Back to top

Image: Shutterstock

Previewing the Retail Sector's First Coronavirus Earnings Season

Read MoreHide Full Article

The Q1 earnings season has effectively come to an end for most of the major sectors, with the Retail sector as the only one that has a significant number of reports still to come. We will start getting those results this week, with a number of major players like Walmart (WMT - Free Report) , Target (TGT - Free Report) , Home Depot (HD - Free Report) and others on deck to report results.

The Retail space has been hit hard by the pandemic-related lockdowns, as Friday’s April Retail Sales report more than showed. But the three big-box operators mentioned here don’t belong on the ‘victims’ list; they have thrived during this downturn and will likely continue to do so in the days.

A number of others like TJX Companies (TJX - Free Report) , Kohl’s (KSS - Free Report) , Nordstrom (JWN - Free Report) and others that are reporting this week are going through a very painful phase in their lives. Macy’s (M - Free Report) , which would normally be reporting this week as well, has put off its quarterly release for now but will instead share some preliminary results this week. 

We typically associate the traditional brick-and-mortar operators as the only ones belonging in the retail space, with the traditional industry/sector classification systems putting those companies either in the Consumer Discretionary sector or in the Consumer Staples sectors. In that system, online vendors get placed in the Technology sector. But we have a stand-alone Retail sector that not only includes the traditional players but also online vendors and restaurant operators.

For the Zacks Retail sector, one of the 16 Zacks sectors, we have already seen Q1 results from 17 of the 36 companies in the S&P 500 index. Most of the Retail sector results that have come out already are from online operators and restaurant players, with the traditional brick-and-mortar players starting to report this week.

Total earnings for these Retail sector companies that have reported already are down -15.1% from the same period last year on +11.2% higher revenues, with 70.6% beating EPS estimates and 88.2% beating revenue estimates. The comparison charts below put these Retail sector results in a historical context.









As you can see above, an above-average proportion of retailers have been able to beat estimates thus far. But that’s primarily a function of the type of retailers that have reported already. It is reasonable to think that the beats percentages will not be as favorable for the traditional retailers. With respect to the sector’s Q1 earnings and revenue growth pace, the picture changes meaningfully once Amazon’s (AMZN - Free Report) results are removed from the sector’s aggregated reported numbers. The chart below shows the sector’s growth picture on an ex-Amazon basis.









For Q1 as a whole for the sector, combining the results that have come out with estimates for the still-to-come companies, total earnings are expected to be down -21% from the same period last year on +5.3% higher revenues. This would follow +1% growth on +7.2% higher revenues in 2019 Q4.

Q1 Earnings Season Scorecard

As of Friday, May 15th, we have seen Q1 results from 451 S&P 500 members or 90.2% of the index’s total membership. Total earnings or aggregate net income for these 451 index members that have reported already are down -11.1% from the same period last year on +1.3% higher revenues, with 67.2% beating EPS and 57.6% beating revenue estimates.

We have another 23 S&P 500 members on deck to report results this week. In addition to the aforementioned retailers reporting this week, we have Expedia (EXPE - Free Report) , Alibaba (BABA - Free Report) , Nvidia (NVDA - Free Report) , Deere & Co. (DE - Free Report) on deck to report results this week.

As we have been pointing over the last few weeks, Q1 results show the opposing effects  that the two largest sectors in the S&P 500 index are having on the aggregate growth picture. These two largest sectors are Finance and Technology, with Finance dragging it down and Technology pushing it higher.

Had it not been for the Finance sector drag, Q1 earnings growth for the remaining S&P 500 companies at this stage would have been a lot better, thanks primarily to the Technology sector results.


  • Excluding the Finance sector, whose Q1 earnings are down -33.1% on +2.4% higher revenues, earnings for the rest of S&P 500 companies that have reported would be down only -3.7% (vs. down -11.1% with Finance).


  • Excluding the Technology sector results, whose Q1 earnings are up +5.8% on +4.9% higher revenues, earnings for the rest of S&P 500 companies that have reported would be down -15.9% (vs. down -11.1% with Technology).


The comparison charts below put the results from these 451 index members in a historical context. The first set of two charts compare the earnings and revenue growth rates for these companies.









The second set compares the proportion of these companies beating EPS and revenue estimates.









The earnings growth comparisons start looking a lot better when seen on an ex-Finance basis, as the comparison chart below shows.









Earnings Estimates Are Still Falling

With most economic activity at a standstill and millions of Americans losing jobs, the economic growth backdrop in the current period (2020 Q2) is very bad. We are seeing this in earnings estimates, which have fallen sharply, though the pace of negative revisions has eased a bit in recent days.

To get a sense of this evolving earnings picture, take a look below at how earnings estimates for the June quarter have evolved over the last couple of months.







We are seeing something similar at play in estimates for full-year 2020 as well, as the chart below shows.










The chart below puts full-year 2020 earnings and revenue growth expectations in the context of where growth has been in recent years and what is expected beyond this year.









Please note that while these estimates represent a significant growth in earnings next year (+25.8%), the overall level of S&P 500 earnings in 2021 will be below the 2019 level, as the chart below shows.









Looking at the above aggregate earnings data on an ‘EPS’ basis, the 2021 ‘EPS’ for the S&P 500 index is currently expected to be $158.32, up from $125.14 in 2020, but modestly below the 2019 level of $162.56.

For an in-depth look at the overall earnings picture and expectations for the coming quarters, please check out our weekly Earnings Trends report >>>> Covid-19 Pandemic Weighs on Earnings Picture

Today's Best Stocks from Zacks

Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2019, while the S&P 500 gained and impressive +53.6%, five of our strategies returned +65.8%, +97.1%, +118.0%, +175.7% and even +186.7%.

This outperformance has not just been a recent phenomenon. From 2000 – 2019, while the S&P averaged +6.0% per year, our top strategies averaged up to +54.7% per year.

See their latest picks free >>

Published in