Looking Ahead to Retail Sector Earnings

Sheraz Mian
5 min read

In This Article:

Note: The following is an excerpt from this week’s Earnings Trends report. You can access the full report that contains detailed historical actual and estimates for the current and following periods, please click here>>>

Here are the key points:

  • Total Q3 earnings for the 458 S&P 500 members that have reported results through Wednesday, November 13th, are up +6.9% on +5.4% higher revenues, with 73.6% beating EPS estimates and 61.4% beating revenue estimates.

 

  • The earnings and revenue growth pace for this group of 458 index members is broadly in line with the growth trend of recent quarters, but companies have struggled to beat consensus EPS and revenue estimates. The Q3 EPS and revenue beats percentages are tracking notably below the 20-quarter averages for this group of companies.

 

  • Net margins in Q3 are expected to be modestly above the year-earlier level, with the Tech sector as the primary driver of keeping the year-over-year gains positive. This is the 5th consecutive quarter of expanding net margins for the S&P 500 index.

 

  • Earnings growth is expected to accelerate after the modest growth pace in Q3, with double-digit earnings growth projected in three of the next four quarters.

 

Retail Sector Earnings in Focus

 

Home Depot HD became the first major conventional retailer to come out with Q3 results, with the home improvement retailer coming out ahead of estimates, with comps benefiting from hurricanes in the U.S. Southeast. Home Depot’s better-than-expected results notwithstanding, the company’s Q3 earnings were down -1.4% from the year-earlier level on +6.6% higher revenues, as the operating environment continues to depress margins.

Home Depot’s hurricane boost offers a direct read-through for Lowe’s LOW, which reports on November 19th. Lowe’s Q3 earnings are expected to be down -10.2% from the same period last year on -2.6% lower revenues.

The fortunes of Home Depot and Lowe’s are closely tied to developments in the housing market, where demand remains anemic as a result of elevated mortgage rates. While the Fed has started easing and is broadly expected to remain in the easing lane, long-term interest rates have proved to be a lot stickier relative to short-term rates that are closely tied to Fed activities.

Part of the reason for the stubborn long-term rates appears to be expectations of pro-growth policies from the incoming Trump administration. That said, the expectation is that long-term rates will eventually come down, even though the downshift at the longer end of the yield curve may be a lot less than Fed-driven easing at the lower end of the curve. All of this will be beneficial to Home Depot and Lowe’s as the major home improvement projects typically require outside financing.

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