Image Source: UnsplashTo date, 196 of the 199 companies in our Retail/Restaurant Index have reported their EPS results for Q2 2024, representing 99% of the index. Of those companies that have reported their quarterly results, 71% announced profits that beat analysts’ expectations, while 5% delivered on-target results and 24% reported earnings that fell below estimates. The Q2 2024 blended earnings growth estimate now stands at 14.4%.The blended revenue growth estimate for the 199 companies in this index is 3.6% for Q2 2024. Of those companies that have reported their quarterly results so far, 49% announced revenue that exceeded analysts’ expectations and the remaining 51% reported that their revenue fell below analysts’ forecasts.Exhibit 1: LSEG Earnings DashboardSource: LSEG I/B/E/S

This week in retail
 Kroger (KR) reported better-than-expected Q2 earnings and same-store sales estimates. However, its revenue fell short of expectations. Despite this, Kroger’s digital sales were strong, with a 17% growth in delivery solutions as consumers are increasingly preferring the convenience of online ordering and pickup. The supermarket chain also noted that shrinkage related to theft reached an all-time high and observed, “Customers are purchasing lower price cuts of meat, buying less, and focusing on essentials. Budget-conscious customers are buying more at the beginning of the month to stock up on essential items in groceries. And then as the month progresses, they are more cautious with their spending. In response, we are supporting our customers by keeping prices low through promotions, including loyalty discounts, personalized offers, and fuel rewards.” (Source: Kroger’s Earnings Call Q2 2024)RH exceeded its second-quarter earnings and revenue estimates. The home décor retailer reported strong demand heading into the third quarter, despite facing one of the most challenging housing markets in years. During its earnings call, management expressed optimism about its product offerings for the second half of 2024. RH also stated in its earnings release, “We believe our demand performance demonstrates that we are the best-positioned brand in our industry to benefit from the anticipated rebound of the housing market once interest rates decline and home prices reset lower, closing the affordability gap that has suppressed the market for the past several years.” (Source: RH Earnings Release Q2 2024)Here are the Q2 2024 earnings and same store sales estimates for the companies reporting this week:Exhibit 2: Same Store Sales and Earnings Estimates – Q2 2024Source: LSEG I/B/E/SAugust 2024 retail sales forecastFor most retailers, August marks the first month of the fiscal third quarter, covering the three-month period from August through October. When reporting second-quarter earnings, many retailers warned of a frugal consumer when providing negative guidance. Accordingly, LSEG IFR Economics is projecting a -0.3% month-over-month decrease in overall U.S. retail sales, suggesting a notable contraction in August compared to July’s 1.0% increase (Exhibit 3).Exhibit 3: U.S. Retail Sales: 2022 – 2024Source: LSEG IFRU.S. retail sales excluding autos are expected to improve to a 0.3% month-over-month increase, slightly below July’s 0.4% (Exhibit 4). The control group sales are projected to increase by 0.2% month-over-month. Given recent retail earnings trends, it is likely that August sales will see a boost from groceries, consumer staples, back-to-school items, and athletic wear.Excluding autos, August’s retail sales reflect a healthier performance within the current economic context. However, it is important to note that this was likely driven by promotions, as consumers remained budget-conscious. In collaboration with Centric Market Intelligence, LSEG discovered that August discount penetration is still elevated (Exhibit 7).Exhibit 4: U.S. Retail Sales: August 2024 EstimatesSource: LSEG IFRGuidanceSo far, 196 retailers have reported Q2 2024 earnings; of this group, many are citing higher inflated prices, macroeconomic conditions and a cautious consumer.Looking ahead to Q3 2024, 26 retailers issued negative preannouncements, while twelve issued positive EPS guidance so far (Exhibit 5). Of those retailers offering revenue guidance, 38 warned of disappointing results, while twelve said revenue might be better than previously expected.Exhibit 5: Earnings and Revenue Guidance: Q3 2024Source: LSEG I/B/E/SRetail earnings outlook: 2H2024Looking ahead, retailers are cautioning that they might face an even more frugal consumer in the second half of the year. Many have cited higher prices, challenging macroeconomic conditions, and a cautious consumer as contributing factors. Consequently, the LSEG Retail/Restaurant Index is projecting weaker consumer spending in the second half of the year (Exhibit 6). The Q2 2024 blended earnings growth estimate now stands at 14.4%, but is expected to drop to 0.6% in Q3 2024.Exhibit 6: LSEG Retail/Restaurant Index Earnings Growth Rates: Q1 – Q4 2024 EstSource: LSEG I/B/E/SDiscount levels – U.S. online retailersThe discount penetration (how much of the assortment is on sale) has risen this year, as consumers became more price conscious and concerned about the economy. LSEG discovered this in a collaboration with Centric Market Intelligence, which analyses retailers, brands, online trends and products across the globe.Exhibit 7: Average Discount Penetration: U.S. Online RetailersSource: Centric Market IntelligenceAlthough more merchandise is discounted, the average percent discount in August was in line with this year’s average of 36%.Exhibit 8: Average Discount: U.S. Online RetailersSource: Centric Market IntelligenceMore By This Author:How To Make Your Fund Distribution Strategy Future Proof S&P 500 Earnings Dashboard 24Q2 – Saturday, Sept. 7What The Managers Of Active ETFs Can Learn From Their Mutual Fund Peers