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Earnings Preview

Retail sector earnings are in the spotlight, with the reporting cycle over for most of the other sectors. Retail got off to a good start this earnings season, with growth rates and beat ratios coming in better relative to pre-season expectations as well as other sectors.

The aggregate earnings picture for the sector still compares favorably to other recent periods, as the sector’s initial reports were mostly from operators in the online and restaurants spaces. Comparisons have started to become less favorable following the weak showing from department stores like Macy’s (M - Analyst Report) , Kohl’s (KSS - Analyst Report) and others. This week’s reports from sector leaders like Wal-Mart (WMT - Analyst Report) , Target (TGT - Analyst Report) , Home Depot (HD - Analyst Report) and others will help give us a true picture for the sector.

It has been a tough operating environment for the Retail sector, with a combination of weather issues in the first quarter of the year and logistical challenges related to West Coast ports adding to longstanding competitive challenges. We are seeing these factors getting cited to varying degrees in the department store results.

On top of these known issues is the uncertain consumer spending backdrop, with retailers’ hopes of benefiting from low oil prices not coming to fruition. The tentative consumer spending behavior is not only visible in the soft department store results, but also in other aggregate economic data. The monthly Retail Sales from the government came in short of estimates recently, with this monthly measure now down or flat in 3 of the last 4 months. The unexpected drop in the University of Michigan’s consumer confidence measure for May adds to these challenges.  

As of Friday May 15th, we have seen Q1 results from 25 retailers in the S&P 500 index, out of the 41 total in the index. Total earnings for these 25 retails are up +6.5% from the same period last year, on +10.9% higher revenues, with 84% beating EPS estimates and 52% coming ahead of top-line expectations.

This is better performance than we have seen from these 25 retailers in other recent periods, as the comparison chart below shows. Importantly, the sector’s earnings beat ratio is currently the highest of all 16 sectors and its revenue beat ratio is the fourth highest.



The charts above compare the sector’s results thus far with what these same 25 retailers reported over the past year. As you can see, the earnings growth rate (+6.5%) is better than what we saw from the same group of companies in 2014 Q4 (+2.6%) and the 4-qurater average (+3.7%). The +10.9% revenue growth rate for the sector is the highest in the S&P 500 index, though the growth rate drops to a still high +7.4% once the easy comparisons at Walgreen Boots (WBA - Analyst Report) are adjusted. And as referred to earlier, the sector’s earnings and revenue beat ratios are materially better than what we seen for the broader index as a whole.  

Retail sector stocks have been strong performers lately, with sector stocks in the S&P 500 handily outperforming the broader index in both the year-to-date and trailing 52-weeks as well as in response to the results that have come out already. In fact, the stock price reaction to Q1 earnings announcements is the highest of all 16 sectors in the S&P 500 for the Retail sector (see second last column in Figure 1 below). This could change in the coming days as more retailers report results. But at this stage at least, the Retail sector stands for its earnings and stock price performance.

2015 Q1 Earnings Scorecard (as of May 15th, 2015)

We now have Q1 result from 463 S&P 500 members that combined account for 93.9% of the index’s total market capitalization. Total earnings for these companies are up +2.4% on -3.7% lower revenues, with 65.6% beating EPS estimates and 44.3% coming ahead of revenue expectations. With 24 index members on deck to report results this week, we will have seen results from 487 S&P 500 members by the end of the week.

Figure 1 below shows the current Scorecard for the 463 index members that have reported results.

Figure 1: 2015 Q1 Scorecard (as of 5/15/2015)



Please note that the second-last column (Price Impact) in the Scorecard table above tries to capture how stock prices have moved in response to earning releases. As the small note at the bottom of the table explains, the price change is from the day before the earnings announcement to the day after. If we are looking at a stock that has reported that morning, then the day before price is compared to the intraday price on the release date. As mentioned earlier, the Retail sector stands out for its strong stock price response to earnings results.

Putting Q1 Results in Context

Figure 2 below shows the comparison of the results thus far with what we have been seeing from the same group of 463 companies in other recent quarters.

Figure 2: 2015 Q1 Results Compared



The left-hand side chart compares the earnings and revenue growth rates for these 463 S&P 500 members with what these same companies reported in the preceding quarter and the average growth rates for these companies in the preceding four quarters (the 4-quarter average is through 2014 Q4). The right-hand side chart does the same comparison for these S&P 500 members, but compares only the earnings and beat ratios.

