It is again that time when the earnings outcome of companies grabs all the attention. Analyst opinion, at this time, is usually centered on whether a company delivers an earnings beat or a miss. The first-quarter 2018 reporting cycle has almost crossed the half-way mark, with a robust picture of all-round strength. With solid earnings and sales growth so far, this season is likely to record the highest growth in seven years.
Among all the sectors, our focus here will be on Retail-Wholesale, which is presumed to be invariably in business. While the majority of the players generally report earnings in the last leg of the reporting cycle, we note that there is significant momentum in these stocks due to a favorable economic backdrop. The sector is gaining from favorable economic data, including steady rise in wages, stable labor market and improved consumer spending.
Consequently, the sector has gained 5.1% in the past month, outpacing the S&P 500’s growth of 1.3%.
Consumer spending, which accounts for 70% of the economic activity, rose 0.4% in March, following 0.2% growth in January and remaining flat in February. This renewed momentum in March emerged from continued rise in incomes, indicating that consumers may drive economic growth in 2018.
The well-being of consumers is usually linked to the prosperity of retailers as this segment attracts a large sum of total spending. We believe that the increased spending in March will somewhere reflect in earnings of retailers, who will report first-quarter outcomes very soon.
As per National Retail Federation (NRF), total retail sales increased 5% year over year in March and 0.3% from February. This included a 7.6% increase in online and other non-store retail sales. Moreover, NRF continues to project retail sales growth of 3.8-4.4% for 2018.
A close look at the sector reveals that retailers are reaping the benefit of increased investments in digital commerce, as evident from significant growth in e-commerce sales. Digital sales have been the key contributing factor in the top-line growth of most retailers. Additionally, this has led to a revival in the comparable store sales (comps) trend of the sector on the whole.
