For Immediate Release
Chicago, IL – August 25, 2014 – Zacks.com releases the list of companies likely to issue earnings surprises. This week’s list includes Best Buy (BBY-Free Report), Wal-Mart (WMT-Free Report) and Target (TGT-Free Report).
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Q2 Earnings Season in the Home Stretch
The Q2 earnings season has come to an end for 11 of the 16 Zacks sectors in the S&P 500. With results from just 10 index members awaited at this stage, the remaining sectors aren’t that far from finish line either. We will get results from 100 companies this week, including 7 S&P 500 members.
The earnings focus lately has been on the Retail sector and this week’s reporting docket is also heavily weighted towards this sector. The Retail sector has been struggling on the earnings front in recent quarters and this reporting cycle has been no different. The heavily promotional environment has been forcing retailers to offer discounts to stay relevant even as they deal with the growing shift to online sales. The big brick-and-mortar retailers have been trying to adjust to this shifting landscape. But as Best Buy’s (BBY-Free Report) and Wal-Mart’s (WMT-Free Report) struggles show, it isn’t clear at this stage how the big-box business model will evolve as a result of these industry challenges.
On top of these industry-specific challenges are the issues facing consumers, who have yet to fully recover from the financial crisis. The labor market is no doubt improving, but wage growth has been essentially stagnant, restricting households’ buying power. In a nutshell, it has been a tough backdrop for retailers. No doubt the stock-price performance of the retail sector in the S&P 500 has been one of the weakest in the index – up +0.9% vs. a gain of +8.6% for the index as a whole.
With respect to the sector’s performance thus far, total earnings for the 39 Retail sector companies in the S&P 500 (out of 43 total) that have already reported Q2 results are up +2.3% on +5.7% higher revenues, with only 48.7% beating earnings estimates and a strong 64.1% coming ahead of top-line expectations.
Retailers don’t have so much of a revenue problem – revenues are good enough. They have a margin problem, with the super competitive retail environment eating into their margins. This sub-par picture isn’t expected to improve in any meaningful way in the current period (Q3) either as the overwhelmingly negative of management guidance shows. Barring a few exceptions, most retailers guided lower for the current and coming quarters, causing Q3 estimates to fall sharply.
The Q2 Scorecard (as of Friday morning, August 22nd)
Total earnings for the 490 S&P 500 members that have reported already are up +8.1% from the same period last year, with a ‘beat ratio’ of 65.5% and a median surprise of +2.6%. Total revenues are up +4.4%, with a very impressive revenue ‘beat ratio’ of 62.2% and a median surprise of 0.8%.
Any way you look at it, the 2014 Q2 earnings season has been very positive - the growth rates are better, more companies are coming ahead of estimates, and there is even some modest improvement on the guidance front. Guidance still remains weak, with most companies guiding lower as the recent Wal-Mart (WMT), Target (TGT-Free Report) and other retailers’ reports show. But the proportion of companies guiding lower is smaller than what we have been seeing in recent quarters. And even those that don’t offer guidance have been qualitatively talking up their business outlook.
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