Image Source: PixabayThe LSEG U.S. Retail and Restaurant Q2 earnings index, which tracks changes in the growth rate of earnings within the sector, is expected to show a 12.7% growth over last year’s levels. Our metrics show that eight of 10 consumer-related industries have turned positive. (Exhibit 1) (Many retail companies end their fiscal year on January 31 to account for the holiday shopping season, therefore, Q2 ended on July 31.)Of the 199 retailers tracked by LSEG, the broadline retail sector is headed for the highest earnings growth rate in the first quarter, recording an 83.6% surge over last year’s level. The second strongest sector is the textiles, apparel & luxury goods group with a 21.2% growth estimate. Consumers remained upbeat about the economy in the second quarter, leading to increased spending on apparel.At the other end of the spectrum, the distributors sector has the weakest anticipated Q2 2024 estimate, with profits expected to decline by -7.5% (Exhibit 1).Exhibit 1: The LSEG Retail Earnings Growth Rate – Q2 2024Source: LSEG I/B/E/SWithin the broadline retail sector, Amazon already recorded the strongest earnings growth rates of 93.8%. Analysts polled by LSEG remain bullish on the online giant’s earnings estimates for the remainder of this year. The online retailer has the biggest weighting in the group and is boosting the sector’s growth rate. Still, of the seven companies in this group, four are on track for positive estimated earnings growth for Q2.The second strongest sector is textiles, apparel & luxury goods. This sector saw a strong improvement in the second quarter. Of the 21 companies in this group, 10 are on track for positive estimated earnings growth for Q2. Deckers Outdoor (DECK), Kontoor Brands (KTB), and Nike (NKE) already recorded robust earnings growth rates of 87.6%, 53.1% and 53.0%, respectively. Still, Hanesbrands (HBI) is on track to post the strongest earnings growth rate of 1055%.In contrast, it looks like the distributors group is headed for the weakest year-over-year earnings comparisons. Negative growth expectations are directly responsible for the forecast decline in the overall earnings growth rate within the group. All three companies struggled to match year-ago earnings growth levels. Pool Corp. (POOL) and LKQ Corp. (LKQ) already reported a 15.6%, and 10.1% decline in earnings growth in the second quarter of 2024.So far, 128 companies or 64% of those in our Retail/Restaurant Index, have reported earnings for Q2 2024. Of this group, 72% announced earnings that exceeded analysts’ expectations, while 4% matched those forecasts and the remaining 24% reported earnings that fell below analysts’ predictions (Exhibit 2). The blended earnings growth estimate for Q2 2024 is 12.7%.To date, 128 companies in the Retail/Restaurant Index have reported revenue for Q2 2024. For this group, the Q2 2024 blended revenue growth estimate is 3.6%; 48% have reported revenue above analyst expectations, and 52% reported revenue below analyst expectations.Exhibit 2: LSEG Proprietary Research Restaurant & Retail Dashboard – Q2 2024
Source: LSEG I/B/E/SSame store salesThe LSEG Same Store Sales (SSS) index is expected to see a robust 3.1% gain in Q2 2024 (Exhibit 3). An increase of 3.0% in SSS signals that consumer spending is healthy. Last year at this time, Q2 2023 SSS came in at a 3.2% growth.It’s very important to note that due to the pandemic, the 2020-2022 results don’t offer an apples-to-apples comparison of current trends relative to previous years, as many retailers were closed due to shelter in place regulations.Exhibit 3: LSEG Same Store Sales Index: 2019 – PresentSource: LSEG I/B/E/SConsumer confidence was at healthy levels as Americans felt better about stretching their spending in Q2. Abercrombie (ANF) is on track to post its fifth quarter of double-digit SSS growth. The teen retailer has a 14.8% SSS estimate for Q2. Its double-digit comp estimate is a sign that parents aren’t frowning at a $100 “must have” pair of distressed denim jeans for their kids. It’s a sign that the U.S. consumer remained resilient in Q2.It was a good quarter for the apparel sector, as sales picked up within the group. Six of the top ten SSS performers are from the apparel group. Lululemon (LULU) was a favorite during the pandemic and is expected to post another robust SSS growth of 6.5% for Q2 2024. A few other standouts this quarter include American Eagle (AEO), Lands’ End (LE), Urban Outfitters (URBN), and Citi Trends (CTRN). American Eagle is receiving a boost from its Aerie division, which is on track to report a 5.0% comp. Urban Outfitters is also receiving a boost from its Free People and Anthropologie divisions, which are on track to report comps of 8.0% and 7.2%, respectively.Gap is on track to post a 3.0% SSS for Q2 2024 and is receiving a boost from its Old Navy division’s 4.3% SSS estimate. Our StarMine Model also suggests that Gap is likely to beat its Q2 earnings estimate and post a positive surprise.Consumers continue to feel the pressure of higher food prices on their spending power and continue to gravitate towards the discounters for everyday low prices. As a result, discounters continue to demonstrate their