{"id":50746,"date":"2023-11-27T17:35:36","date_gmt":"2023-11-27T17:35:36","guid":{"rendered":"https:\/\/prosfunds.com\/investing\/retail-earnings-are-here-again-what-to-expect\/"},"modified":"2023-11-27T17:35:37","modified_gmt":"2023-11-27T17:35:37","slug":"retail-earnings-are-here-again-what-to-expect","status":"publish","type":"post","link":"https:\/\/prosfunds.com\/?p=50746","title":{"rendered":"Retail Earnings Are Here Again. What to Expect."},"content":{"rendered":"
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It\u2019s shaping up to be an important week for retailers as the biggest names in the industry get ready to report their third-quarter earnings.<\/p>\n

The results should be good enough, but investors shouldn\u2019t count on spectacular numbers. It\u2019s a balancing act between slower sales growth and potential improvements in margins. <\/p>\n

\n

\u201cYou would expect things to just slow down some based on the fact that the prior couple of years have been above normal growth,\u201d said Bobby Griffin, an analyst at Raymond James.\u00a0<\/p>\n

Inflation is also lower than it was this time last year, he said. While slower price growth is beneficial for consumer spending in the long run, it is likely to take a toll on retailers\u2019 result in the short term, making it harder for companies to match or exceed the sales growth they have achieved recently.<\/p>\n

\n Home Depot
\n (ticker: HD) kicks off earnings season Tuesday, followed by
\n Target
\n (TGT),
\n TJX Cos.
\n (TJX),
\n Walmart
\n (WMT), and
\n Macy\u2019s
\n (M).\u00a0<\/p>\n

Wall Street is cautious about the sector. The consensus estimate for aggregate earnings per share for companies in the
\n SPDR S&P Retail ETF
\n (XRT) has fallen 2% since Sept. 29, according to FactSet. The retail exchange-traded fund is down 1% this year, while the
\n S&P 500
\n is 15% higher.\u00a0<\/p>\n

Sentiment is especially downbeat about companies that depend on discretionary spending. Investors are worried that big-picture challenges such as inflation, higher interest rates, and the resumption of payments on student loans may finally be hurting consumers\u2019 spending power.\u00a0<\/p>\n

\u201cDiscretionary cracks started to broaden mid quarter,\u201d Evercore ISI analyst Greg Melich noted. Purchases of big-ticket items, which are more sensitive to interest-rate increases, are under particular pressure.<\/p>\n

These same concerns are weighing on the home-improvement sector, which has struggled for the better part of 2023. Shares of
\n Home Depot
\n are down 8% this year, while
\n Lowe\u2019s
\n (LOW) is off 2%. Higher home prices and mortgage rates have discouraged people from moving and embarking on renovation projects. <\/p>\n

Now that the industry is entering its off season, there are few signs this will change soon. Third-quarter earnings are unlikely to ease the market\u2019s misgivings. <\/p>\n

It isn\u2019t all doom and gloom, however. Certain companies, particularly in the off-price and discount space, have benefited from the economic environment and could keep doing so this quarter, analysts say. Earnings estimates for companies like
\n Walmart,<\/span>
\n TJX, and
\n Ross Stores
\n (ROST) have been slightly raised in the last few days, according to FactSet. <\/p>\n

Foot traffic to discount stores increased 3.4% in the third quarter compared with the previous year, according to data from Placer.ai. The increase is especially striking given that overall retail foot traffic fell 2.8% in the quarter.<\/p>\n

It\u2019s worth noting that even though people seemed to be visiting retailers less in the third quarter, retail sales have still grown at a healthy pace for three consecutive months, bucking economists\u2019 expectations. Sales are expected to have fallen in October, according to FactSet. The Census Bureau is scheduled to release October\u2019s data on Wednesday. <\/p>\n

Another silver lining is that freight and production costs are lower, meaning many retailers will likely improve gross margins and profitability.<\/p>\n

\u201cYou can have a little bit less top line-sales [growth], but if you\u2019re getting more favorable benefits from your supply chain, your earnings pressure might not be as much,\u201d Griffin said.<\/p>\n

The Street will likely react positively to any commentary about margin expansion, he added. But any updates on the outlook\u2014including expectations for the holiday season\u2014will likely move the needle most. <\/p>\n

Write to Sabrina Escobar at sabrina.escobar@barrons.com<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

It\u2019s shaping up to be an important week for retailers as the biggest names in the industry get ready to report their third-quarter earnings. The results should be good enough, but investors shouldn\u2019t count on spectacular numbers. It\u2019s a balancing act between slower sales growth and potential improvements in margins. \u201cYou would expect things to […]<\/p>\n","protected":false},"author":1,"featured_media":50747,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"content-type":"","footnotes":""},"categories":[32],"tags":[],"class_list":{"0":"post-50746","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-investing"},"yoast_head":"\nRetail Earnings Are Here Again. 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