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The Mixed Retail Backdrop

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Tuesday, November 26, 2013

This morning’s positive Housing Permits numbers add to the market’s overall positive bias, though volumes are expected to be remain on the light side in the run up to the Thanksgiving holiday. On tap for release a little later are the September Case-Shiller home price index and the November Consumer Confidence numbers.

The Q3 earnings season has effectively ended, but a handful of reports are still trickling in. On this morning’s earnings results, Tiffany (TIF - Free Report) beat on the top and bottom-lines and guided higher. Unlike the higher end Tiffany, Signet Jeweler (SIG - Free Report) barely matched expectations, both in its results as well as guidance. The contrasting performance of these two jewelers further spotlight the bifurcated retail landscape this year. We had seen this trend emerge with the divergent results from Macy’s (M - Free Report) and Wal-Mart (WMT - Free Report) a few weeks back and the trend has largely held up ever since. This doesn’t bode well for the holiday shopping season which gets underway later this week.

With Q3 results from 95.5% of the retailers in the S&P 500 already out, total earnings for the sector are up +8.3% with 59.5% beating earnings expectations. Total retail sector revenues are up +3.6% and only 16.7% of the companies beat top-line expectations. The sector’s top-line performance in Q3, both in terms of growth rate as well as beat ratio, is weaker than what we have seen from the sector in recent quarters. In fact, the blended beat ratio for the sector, the ratio of companies that have beat both the top- and bottom-lines, is the weakest it has been in many quarters.

The soft retail sales backdrop notwithstanding, investors don’t seem to be in any mood to shift from the persistent bullish trend line that has taken the major indexes to record levels. This part of the year has historically been favorable to the market and this year will likely be no different. The only source of lingering uncertainty is the Taper timeline, with the odds of a December announcement very much on the table. In the mean time, however, the market can continue to build on its record level.

Sheraz Mian
Director of Research

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