ability to maintain business volume despite the difficult comparisons. Walmart (WMT) has a loyal customer following that is looking to save money and the company is expected to report a 3.2% SSS. Meanwhile, Costco (COST) already reported a Q2 gain of 6.6%, above its 6.0% SSS estimate.Exhibit 4: Strongest Same Store Sales Estimates: Q2 2024 Estimate vs. Q2 2023 ActualSource: LSEG I/B/E/SThe home goods group received a boost during the pandemic, but sales have slowed down since. As a result, Havertys Furniture (HVT), the Container Store (TCS), and Lovesac (LOVE) are all in the bottom ten SSS performers for Q2 (Exhibit 5).Exhibit 5: Weakest Same Store Sales Estimates: Q2 2024 Estimate vs. Q2 2023 ActualSource: LSEG I/B/E/SHome Depot (HD) and Lowe’s (LOW) are also on track to see negative comps of -1.9%, and -4.0%, respectively. Nonetheless, Home Depot’s -1.9% SSS would be an improvement from the previous 5 quarters. In fact, Home Depot is in the top decile for both the StarMine Short Interest, and the Earnings Quality models (Exhibit 6). The retailer scores a 94 out of a possible score of 100 for the Short Interest Model, suggesting that investors are not betting against the company.Exhibit 6: Home Depot StarMine Models ScoresSource: LSEG WorkspaceAccording to the StarMine Earnings Quality (EQ) Model, Home Depot scores a 90 out of a possible 100. Its high scores suggest that earnings are derived from sustainable sources. The company’s operating efficiency component suggests that Home Depot is performing healthily in this area. What’s more, Home Depot is sitting on a lot of cash, as indicated by the strong cash flow component score (Exhibit 7).Exhibit 7: Home Depot Earnings Quality StarMine Models ComponentsSource: LSEG WorkspaceMoreover, it is evident that buy-side analysts have become more bullish on Home Depot. The StarMine Smart Holdings Model is highly predictive of buy-side sentiment. The model details which factors are important to investors considering Home Depot. Among the top categories for Home Depot are its high levels of ROE and ROA, which surpass the industry average. (Exhibit 8). The home improvement retailer is profitable and therefore is attractive to the buy side.Exhibit 8: Home Depot StarMine Smart Holdings Model Breakdown – Top CategoriesSource: LSEG WorkspaceRestaurant same store salesThe LSEG Restaurant Same Store Sales (SSS) index is expected to see a 0.9% growth in SSS in Q2 2024, on top of facing last year’s difficult comparison of 8.1% gain. (Exhibit 9).Within this industry, the Casual Dining sector is on top with a 2.4% SSS estimate, stronger than the Quick Service sector. The Quick Service sector is on track to see a 0.3% SSS growth.It’s important to note that, once again, the 2020-2021 results don’t offer an apples-to-apples comparison over previous years, given that quarantine rules and other pandemic restrictions forced many restaurants to close. As a result, a number of restaurants didn’t report SSS data during the pandemic.Exhibit 9: LSEG Restaurant Same Store Sales Index: 2019 – PresentSource: LSEG I/B/E/SAbout 70% of restaurants in our SSS index are on track or have posted positive Q2 2024 SSS. Still, restaurants are facing very difficult comparisons from a year-ago. Yum China (YUMC) currently has the weakest SSS estimate of -2.7%, which it missed with a -4.0% SSS result. Likewise, Starbucks (SBUX) also came in below its -2.4% SSS estimate with a -3.0% comp.Exhibit 10: Weakest Restaurant Same Store Sales Estimates: Q2 2024 Estimate vs. Q2 2023 ActualSource: LSEG I/B/E/SOn the other hand, Wingstop faced the most difficult comparison from a year-ago at 16.8%. Still, the restaurant beat its 19.0% SSS estimate with an outstanding 28.7% SSS. Likewise, Chipotle (CMG) beat its 9.1% SSS estimate with an 11.1% comp, stronger than last year’s result.Exhibit 11: Strongest Restaurant Same Store Sales Estimates: Q2 2024 Estimate vs. Q2 2023 ActualSource: LSEG I/B/E/SMeanwhile, Brinker International (EAT) is on track to report a 7.7% comp, stronger than last year’s 6.6% result. Analysts polled by LSEG are already bullish on the restaurant’s Q2 performance. The consensus for Brinker’s Q2 2024 EPS, including Prime sales, is $1.69. However, there’s a five-star rated analyst with a very accurate rating that published a Bold Estimate, which is different (in this case higher) than the consensus estimate. The analyst expects Amazon to report EPS of $2.03, well above the mean. This suggests that it’s likely that Brinker will beat earnings and post a positive surprise.The StarMine SmartEstimate is a weighted average of analyst estimates, with more weight given to more recent estimates and more accurate analysts. Our studies have shown that when the SmartEstimate differs from the consensus (I/B/E/S mean) by more than 2%, the company is likely to post subsequent earnings surprises directionally correct 70% of the time. This percentage difference is referred to as the Predicted Surprise (PS%) (Exhibit 12).Exhibit 12: Brinker Restaurant StarMine SmartEstimate and Predicted Surprise %: Q2 2024

Source: LSEG WorkspaceMore By This Author:S&P 500 Earnings Dashboard 24Q2 – Friday, Aug. 9
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