One week prior to Black Friday (November 16), ten of the thirteen S&P 500 retail sub-industries in the S&P 500 were expected to see earnings growth in the fourth quarter, led by the Apparel Retail sub-industry (at 27.0%). Since that time, and with no resolution to date for the “fiscal cliff,” have analysts significantly
revised their earnings growth expectations for retailers for the fourth quarter?
For most retailers, the answer is no. Over the past month, the estimated earnings growth rates for most of the retail sub-industries have not changed significantly, with the exceptions of the Computer & Electronics Retail (to -32.5% from -23.6%), Department Store (to 5.2% from 10.1%), and Specialty Store (to 8.4% from 12.1%) sub-industries.
The estimated earnings growth rate for Q4 2012 dropped slightly to 3.0% this week, compared to last week’s estimate of 3.1%. Downward revisions to estimates for companies in the Financials sector (including Chubb and XL Group) were mainly responsible for the drop in the growth rate during the week. On September 30, the estimated earnings growth rate for the index was 9.3%. Seven of the ten sectors have recorded an decline in earnings growth over this time frame, led by Materials, Information Technology, and Financials sectors.
In terms of preannouncements, 79 companies have issued negative EPS guidance for Q4 2012, while 30 companies has issued positive EPS guidance. Of the companies in the Information Technology sector that have provided EPS guidance for the quarter, an unusually high percentage (88%) have issued negative EPS guidance.
Despite reductions in estimates, analysts are still calling for a return to earnings growth for the S&P 500 in Q4 after a decline in Q3. Seven of the ten sectors are projected to report earnings growth for the quarter, led by the Financials sector (16.9%). On the other hand, the Industrials (-4.2%) and Information Technology (-2.5%) sectors are predicted to have the weakest earnings growth. In the Information Technology sector, Apple is predicted to report a year-over-year decline in EPS for the first time in over nine years. The current revenue growth rate for the index for Q4 is 2.4%, slightly below an expectation of 2.7% growth at the start of the quarter. Slower economic growth in Europe and emerging markets countries (China) and less favorable foreign-exchange rates are expected to have a negative impact on both top-line and bottom-line growth for many multi-national companies in the index in the quarter. In addition, some companies have cited the damage caused by Hurricane Sandy and the tax policy uncertainty caused by the “fiscal cliff” as impediments to earnings and sales growth for the quarter as well.