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Not Every Retailer is Suffering This Earnings Season

Sheraz Mian

It has been the accepted wisdom for a while that it is only a question of time before Amazon mops up the traditional brick-and-mortar retailer’s every last sales dollar. I am obviously exaggerating here, but we have been seeing the ‘Amazon effect’ in a host of retail sub-industries in recent years.

Many have been thinking that what happened to Barnes & Noble and other booksellers is the fate of most traditional retailers; we certainly have seen the once-mighty operators like Macy’s (M) in the department store space and Wal-Mart (WMT) in the big-box discounter industry humbled in recent years. You can see this in the stock market performance of these players – Amazon shares are up +37.7% in the past year while Macy’s is down -26.7% in that same time period.

Wal-Mart shares have done better – they are up +13% over the past year – largely because market participants have come around lately to see its digital strategy as credible. The retail giant has not only been steadily making investments in its online operations, but also strengthening its legacy through investments in employees and cleaner and more organized floor space. This has started showing up in Wal-Mart’s earnings results, as we saw in the company’s strong Q1 earnings report. But it’s safe to say that Wal-Mart still has a long way to go before it can effectively fend off the Amazon challenge.

One could argue that what has started working for Wal-Mart should work for Macy’s as well. But their brick-and-mortar commonality aside, they are fundamentally different businesses. Wal-Mart may bring in foot traffic through its enormous groceries business, but there is increasingly less reason for consumers to visit Macy’s, other department stores or even the malls. We are seeing this issue with a host of other mall-based retailers as well, which is giving rise to the ‘death of the mall’ narrative. We should be mindful, however, that as weak as the mall-based retail space has been lately, some of these mall-based players have been able to make it work.

Strong results from The Children’s Place (PLCE) and Gap (GPS) prove this point. But for every Children’s Place winner, you have a host of mall-based Foot Locker (FL) losers that are forced to blame everything – from delayed tax refunds and Easter Day placements to the weather – but their inability to respond to changing consumer behavior. On a related note, the Foot Locker disappointment may have read-throughs for Nike (NKE) and Under Armour (UAA) as well.  

Retail Sector Scorecard

As of Friday, May 19th, we now have Q1 results from 33 of the 42 retailers in the S&P 500 index. Total earnings for these 33 retailers are up +1.5% from the same period last year on +2.9% higher revenues, with 63.6% beating EPS estimates and 54.5% beating revenue estimates.

Please note that we have a stand-alone Retail sector, unlike the official Standard & Poor’s placement of this space in the Consumer Discretionary sector. The Zacks Retail sector includes, besides the traditional department stores and other brick-and-mortar retailers, the online vendors like Amazon and restaurant operators.

The side-by-side charts below compare the sector’s results thus far with what we have seen from the same group of 33 retailers in other recent periods.

The aggregate results from the 33 retailers that have reported Q1 results already are tracking below what we had seen from the same companies in other recent periods. This is despite the +41.1% growth in Amazon’s earnings on +22.6% higher revenues. On an ex-Amazon basis, the sector’s Q1 earnings growth would be flat, as the right-hand chart below shows.

A few standout results notwithstanding, the sector’s Q1 results have been notably weak in an otherwise strong earnings season. Please note that the proportion of Retail sector companies beating EPS estimates (63.6%) is the third lowest in the entire S&P 500 index, while the proportion of revenue surprises (54.5%) is the fourth lowest of all 16 Zacks sectors.  

Q1 Earnings Scorecard

As of Friday, May 19th, we have Q1 results from 472 S&P 500 members that combined account for 96.9% of the index’s total market capitalization. Total earnings for these companies are up +13.7% from the same period last year on +7.2% higher revenues, with 72.5% beating EPS estimates and 65.7% beating revenue estimates. The proportion of companies beating both EPS and revenue estimates is 51.7%.

The table provides the current earnings season scorecard, as of May 19th, 2017.

Comparing Q1 Results

The chart below provides a comparison of the growth performance thus far with what we have seen from this same group of 472 S&P 500 members in other recent periods.

