BBRYF - Q1 2023 U.S. Retail Scorecard - Update June 8 2023

2023-06-08 14:50:00 ET

Summary

• To date, 202 of the 204 companies in our Retail/Restaurant Index have reported their EPS results for Q1 2023, representing 99% of the index.
• Luxury retailers saw healthy sales growth driven by international shoppers, while dollar stores focused on groceries and basic necessities.
• Looking ahead to Q2 2023, 23 retailers issued negative preannouncements, while five issued positive EPS guidance.

By Jharonne Martis

To date, 202 of the 204 companies in our Retail/Restaurant Index have reported their EPS results for Q1 2023, representing 99% of the index. Of those companies that have reported their quarterly results, 73% announced profits that beat analysts' expectations, while 2% delivered on-target results and 25% reported earnings that fell below estimates. The Q1 2023 blended earnings growth estimate now stands at 33.4%.

The blended revenue growth estimate for the 204 companies in this index is 4.5% for Q1 2023. Of those companies that have reported their quarterly results so far, 69% announced revenue that exceeded analysts' expectations and the remaining 31% reported that their revenue fell below analysts' forecasts.

Exhibit 1: Refinitiv Earnings Dashboard

This week in retail

A few themes have emerged from this earnings season. The bulk of retailers, including Walmart ( WMT ), Macy's ( M ), and Home Depot ( HD ), have reported first quarter earnings, and most agree that consumers are cautious and are trading down. During the first quarter, they were hit with higher inflation, consumer confidence was down and so was their appetite for big-ticket items and discretionary items. Consumers remained cautious and bought basic necessities.

Despite this, 73% of retailers beat earnings, and 69% have beaten revenue expectations. This is because retailers were less promotional than usual during the first quarter. In a collaboration with Centric Pricing, Refinitiv discovered that the Q1 2023 discount penetration (how much of the assortment is on sale) was at its lowest level seen in years, even before the pandemic. This, in return, helped retailers beat earnings expectations and post healthier margins.

We also learned from luxury retailers that the high-end U.S. consumer has been more conservative than the luxury consumer in Asia and Europe. Instead, the U.S. shopper is thinking twice before making aspirational purchases. Value is a top priority on their minds, and they are gravitating towards TJX ( TJX ) instead, which sees their robust comp driven by the U.S. high-end consumer.

Still, luxury names are seeing healthy sales growth driven from an international shopper. Lululemon ( LULU ) saw its business revenue rise 79% in Greater China, while Ralph Lauren ( RL ) saw a 20% growth in Asia Same Store Sales (SSS), followed by Europe's 8.0% SSS, above its U.S. -4.0% SSS. Burberry ( BURBY ) ( BBRYF ) and Capri Holdings ( CPRI ) share similar results.

Meanwhile, the dollar stores are telling us that the low-end consumer is also sticking to groceries and basic necessities, which tend to carry lower margins. They also took a hit from elevated shrink.

In fact, several big box retailers also mentioned shrinkage issues during their earnings calls. Despite posting robust growth, Ulta Beauty ( ULTA ) said that shrinkage is "an increasingly concerning challenge." TJX mentioned in their earnings call that they are proactively taking actions that include tagging, tethering and casing of valuable products, and continue to look for various methods to mitigate the impact. On the flip side, Costco ( COST ) said during their earnings call that they have been fortunate that their shrinkage has remained intact.

The following chart displays estimates of earnings and same-store sales expectations for retailers that are scheduled to release their Q1 2023 results this week.

Exhibit 2: Same Store Sales and Earnings Estimates - Q1 2023

Guidance

So far, 202 retailers have reported Q1 earnings; of this group, 141 mentioned inflation, and 28 big box retailers discussed shrink. Looking ahead to Q2 2023, 23 retailers issued negative preannouncements, while five issued positive EPS guidance so far. Of those retailers offering revenue guidance, 38 warned of disappointing results, while only eight said revenue might be better than previously expected.

Exhibit 3: Earnings and Revenue Guidance: Q2 2023

Original Post

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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