Here are the takeaways from looking at this chart

  1. The earnings growth rate (+2.4%) is decent enough, but is weaker relative to other recent periods. The earnings growth comparison becomes extremely lopsided once the Finance sector’s strong growth numbers are excluded (more on that a little later).
  2. The revenue growth rate (-3.7%) is notably below what we saw from this group of companies in Q4 (+1.8%) as well as in the 4-quarter average (+3.7%).
  3. The earnings beat ratio is tad bit below what we have been seeing in the recent past, but not in a big way.
  4. The revenue beat ratio is notably below what these same companies reported in the preceding as well as 4-quarter average.


The Finance Effect

Total earnings for the Finance sector (all results for the sector are on the books now) are up +16.5% on +2.0% higher revenues, with 63.9% beating EPS estimates and 50.6% coming ahead of top-line expectations. This is better growth performance than we have seen from this group of Finance sector companies in other recent quarters and plays a material role in holding up the aggregate growth picture for the S&P 500. Excluding the Finance sector, total earnings for the remaining index members would be down -1.2%.   

Figure 3 below compares the S&P 500 results thus far with and without the Finance sector.



Not to make light of the Finance sector’s better looking numbers this quarter, but the sector’s growth pace did benefit from easy comparisons for Bank of America (BAC - Analyst Report) . Exclude Bank of America and the earnings growth rate drops to +9.1%. But even this +9.1% growth rate compares favorably to what we have been seeing from this group in other recent quarters.

The Oil Effect

The Energy sector results have come in better than expected – the growth rates are all negative, but they aren’t as bad as initially feared. With all of the Energy sector results on the books, total earnings for the sector are down -54.2% on -34.7% lower revenues, with 70.7% beating EPS estimates and 46.3% coming ahead of top-line estimates.

Excluding the Energy sector, the aggregate growth picture for the S&P 500 become notably better, with total earnings for the index up +10.6% on +2.2% higher revenues. As you can see in the right-hand side chart, the aggregate earnings growth picture on an ex-Energy basis looks fairly good. But even in this ex-Energy world, the revenue comparisons are still unfavorable. The charts below show the aggregate growth comparison for the index, with and without the Energy sector.

As you can see in the right-hand side chart above, the aggregate earnings growth picture on an ex-Energy basis looks fairly good. But even in this ex-Energy world, the revenue comparisons are still unfavorable.

Perhaps the true underlying picture will come out if we exclude both the Energy and Finance sectors from the aggregate data, which we have done in the chart below. As you can see, the growth comparison still remains unfavorable (right-hand side chart).



Q2 Estimates Keep Falling

With the Q1 earnings season effectively behind us now, attention is shifting to the current period, particularly to trends in Q2 earnings estimates. On the front, we are seeing a continuation of the negative revisions trend that has been in place for more than two years now. Estimates for the current quarter, which had fallen quite a bit already in solidarity with the Q1 estimate cuts, have started coming down even more.

The chart below shows how earnings growth estimates for Q2 have evolved since the beginning of the year.

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Note: For a complete analysis of 2015 Q1 estimates, please check out our weekly Earnings Trends report.

Here is a list of the 115 companies reporting this week, including 24 S&P 500 members.

 

