Next Friday is “Black Friday,” a key day for retail sales that marks the unofficial beginning of the holiday shopping season. Many retailers are actually planning to open stores on the Thursday night before “Black Friday” to garner an even larger share of shopping revenues. In advance of this day, how are retail industries expected to perform in terms of earnings growth in the fourth quarter?
Based on current estimates, analysts believe the Q4 2012 quarter will be a strong quarter for retail. Of the 13 retail sub-industries in the S&P 500, ten are predicted to see earnings growth in Q4 2012. Four of these ten sub-industries are projected to see double-digit earnings growth, led by the Apparel Retail (27.5%), Drug Retail (18.1%), Specialty Stores (11.7%), and Department Stores (11.1%) sub-industries. The only retail sub-industry that is expected to see a significant year-over-year decrease in earnings is the Computer & Electronics Retail sub-industry (-22.4%)
Within the Apparel Retail sub-Industry, all six companies are projected to see double digit earnings growth: Urban Outfitters (92.1%), Abercrombie & Fitch (68.5%), Gap Inc. (55.4%), TJX Companies (23.1%), Ross Stores (22.3%), and Limited Brands (17.3%).
Of the 468 companies that have reported earnings to date for the third quarter, 71% have reported earnings above estimates. This percentage is roughly equal to the average of 70% recorded over the past four quarters. However, only 40% of companies have reported sales above estimates. This percentage is well below the average of 55% recorded over the past four quarters. If 40% is the final percentage, it will mark the lowest percentage of companies reporting sales above estimates for a quarter since Q1 2009 (36%).
The blended earnings growth rate for Q3 2012 improved this week to -0.2% from -0.4%. Upside earnings surprises reported by companies in the Consumer Discretionary and Information Technology sectors (including Home Depot and Cisco Systems) were responsible for the slight increase in the growth rate during the week. Since the end of the quarter (September 30), eight of the ten sectors have recorded an increase in earnings growth, led by the Financials, Energy, and Health Care sectors.
If the final earnings growth rate is -0.2%, it will mark the end of the streak of consecutive quarters of earnings growth for the index at eleven. Four of the ten sectors are reporting a decline in earnings growth for the quarter, led by the Materials (-23.6%) and Energy (-17.7%) sectors. Although eight of the ten sectors are reporting revenue growth for the quarter, the blended sales growth rate for the index is -1.2%. The Energy (-17.1%) and Materials (-6.4%) sectors are the only two sectors reporting sales decreases. Slower economic growth in Europe and emerging markets countries (China) and less favorable foreign-exchange rates had a negative impact on both top-line and bottom-line growth for many multi-national companies in the index in the third quarter.
Companies and analysts have lowered expectations for Q4 2012. In terms of preannouncements, 72 companies have issued negative EPS guidance for Q4 2012, while just 28 companies has issued positive EPS guidance. Analysts have lowered their growth estimates for Q4 2012 since the end of the third quarter (to 5.0% from 9.3%).
The peak weeks of the Q3 2012 earnings season are now finished. During the upcoming week, the final Dow 30 component (Hewlett-Packard) and 12 S&P 500 companies are scheduled to report earnings for Q3 2012.