Retail Earnings in Focus

Retail Earnings in Focus Read More...

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="The earnings focus remains on the Retail sector, where we have already seen conflicting releases from two bellwethers in the space – Wal-Mart (WMT) and Macy’s (M). A host of others are on deck to report, including Nordstrom (JWN), Target (TGT) and Kohl’s (KSS).” data-reactid=”11″>The earnings focus remains on the Retail sector, where we have already seen conflicting releases from two bellwethers in the space – Wal-Mart (WMT) and Macy’s (M). A host of others are on deck to report, including Nordstrom (JWN), Target (TGT) and Kohl’s (KSS).

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="In total, this upcoming week is the last major reporting week of the Q2 earnings season, with more than 120 companies coming out with results, including 20 S&P 500 members. By the end of the week, we will have seen Q2 results from 480 S&P 500 members – or 96% of the index’s total membership.” data-reactid=”12″>In total, this upcoming week is the last major reporting week of the Q2 earnings season, with more than 120 companies coming out with results, including 20 S&P 500 members. By the end of the week, we will have seen Q2 results from 480 S&P 500 members – or 96% of the index’s total membership.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Traditional retailers have been dealing with a host of secular headwinds for a while now, which include consumers’ steady shift towards ecommerce and the resulting decline in foot traffic at the mall. This has forced retailers to rethink their business models with varying success.” data-reactid=”13″>Traditional retailers have been dealing with a host of secular headwinds for a while now, which include consumers’ steady shift towards ecommerce and the resulting decline in foot traffic at the mall. This has forced retailers to rethink their business models with varying success.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Macy’s struggles in its latest release, when it missed estimates and guided lower, suggests that it still has plenty to do. Wal-Mart, on the other hand, seems to be on the right track, with many of us looking at the company as true challenger to Amazon’s (AMZN) march.” data-reactid=”14″>Macy’s struggles in its latest release, when it missed estimates and guided lower, suggests that it still has plenty to do. Wal-Mart, on the other hand, seems to be on the right track, with many of us looking at the company as true challenger to Amazon’s (AMZN) march.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="We discussed the contrasting reports from Wal-Mart and Macy’s here: Traditional Retail Is Far from Dead” data-reactid=”15″>We discussed the contrasting reports from Wal-Mart and Macy’s here: Traditional Retail Is Far from Dead

Our Take on Q2 Earnings Season

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="The overall picture emerging from the Q2 earnings season is good enough: not great, but not bad either. The fact that there is not much growth is hardly news to anyone, as we knew all along the very tough comparisons for this quarter, as well as the remainder of this year. Earnings growth was essentially flat in the first quarter of the year and we appear to be on track for a similar performance in Q2 as well.” data-reactid=”17″>The overall picture emerging from the Q2 earnings season is good enough: not great, but not bad either. The fact that there is not much growth is hardly news to anyone, as we knew all along the very tough comparisons for this quarter, as well as the remainder of this year. Earnings growth was essentially flat in the first quarter of the year and we appear to be on track for a similar performance in Q2 as well.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Here are the key takeaways from the Q2 earnings season after seeing results from 460 S&P 500 members through Friday, August 16^th.” data-reactid=”18″>Here are the key takeaways from the Q2 earnings season after seeing results from 460 S&P 500 members through Friday, August 16^th.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="First, no major surprises on the growth front, which we knew would be anemic. We should keep in mind, however, that the growth challenge is more a function of tough comparisons to last year’s record results than a cyclical downturn in profitability. ” data-reactid=”19″>First, no major surprises on the growth front, which we knew would be anemic. We should keep in mind, however, that the growth challenge is more a function of tough comparisons to last year’s record results than a cyclical downturn in profitability.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Total earnings for the 460 index members that have reported are up +0.4% from the same period last year on +4.8% higher revenues. Earnings and revenue growth for the same cohort of companies had been -0.3% and +4.6% in the preceding earnings season, respectively. In other words, earnings and revenue growth is tracking modestly above what we had seen in the March quarter.” data-reactid=”20″>Total earnings for the 460 index members that have reported are up +0.4% from the same period last year on +4.8% higher revenues. Earnings and revenue growth for the same cohort of companies had been -0.3% and +4.6% in the preceding earnings season, respectively. In other words, earnings and revenue growth is tracking modestly above what we had seen in the March quarter.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="The comparison chart below puts this growth picture in a historical context for these 460 index members:” data-reactid=”21″>The comparison chart below puts this growth picture in a historical context for these 460 index members:

