highest earnings growth rate (62.4%) of any sector.
  • On the other hand, the Leisure Products sector has the lowest growth rate (-82.2%) of any sector.
  • The Thomson Reuters Restaurant Same Store Sales Index is looking at a healthy Q1 2018 growth, slightly below Q1 2017 SSS result.
  • Despite facing difficult comparisons from last year, restaurants are expected to post healthy comps this quarter.
  • Casual dining is doing better than last year. On the other hand, the fine dining sector is struggling with a weak SSS estimate, below last year’s SSS result.

Q1 2018 earnings growth

When looking at the earnings growth rates for the holiday season for the retailers tracked by Thomson Reuters, the Internet sector continues to have the highest earnings growth rate (62.6%) of any sector. Four of the nine retailers in the sector are anticipated to see higher earnings, compared to a year ago. Netflix already saw a 60.0% jump in earnings, and Petmed Express, Inc. (26.6%) has the highest EPS growth estimate in the sector.  Amazon already posted a 120.9% jump in earnings.

On the other hand, the Leisure Products sector has the lowest growth rate (-82.3%) of any sector. Four of the eight retailers in the sector are expected to see earnings declines compared to Q1 2017, led by Vista Outdoor, Inc. (-204.8%) and Hasbro, Inc. (-81.5%) sub-industries.

Exhibit 1: Thomson Reuters Retail Earnings Growth Rate – Q1 2018

Source: Thomson Reuters I/B/E/S

Rising consumer confidence

Consumer spending has remained healthy since the strength of this past holiday season. The Thomson Reuters’ consumer confidence index suggests consumers are feeling good about their economic situation, better about extending themselves and spending their discretionary income. After holding steady between February and March, American consumer confidence, as measured by the Thomson Reuters/Ipsos Primary Consumer Sentiment has continued its long-term upward trend. This April’s mark of 63.6 sets a new post-recession high, breaking March and February’s previously shared record.

Exhibit 2: Thomson Reuters IPSOS consumer sentiment index

Source: Thomson Reuters I/B/E/S

Positive earnings guidance

The upward trend in consumer confidence is also reflected in the latest earnings guidance numbers, as retailers have been providing more positive earnings preannouncements compared to a year-ago (Exhibit 2). As a result, the Thomson Reuters Retail and Restaurant Earnings Index is now expected to see double digit growth in Q1 2018, after a spectacular holiday season.

The bulk of the negative guidance comes from the apparel sector. Guidance is already starting to come in for Q2.

Exhibit 3: Thomson Reuters Retail Earnings Growth Rate – Q1 2018

Source: Thomson Reuters I/B/E/S

Thomson Reuters retail same store sales

The strength seen this past holiday season continues into the first quarter of 2018. Likewise, analysts polled by Thomson Reuters are becoming more bullish on consumer spending as retailers get ready to report their earnings results for the first quarter of 2018. The Thomson Reuters Same Store Sales Index is now looking at a stronger Q1 2018 growth, above the SSS result posted in Q1 2017. Retailers are also facing easier comparisons from a year ago, and are expected to post stronger comps this time around with the discounter group on top.

Exhibit 4: Same Store Sales Sectors – Q1 2018  vs. Q1 2017

Source: Thomson Reuters I/B/E/S

 Same Store Sales winners

Let’s dig in and find out where consumers went shopping during this holiday season. Millennials respect Aerie’s marketing pledge that they won’t Photoshop their models, and as a result it has a strong cult following. The teen retailer has the strongest SSS estimate in our retail. The hot leisure trend is helping Lululemon, while the improvement in the housing market is benefiting West Elm. This time around Urban Outfitters, and its divisions all have strong SSS estimates. Similarly, teen retailer Zumiez continues to be a favorite, followed by Home Depot. Beauty supplies continue to do well and Ulta is benefiting from this.

Exhibit 5: Top SSS estimates – Q1 2018

Source: Thomson Reuters I/B/E/S

Same Store Sales Losers

The usual suspects fall into this category — Vera Bradley, Sears, Chico’s and Ascena, which are hurting from company-specific issues. Still, Francesca’s Holdings has the weakest SSS estimate for the first quarter. Like other mall stores, Chico’s and Sterling Jewelers have been affected by weak mall traffic. Meanwhile Barnes & Noble, Inc. continues to feel the effects of Amazon’s disruption of its industry.

Exhibit 6: Bottom SSS estimates – Q1 2018

Source: Thomson Reuters I/B/E/S

Thomson Reuters restaurant same store sales

Despite facing difficult comparisons from last year, restaurants are expected to post healthy comps this quarter. As a result, the Thomson Reuters Restaurant Same Store Sales Index is now looking at an estimate slightly below the SSS result posted last year. Casual dining is doing better than last year. On the other hand, the fine dining sector is struggling with a weak SSS estimate, below last year’s result.

Exhibit 7: Restaurant Same Store Sales Sectors – Q1 2018 vs. Q1 2017

Source: Thomson Reuters I/B/E/S

Restaurant Same Store Sales winners

Yum China continues to outperform its U.S. business. Meanwhile, Mc Donald’s already beat its SSS estimate with a 5.5% SSS result, and a 14.5% EPS growth. Starbucks beat its SSS estimate, and reported a 2.0% SSS. Its China division was its strongest with a 3.0% SSS, above final estimate.

Exhibit 8: Top SSS estimates – Q1 2018

Source: Thomson Reuters I/B/E/S

Restaurant Same Store Sales Losers

Potbelly is facing weak sales and operating efficiency. As a result, the restaurant has one of the weakest SSS estimates. The same can be said for Dave & Busters and Del Frisco’s. Meanwhile, Diversified Restaurant Holdings and Sullivan’s Steakhouse have the weakest SSS estimates.

Exhibit 9: restaurant Bottom SSS estimates – Q1 2018

Source: Thomson Reuters I/B/E/S

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