Research Blog

Consumers start to waver as we head into the Q2 retail earnings parade

We made it! Earnings season for the second quarter has all but ended, but not before the retailers take us out. Let’s recap what’s happened thus far in this better-than-expected season.

  • S&P 500 growth came in at 89.3% for Q2 2021, the highest growth rate going back to Q4 2009 (109.1%).
  • 87% of companies reported earnings per share (EPS) above Wall Street estimates, by a margin of 17%, the 4th largest earnings surprise percentage since 2008.
  • 87% of companies reported revenues above Wall Street estimates, by a margin of 4.9%, the largest revenue surprise percentage since 2008.
  • Cyclical and Sensitive sectors made up the leaders of Q2 earnings growth (Energy, Industrials, Consumer Discretionary, Financials) while Defensive sectors dominated the laggards (Utilities, Consumer Staples, Health Care).

*Above data points from FactSet

There’s no doubt that retailers will ensure the season ends on a good note as they report over the next two weeks. Besides Energy and Industrials, the Consumer Discretionary sector has posted the highest YoY profit growth for Q2, and is only behind Energy and Materials in regards to revenue growth for the quarter. Consumer Discretionary also reported the largest positive EPS surprise of any sector, according to FactSet. The biggest earnings surprises came from Ford Motor (see our recent piece “Ford Motor event cluster forming after better-than-expected Q2 results”), Under Armour and Ralph Lauren.

While past results may look better on a YoY basis, it’s forward-looking guidance that investors truly care about, and at this point it’s really hard to say if that will be as rosy as it was last quarter. Concerns about the Delta variant of Covid-19 have started to sneak back in, after weeks of mostly being brushed aside by markets. The University of Michigan consumer sentiment index collapsed to 70.2 in its preliminary August reading last week, the lowest level in a decade. This comes as more states issue mask mandates, vaccine requirements for certain establishments and tightening health restrictions. Other indicators, such as continually low weekly jobless claims, point to a more steady economic recovery. However, the consumer sentiment reading accurately captures the frustration and dismay of Americans who thought the pandemic would be over by now.

Earnings Confirmed/Reported for Q2:
As of Friday, 88% of companies have confirmed their earnings dates for Q2, out of our universe of 9,000+. So far 70% of those names have reported. However, 91% of S&P 500 companies have reported at this point.

Earnings Wave - More of a ripple from here on out
For the week of August 16 -20 we expect 901 companies from our universe of 9,000+ to release results, with 563 in North America.

Earnings out this week:
The retail earnings parade kicks off this week with discounters (Wal-Mart, Target, TJMaxx, Ross Stores), department stores (Macy’s, Kohl’s), home improvement stores (Home Depot, Lowe’s) and some specialty retailers (Victoria’s Secret, Petco, Foot Locker). We even get a few enterprise tech names reporting (monday.com, Outbrain).

Earnings Date Revision

Thus far we have only identified one interesting earnings date change amongst the retailers, and that’s for Ulta Beauty, Inc.

Ulta Beauty (ULTA)
Company Confirmed Report Date: Wednesday, August 25, AMC
Previously Confirmed Date: August 26, AMC

Outlier Analysis
Following their first quarter results in May 2021, Ulta initially set a Q2 report date of Thursday, August 26, AMC. The beauty company has posted second quarter results during the last week of August for the last 5 years, always on a Thursday. On August 11 Ulta issued a press release changing their Q2 report date to a day earlier, Wednesday, August 25 AMC. While this didn’t result in a high Z-score on our end (indicating the date is not significantly outside of the historical range), investors should still be aware of this change. It’s not often that companies revise their earnings dates, and this revision also marks a break from the Thursday reporting tradition, with Ulta now reporting on a Wednesday. Despite the low Z-score, according to academic research on earnings date revisions, the move to a day earlier would still suggest Ulta is getting ready to report better-than-expected results.

Ulta - A quadruple threat ahead of earnings?
Beyond pulling its earnings date forward, Ulta has a lot more going for itself heading into the Q2 report. Currently, sell-side analysts are expecting impressive YoY growth for the company, 242% on the bottom-line, and 41% on the top-line, and those numbers only continue to rise. We consider it a bullish sign when Wall Street continues to increase their estimates in the weeks before a report, and in the last month the consensus EPS estimate for Ulta is up 4%. Lastly, we look at how often a company surpasses expectations. Ulta has beaten on EPS 88% of the time in the last decade, and 70% of the time on revenues. Add to the Ulta mosaic the fact that US households are flush with cash due to government stimulus and savings and it’s easy to see why the stock is up 30% YTD. (Data from FactSet)

Next week's earnings season continues to wind down with only 622 companies from our universe of 9,000+ expected to report, mostly in the retail space. We will resume our earrings coverage in late September as we gear up for the Q3 season.