As you can see, the Q1 growth pace is notably tracking above what we had seen from the same group of 472 index members in other recent periods. Importantly, the growth performance is broad-based and not narrowly concentrated. We got the leadership from the Finance space earlier in the reporting cycle, but the baton has since shifted to Tech and host of other areas, including Industrials, Basic Materials, and Energy.

Positive Revenue Surprises

The chart below compares the proportion of positive EPS and revenue surprises in Q1 thus far with what we had seen from the same group of 472 index members in other recent periods.

The proportion of Q1 companies beating EPS estimates is tracking above historical periods, with positive revenue surprises particularly coming out ahead of what we are used to seeing in the recent past. You can see the same in the chart below that compares the proportion of Q1 companies beating both EPS and revenue estimates with other recent periods.

Expectations for Q1 As a Whole

Looking at Q1 as whole, combining the actual results from the 472 S&P 500 members that have come out with estimates for the still-to-come 28 index members, total earnings are expected to be up +13.1% from the same period last year on +6.2% higher revenues. This would follow +7.3% earnings growth in 2016 Q4 on +4.7%.

The table below shows the summary picture for Q1, contrasted with what was actually achieved in Q4.

Please note that the Q1 earnings season follows the strong showing on the earnings front in the preceding reporting cycle. Not only did 2016 Q4 growth reach the highest in two years, but total earnings for the quarter also reached a new quarterly record. The strong Q4 performance came after the first positive earnings growth in 2016 Q3, having declined in each of the preceding 5 quarters. The strong Q1 showing represents a notable acceleration in the growth momentum.

The chart below shows the Q1 earnings growth contrasted with what is expected in the following three quarters and actual results in the preceding 5 quarters. As you can see in the chart below, this growth pace is expected to continue through the rest of the year.

Estimates for the current period (2017 Q2) have come down since the start of the quarter, but the magnitude of negative Q2 revisions still compares favorably with the comparable periods over the last two years.

In other words, Q2 estimates are falling, but they aren’t falling by as much as would typically be expected.

Note: Sheraz Mian manages the Zacks equity research department. He is an acknowledged earnings expert whose commentaries and analyses appear on Zacks.com and in the print and electronic media. His weekly earnings related articles include Earnings Trends and Earnings Preview. He manages the Zacks Top 10 and Focus List portfolios and writes the Weekly Market Analysis article for Zacks Premium subscribers.

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Here is a list of the 111 companies including 18 S&P 500 members reporting this week.

