Retail earnings show consumers are in great shape: analyst

Director of Consumer Research, Refinitiv, Jharonne Martis, joins Yahoo Finance to discuss earnings from Foot Locker and how recent retail earnings could be a sign of a strong economy returning as consumers become more engaged.

Video Transcript

BRIAN SOZZI: It has been a heavy week of retail earnings, which continued this morning with results out of Foot Locker and North Face owner, VF Corp. A couple of things we have learned. First, it's impossible for analysts to forecast earnings when an economy is roaring back from a health pandemic. And two, people really want to buy stuff right now-- a lot of stuff.

Let's check in with Jharonne Martis, director of consumer research at Refinitiv. Jharonne, good to see you, as always, here. A lot of strange numbers out here. You have all these different companies trying to recover from the pandemic. Foot Locker out this morning, posting an 80% same store sales increase to their stores closing down last year. How does an investor pick some of the best companies to bet on in this type of environment?

JHARONNE MARTIS: Absolutely. So this is a very, very unusual earnings season, especially because there is absolutely no comparable year to 2020. So as a result, we have to dig in really deeper into the numbers this week this earnings season and not only compare them to 2020, but to 2019 to see if companies are really at pre-pandemic levels. Because in general, we're going to see astronomical earnings growth rates throughout the board. And this is mainly because a lot of retailers were closed. They're facing easy comparisons. So, to your point, what does that 80% tell us? Is that a good double digit growth, or is it just because it's facing easy comparisons?

So for Foot Locker, like you said, it is a good one because consumers did go out, and they are buying tons of things. In fact, since mid-March, we're seeing that the average promotional discount in the United States has been going down, Refinitiv discovered in a collaboration with Style Sage. And as a result, we're seeing that despite this, despite the fact that consumers have been conditioned to only open up their wallets when they see a discount, they are shopping. And they're paying higher prices. They're buying shoes. They're buying clothing.

It's not only Foot Locker, but Shoe Carnival two days ago posted their record revenue ever, their strongest quarter, even pre-pandemic levels. And they did this by lowering their discounts and removing their buy one, get the other half off shoes, so which is telling us that consumers are in great shape. They are feeling better about spending their discretionary income, which bodes well going into the second quarter.

JULIE HYMAN: Jharonne, it's Julie here. So you're looking at that promotional activity, which is really interesting because, obviously, pre-pandemic, that was sort of out of control in terms of the promotions that retailers were offering. What kind of other measures are you using? I mean, are you doing two years ago comparisons, for example, as a way to really try to suss out what's going on?

JHARONNE MARTIS: So because all of the stores were closed in 2020, the shoppers, consumers gravitated online. So therefore, this year, the least disruptive measure is probably e-commerce sales. So we're also looking at those numbers very carefully. And for the bulk of retailers, not just the ones that were big winners this week, but even some of the ones that struggled, we're still seeing double digit growth in e-commerce on top of the strong numbers that they posted last year, which is telling us that this trend looks to be here to stay. In fact, the government posted record e-commerce numbers for the first quarter here in the United States. They saw 39% jump in e-commerce sales year over year. And our Refinitiv forecast suggests that this double digit growth will continue over the next four quarters, telling us that this trend is here to stay.

Another trend that was very-- that came out this week was the fact that I know there's been a lot of talk about the reopening stocks, but those pandemic stocks are still doing well. Not just the discounters and the home improvement, but when we look at the companies that really posted strong earnings growth rates on top of difficult comparisons last year, we're looking at the leisure products. We're talking about Hasbro, who sells toys, Callaway that sells golf gear, and also Vista Outdoors and Polaris that sells outdoor gear, which tells us that despite a lot of the economy's reopening, consumers are still sticking to some of that behavior that began in 2020 and are still gravitating towards those companies the most.

BRIAN SOZZI: Something I've picked up on, Jharonne, just listening to these earnings calls, is that cosmetics are starting to come back. Target called it out, Kohl's called it out, Macy's called it out also as well. As you look toward the second half of this year, are cosmetics companies probably going to be the fastest sales and earnings growers out of retail?

JHARONNE MARTIS: Absolutely, and for a couple of reasons. As the economy starts to reopen, people are going to start wearing cosmetics again to go out. So those sales are going to spike. And also, as you mentioned, Macy's and Kohl's, the department stores in general have been out of favor even pre-pandemic levels. In fact, even though Kohl's and Macy's beat their earnings revenue and same store sales estimates, they are still not-- they're still below the 2019 pre-pandemic levels.

Still, when you compare all the department stores, Kohl's is in a better position because analysts polled by Refinitiv are optimistic about its collaboration with Sephora and how they're expanding those offerings to 200 stores by the end of the year, just in time for the holiday season, where cosmetics and beauty products tend to be a big winner. So therefore, Kohl's is in the best position to benefit from this trend.

JULIE HYMAN: Generally, though, Jharonne, how are the department stores sitting in the retail universe? I mean, as you mentioned, pre-pandemic, they weren't doing so hot, if you look at them, sort of how they are situated within retail. And it feels like even coming-- even though they might have gotten a little lift from all of this, it seems like they're not going to be on much better footing.

JHARONNE MARTIS: That's correct. So Macy's and Kohl's, as I mentioned, they beat expectations. But their numbers are still below the 2019 pre-pandemic levels. Macy's also providing guidance. But if you dig into those numbers, those forecasts also don't look better than the 2019 levels. Kohl's is-- when you look at all of the department stores, Kohl's is in the best position because of its off-mall location. Also, it's offering-- it has improved its work on its own private label and its collaboration with Sephora. Analysts are very bullish on that. So, as a result, that company is better positioned also because of its collaboration with Amazon.

The other department stores haven't really changed or moved their merchandise. And because of their mall location, mall traffic really hasn't improved as well. So therefore, the mall stores and the department stores are still struggling and are still facing a lot of that difficulty that they were pre-pandemic. And so, they still have a lot of work to do.