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Earnings growth for the quarter was expected to be in negative territory before this earnings season got underway. But the blended growth rate, which combines the actual results that have come out with estimates for the still-to-come companies is for +0.2% growth on +4.7% revenue growth.  ” data-reactid=”31″>Earnings growth for the quarter was expected to be in negative territory before this earnings season got underway. But the blended growth rate, which combines the actual results that have come out with estimates for the still-to-come companies is for +0.2% growth on +4.7% revenue growth.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Second, positive EPS surprises are about in-line with historical trends while the proportion of these companies beating revenue estimates is notably on the weaker side.  ” data-reactid=”32″>Second, positive EPS surprises are about in-line with historical trends while the proportion of these companies beating revenue estimates is notably on the weaker side.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="For the 460 index members that have reported results already, 75.2% are beating EPS estimates and 57.2% are beating revenue estimates. For the same cohort of companies, the proportion of positive EPS and revenue surprises was 77.2% and 60.2% in the Q1 earnings season. ” data-reactid=”33″>For the 460 index members that have reported results already, 75.2% are beating EPS estimates and 57.2% are beating revenue estimates. For the same cohort of companies, the proportion of positive EPS and revenue surprises was 77.2% and 60.2% in the Q1 earnings season.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="The comparison charts below put the Q2 beats percentages in a historical context for these 460 companies:” data-reactid=”38″>The comparison charts below put the Q2 beats percentages in a historical context for these 460 companies:

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Third, estimates for 2019 Q3 are coming down more than what we saw in the comparable period for the preceding two quarters, but about in-line with historical trends. The current -4.1% decline is unchanged from last week, but down from -1% in mid-June. ” data-reactid=”47″>Third, estimates for 2019 Q3 are coming down more than what we saw in the comparable period for the preceding two quarters, but about in-line with historical trends. The current -4.1% decline is unchanged from last week, but down from -1% in mid-June.

The chart below shows how estimates for 2019 Q3 have evolved over the last five weeks:

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Estimates for full-year 2019 are coming down as well, though the magnitude of negative revisions is a lot lower currently than had been the case at the start of the year.” data-reactid=”57″>Estimates for full-year 2019 are coming down as well, though the magnitude of negative revisions is a lot lower currently than had been the case at the start of the year.

Q2 Earnings Season Scorecard (as of August 16^th)

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="We now have Q2 results from 460 S&P 500 members, or 92% of the index’s total membership. Total earnings for these companies are up +0.4% from the same period last year on +4.8% higher revenues, with 75.2% beating EPS estimates and 57.2% beating revenue estimates.” data-reactid=”59″>We now have Q2 results from 460 S&P 500 members, or 92% of the index’s total membership. Total earnings for these companies are up +0.4% from the same period last year on +4.8% higher revenues, with 75.2% beating EPS estimates and 57.2% beating revenue estimates.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="For Q2 as a whole, total earnings for the S&P 500 index are expected to be up +0.2% from the same period last year on +4.7% higher revenues, which would follow the -0.1% earnings decline on +4.4% higher revenues in 2019 Q1.” data-reactid=”60″>For Q2 as a whole, total earnings for the S&P 500 index are expected to be up +0.2% from the same period last year on +4.7% higher revenues, which would follow the -0.1% earnings decline on +4.4% higher revenues in 2019 Q1.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="The table below shows the summary picture for Q2, contrasted with what was actually achieved in the preceding earnings season:” data-reactid=”61″>The table below shows the summary picture for Q2, contrasted with what was actually achieved in the preceding earnings season:

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="The chart below the Q2 earnings and revenue growth pace in the context of where growth has been in recent periods and what is expected in the next few quarters:” data-reactid=”70″>The chart below the Q2 earnings and revenue growth pace in the context of where growth has been in recent periods and what is expected in the next few quarters:

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="For an in-depth look at the overall earnings picture and expectations for Q2 and beyond, please check out our weekly Earnings Trends report from August 14^th.” data-reactid=”78″>For an in-depth look at the overall earnings picture and expectations for Q2 and beyond, please check out our weekly Earnings Trends report from August 14^th.

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Retail Earnings in Focus

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