Company Ticker Current Qtr Year-Ago Qtr Last EPS Surprise % Report Day Time
BOOZ ALLEN HMLT BAH 0.43 0.41 -5.00% Monday BTO
FERROGLOBE PLC GSM -0.09 -0.04 47.06% Monday BTO
NAVIOS MARIT LP NMM -0.04 0 600.00% Monday BTO
CHEETAH MBL-ADR CMCM N/A 0.01 -66.67% Monday BTO
CHINA ONLINE ED COE -0.01 N/A 61.02% Monday BTO
DIANA CONTAINER DCIX -0.85 -0.64 14.29% Monday BTO
YIRENDAI LTD YRD 0.61 0.34 3133.33% Monday BTO
AGILENT TECH A 0.48 0.44 8.16% Monday AMC
NORDSON CORP NDSN 1.3 1.19 4.88% Monday AMC
AMERICAS CAR-MT CRMT 0.64 0.4 -49.28% Monday AMC
QUOTIENT LTD QTNT -0.76 -0.41 -89.29% Monday AMC
LUXOFT HOLDING LXFT 0.51 0.46 6.35% Monday AMC
NETSOL TECH INC NTWK -0.01 0.08 -400.00% Monday N/A
AUTOZONE INC AZO 12 10.77 -1.46% Tuesday BTO
TOLL BROTHERS TOL 0.62 0.51 20.00% Tuesday BTO
DSW INC CL-A DSW 0.33 0.4 25.00% Tuesday BTO
DIANA SHIPPING DSX -0.37 -0.41 5.00% Tuesday BTO
CRACKER BARREL CBRL 1.84 1.82 2.34% Tuesday BTO
EVINE LIVE INC EVLV -0.05 -0.03 -25.00% Tuesday BTO
MOMO INC -ADR MOMO 0.28 0.03 32.26% Tuesday BTO
KIRKLANDS INC KIRK -0.04 0.06 12.50% Tuesday BTO
INTUIT INC INTU 3.65 3.27 16.67% Tuesday AMC
TAKE-TWO INTER TTWO 0.47 0.41 195.83% Tuesday AMC
BANCOLOMBIA-ADR CIB 0.86 0.54 2.33% Tuesday AMC
HEICO CORP HEI 0.5 0.46 0.00% Tuesday AMC
AEGEAN MARINE ANW 0.36 0.24 5.13% Tuesday AMC
CONTAINER STORE TCS 0.09 0.2 -15.38% Tuesday AMC
BRISTOW GROUP BRS -0.48 0.13 38.30% Tuesday AMC
OOMA INC OOMA -0.18 -0.22 5.88% Tuesday AMC
VIASAT INC VSAT 0.01 0.12 100.00% Tuesday AMC
ASCENDIS PHARMA ASND -0.64 -0.9 9.84% Tuesday AMC
TILLYS INC TLYS -0.1 -0.06 4.76% Tuesday AMC
LOWES COS LOW 1.07 0.87 8.86% Wednesday BTO
TIFFANY & CO TIF 0.7 0.64 5.84% Wednesday BTO
ADVANCE AUTO PT AAP 2.13 2.51 -8.26% Wednesday BTO
DYCOM INDS DY 1.2 1.08 18.84% Wednesday BTO
GOLDEN OCEAN GP GOGL -0.14 -0.65 146.15% Wednesday BTO
KLX INC KLXI 0.3 0.37 62.96% Wednesday BTO
SEADRILL LTD SDRL -0.05 0.26 84.62% Wednesday BTO
HOEGH LNG PTNRS HMLP 0.41 0.29 -19.35% Wednesday BTO
THERMON GROUP THR 0.14 0.2 0.00% Wednesday BTO
NAVIOS MARI HLD NM -0.28 -0.11 -16.67% Wednesday BTO
JA SOLAR HOLDGS JASO -0.02 0.36 1500.00% Wednesday BTO
SEADRILL PTNRS SDLP 0.32 0.48 38.00% Wednesday BTO
WESTELL TECH-A WSTL 0 -0.05 100.00% Wednesday BTO
CHICOS FAS INC CHS 0.29 0.25 150.00% Wednesday BTO
EATON VANCE EV 0.59 0.48 -8.62% Wednesday BTO
TRIUMPH GRP INC TGI 1.6 1.32 -18.55% Wednesday BTO
CSRA INC CSRA 0.46 0.5 6.67% Wednesday AMC
NETAPP INC NTAP 0.68 0.36 22.03% Wednesday AMC
PVH CORP PVH 1.6 1.5 0.82% Wednesday AMC
HP INC HPQ 0.39 0.41 2.70% Wednesday AMC
COPART INC CPRT 0.36 0.32 0.00% Wednesday AMC
STAR BULK CARRS SBLK -0.22 -0.88 -50.00% Wednesday AMC