Company Ticker Current Qtr Year-Ago Qtr Last EPS Surprise % Report Day Time
BIOLINE RX LTD BLRX -0.1 -0.1 -10 Monday BTO
WP CAREY INC WPC 0.99 1.31 0 Monday BTO
JA SOLAR HOLDGS JASO 0.2 0.32 11.11 Monday BTO
RADIANT LOGIST RLGT 0.03 0 100 Monday BTO
URBAN OUTFITTER URBN 0.3 0.26 5.26 Monday AMC
AGILENT TECH A 0.39 0.72 0 Monday AMC
PHOTRONICS INC PLAB 0.11 0.02 16.67 Monday AMC
MOMO INC -ADR MOMO N/A N/A N/A Monday AMC
QUOTIENT LTD QTNT -0.52 N/A 25 Monday AMC
ASCENDIS PHARMA ASND -0.39 N/A N/A Monday AMC
DAWSON GEOPHYS DWSN -0.29 0.63 N/A Monday AMC
INTEGRAL TECH ITKG -0.01 -0.02 0 Monday AMC
TAKE-TWO INTER TTWO 0.1 -0.04 36.09 Monday AMC
CUBIC CORP CUB 0.65 0.6 N/A Monday AMC
AIRMEDIA GP-ADR AMCN N/A -0.06 N/A Monday AMC
ORTHOFIX INTL OFIX N/A 0.29 N/A Monday AMC
LEAPFROG ENTRPS LF -0.19 -0.17 0 Monday AMC
VERTEX ENERGY VTNR -0.19 0.04 -300 Monday AMC
DEEP DOWN INC DPDW -0.01 0.02 -1000 Monday AMC
HOME DEPOT HD 1.15 1 12.36 Tuesday BTO
TJX COS INC NEW TJX 0.66 0.64 3.33 Tuesday BTO
WAL-MART STORES WMT 1.03 1.13 4.55 Tuesday BTO
RED ROBIN GOURM RRGB 0.88 0.82 -4.35 Tuesday BTO
VODAFONE GP PLC VOD N/A N/A N/A Tuesday BTO
500.COM LTD-A WBAI N/A 0.12 N/A Tuesday BTO
DICKS SPRTG GDS DKS 0.53 0.5 6.56 Tuesday BTO
STAGE STORES SSI -0.28 -0.38 0.74 Tuesday BTO
E-HOUSE CHINA EJ -0.29 0.05 18.18 Tuesday BTO
EVOGENE LTD EVGN N/A -0.09 -58.33 Tuesday BTO
RAVEN INDS INC RAVN 0.08 0.3 -47.62 Tuesday BTO
TOP IMAGE SYS TISA -0.02 0.01 400 Tuesday BTO
APOLLO INV CP AINV 0.22 0.21 9.09 Tuesday BTO
CHEETAH MBL-ADR CMCM -0.02 0.02 N/A Tuesday BTO
LEJU HOLDINGS LEJU N/A 0.05 -4.76 Tuesday BTO
ANALOG DEVICES ADI 0.72 0.59 1.64 Tuesday AMC
COMP SCIENCE CSC 1.2 1.09 5.36 Tuesday AMC
AUTODESK INC ADSK 0.14 0.21 -7.69 Tuesday AMC
TARENA INTL-ADR TEDU -0.02 0.01 44.44 Tuesday AMC
DYCOM INDS DY 0.37 0.23 170 Tuesday AMC
NORDSON CORP NDSN 0.86 0.97 4.55 Tuesday AMC
HEICO CORP HEI 0.45 0.42 -8.89 Tuesday AMC
KEYSIGHT TECH KEYS 0.66 N/A -4.35 Tuesday AMC
CNINSURE IN-ADR CISG 0.13 0.14 80 Tuesday AMC
CHINA DISTANCE DL 0.03 0.04 116.67 Tuesday AMC
ETSY INC ETSY 0.03 N/A N/A Tuesday AMC
QIHOO 360 TECH QIHU 0.34 0.4 5.56 Tuesday AMC
VIASAT INC VSAT 0.26 -0.03 118.75 Tuesday AMC
SOC QUIMICA MIN SQM 0.3 0.31 11.11 Tuesday AMC
GEOPARK LTD GPRK N/A 0.1 154.55 Tuesday N/A
LOWES COS LOW 0.74 0.58 4.55 Wednesday BTO
TARGET CORP TGT 1.03 0.7 2.74 Wednesday BTO
HORMEL FOODS CP HRL 0.62 0.52 7.81 Wednesday BTO
STAPLES INC SPLS 0.17 0.18 3.33 Wednesday BTO
AMER EAGLE OUTF AEO 0.11 0.02 5.88 Wednesday BTO
CITI TRENDS INC CTRN 0.76 0.61 29.17 Wednesday BTO
EVINE LIVE INC EVLV 0.02 0.03 50 Wednesday BTO
ATENTO SA ATTO 0.21 N/A 30.3 Wednesday BTO