EPLUS INC PLUS 0.79 0.73 17.18% Wednesday AMC
WILLIAMS-SONOMA WSM 0.48 0.53 3.33% Wednesday AMC
PURE STORAGE PSTG -0.38 -0.34 12.50% Wednesday AMC
SPARTAN NASH CO SPTN 0.53 0.54 8.16% Wednesday AMC
EXA CORP EXA -0.23 -0.05 160.00% Wednesday AMC
FORTUNA SILVER FSM 0.1 0.02 -25.00% Wednesday AMC
GUESS INC GES -0.31 -0.23 -2.38% Wednesday AMC
MODINE MANUFACT MOD 0.34 0.36 -12.50% Wednesday AMC
SHOE CARNIVAL SCVL 0.53 0.56 75.00% Wednesday AMC
BANK MONTREAL BMO 1.41 1.31 23.02% Wednesday N/A
BEST BUY BBY 0.4 0.44 17.47% Thursday BTO
MEDTRONIC MDT 1.31 1.27 0.90% Thursday BTO
DOLLAR TREE INC DLTR 0.99 0.89 4.51% Thursday BTO
HORMEL FOODS CP HRL 0.4 0.4 -4.35% Thursday BTO
PATTERSON COS PDCO 0.64 0.77 1.75% Thursday BTO
SIGNET JEWELERS SIG 1.67 1.95 0.75% Thursday BTO
BURLINGTON STRS BURL 0.7 0.57 4.71% Thursday BTO
BRADY CORP CL A BRC 0.43 0.42 17.65% Thursday BTO
BIOLINE RX LTD BLRX -0.05 -0.1 -62.50% Thursday BTO
ABERCROMBIE ANF -0.72 -0.59 -6.58% Thursday BTO
GENESCO INC GCO 0.34 0.62 20.11% Thursday BTO
INTL GAME NEW IGT 0.47 0.57 87.23% Thursday BTO
TITAN MACHINERY TITN -0.13 -0.21 -63.16% Thursday BTO
CDN IMPL BK CM 1.89 1.81 1.88% Thursday BTO
MIX TELEMATICS MIXT 0.04 0.06 71.43% Thursday BTO
SANDERSON FARMS SAFM 2.75 2.11 -12.07% Thursday BTO
TORO CO TTC 1.03 0.94 10.81% Thursday BTO
CHRISTOPHER&BNK CBK -0.12 0 -2.22% Thursday BTO
NOMAD FOODS LTD NOMD 0.26 0.31 N/A Thursday BTO
NGL ENERGY PART NGL 0.09 0.75 -117.50% Thursday BTO
ROYAL BANK CDA RY 1.32 1.21 5.26% Thursday BTO
HANWHA Q CELLS HQCL -0.13 0.33 -720.00% Thursday BTO
MOVADO GRP INC MOV 0.13 0.19 0.00% Thursday BTO
ADV DRAINAG SYS WMS -0.08 -0.13 0.00% Thursday BTO
ULTA BEAUTY INC ULTA 1.79 1.45 5.16% Thursday AMC
COSTCO WHOLE CP COST 1.31 1.24 -13.33% Thursday AMC
DECKERS OUTDOOR DECK -0.06 0.11 -3.07% Thursday AMC
MARVELL TECH GP MRVL 0.16 -0.04 38.46% Thursday AMC
ZOES KITCHEN ZOES 0.01 0.06 -16.67% Thursday AMC
SPLUNK INC SPLK -0.75 -0.72 26.32% Thursday AMC
CALERES INC CAL 0.39 0.41 -17.50% Thursday AMC
VEEVA SYSTEMS-A VEEV 0.12 0.11 36.36% Thursday AMC
QAD INC-A QADA -0.13 -0.14 0.00% Thursday AMC
BROCADE COMM SY BRCD 0.01 0.18 -65.00% Thursday AMC
GRIDSUM HOLDING GSUM -0.18 N/A -288.89% Thursday AMC
NUTANIX INC-A NTNX -0.86 N/A 23.19% Thursday AMC
21VIANET GP-ADR VNET -0.1 -0.19 -16.67% Thursday AMC
8X8 INC EGHT -0.03 -0.03 0.00% Thursday AMC
GAMESTOP CORP GME 0.49 0.66 3.93% Thursday AMC
LIONS GATE ETMT LGF.A 0.33 0.26 10.00% Thursday AMC
TORONTO DOM BNK TD 0.92 0.9 4.17% Thursday N/A
BIG LOTS INC BIG 1 0.82 1.35% Friday BTO
DRAGONWAVE INC DRWI -0.62 -2.98 -111.76% Friday AMC

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