KLX INC KLXI 0.76 N/A N/A Wednesday BTO
SOUFUN HLDG-ADR SFUN N/A 0.11 61.54 Wednesday BTO
L BRANDS INC LB 0.6 0.53 4.42 Wednesday AMC
SALESFORCE.COM CRM 0.01 -0.07 N/A Wednesday AMC
NETAPP INC NTAP 0.55 0.71 0 Wednesday AMC
WILLIAMS-SONOMA WSM 0.44 0.48 0.66 Wednesday AMC
8X8 INC EGHT 0.01 0.01 -50 Wednesday AMC
SHOE CARNIVAL SCVL 0.51 0.45 66.67 Wednesday AMC
SYNOPSYS INC SNPS 0.32 0.56 195.65 Wednesday AMC
GLADSTONE INVES GAIN 0.19 0.18 22.22 Wednesday AMC
XUNLEI LTD-ADR XNET -0.02 -0.36 166.67 Wednesday AMC
CONCORD MED-ADR CCM 0.07 0.1 N/A Wednesday AMC
YOUKU.COM- ADR YOKU N/A -0.21 -116.67 Wednesday AMC
BRISTOW GROUP BRS 1.25 1.35 -47.76 Wednesday AMC
REXNORD CORP RXN 0.49 0.49 0 Wednesday AMC
SSE PLC SSEZY N/A N/A N/A Wednesday N/A
MARKS&SPENCER MAKSY N/A N/A N/A Wednesday N/A
EATON VANCE EV 0.59 0.59 -3.17 Wednesday N/A
DOLLAR TREE INC DLTR 0.74 0.67 0.87 Thursday BTO
PATTERSON COS PDCO 0.65 0.61 -6.78 Thursday BTO
AFFIMED THERAP AFMD -0.14 N/A 38.46 Thursday BTO
ADVANCE AUTO PT AAP 2.51 2.25 4.05 Thursday BTO
BOOZ ALLEN HMLT BAH 0.33 0.33 5.88 Thursday BTO
MONRO MUFFLER MNRO 0.38 0.36 0 Thursday BTO
KIRKLANDS INC KIRK 0.11 0.12 0 Thursday BTO
TRINA SOLAR LTD TSL 0.09 0.36 50 Thursday BTO
QUALITY SYS QSII 0.14 0.11 15.38 Thursday BTO
TAOMEE HOLDINGS TAOM -0.08 0.01 100 Thursday BTO
TORO CO TTC 1.66 1.51 8 Thursday BTO
NATL GRID -ADR NGG N/A N/A N/A Thursday BTO
DONALDSON CO DCI 0.35 0.46 0 Thursday BTO
BUCKLE INC BKE 0.77 0.78 0.81 Thursday BTO
BRADY CORP CL A BRC 0.38 0.43 -3.33 Thursday BTO
BON-TON STORES BONT -1.5 -1.62 -8.18 Thursday BTO
NAVIOS MARI HLD NM -0.34 0.01 -22.22 Thursday BTO
INTUIT INC INTU 2.57 3.42 26.92 Thursday AMC
GAP INC GPS 0.55 0.58 1.35 Thursday AMC
ROSS STORES ROST 1.28 1.15 8.11 Thursday AMC
HEWLETT PACKARD HPQ 0.86 0.88 1.1 Thursday AMC
FRESH MARKET TFM 0.49 0.43 5.77 Thursday AMC
ORION ENERGY SY OESX -0.19 -0.26 -90.91 Thursday AMC
MARVELL TECH GP MRVL 0.05 0.21 5.88 Thursday AMC
BROCADE COMM SY BRCD 0.16 0.15 15 Thursday AMC
AMERICAS CAR-MT CRMT 0.86 0.68 2.5 Thursday AMC
ACXIOM CORP ACXM 0.19 0.24 -33.33 Thursday AMC
JUMEI INTL-ADR JMEI 0.08 N/A -36.36 Thursday AMC
LENOVO GRP LTD LNVGY 0.21 0.3 12.2 Thursday AMC
SILVERCORP METL SVM N/A 0.01 N/A Thursday AMC
AEROPOSTALE INC ARO -0.55 -0.52 133.33 Thursday AMC
BEST BUY BBY 0.29 0.33 8.82 Thursday N/A
JAMES HARDI-ADR JHX N/A 0.5 N/A Thursday N/A
CAMPBELL SOUP CPB 0.51 0.62 1.54 Friday BTO
DEERE & CO DE 1.58 2.65 34.94 Friday BTO
FOOT LOCKER INC FL 1.23 1.11 11.11 Friday BTO
ANN INC ANN 0.33 0.33 700 Friday BTO
HIBBET SPORTS HIBB 1.14 1.09 16.18 Friday BTO
TSAKOS EGY NAVG TNP 0.34 0.19 43.75 Friday BTO
MENTOR GRAPHICS MENT 0.08 0.06 0.99 Friday BTO