Retail Industry Outlook: Finding Balance Among the Numbers Retail Industry Outlook: Finding Balance Among the Numbers

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Walmart WMT shares took a hit in response to the latest quarterly release on November 16th when the company offered guidance that fell slightly short of expectations. The period of tumultuous trading that followed saw the stock lose over 10% of its value. However, in a marked turnaround, Walmart shares have since rebounded and are presently trading at a 52-week high, outperforming the market by a significant margin since the beginning of January 2024.

The upcoming quarterly results on Tuesday, February 20th will reveal whether this performance momentum can be sustained. It wouldnโ€™t be surprising to witness a โ€˜sell-the-newsโ€™ reaction, similar to the one following the November 2023 release.

Analysts are gearing up for Walmartโ€™s earnings of $1.65 per share on $170.6 billion in revenues, indicating year-over-year changes of -3.5% and +4%, respectively. Notably, the $1.65 estimate is an increase from $1.63 per share a few days back.

Target TGT isnโ€™t expected to report quarterly results till March 5th, while Home Depot is set to report results Tuesday morning alongside Walmart. The performance of Walmart, Home Depot, and Target relative to the S&P 500 index over the past year is illustrated in the chart below.

Zacks Investment Research

Image Source: Zacks Investment Research

The Retail sectorโ€™s 2023 Q4 earnings season scorecard reveals that results from 17 of the 33 retailers in the S&P 500 index are already in. This sector is separately classified in the Zacks economic sector, distinguishing itself from the Consumer Staples and Consumer Discretionary sectors in the Standard & Poorโ€™s standard industry classification.

In addition to traditional retailers, the Zacks Retail sector encompasses online vendors like Amazon AMZN and restaurant players. The 17 Zacks Retail companies in the S&P 500 index that have reported Q4 results belong to the e-commerce and restaurant industries. Total Q4 earnings for these 17 retailers are up +72.4% from the same period last year on +10.7% higher revenues, with 88.2% beating EPS estimates and 58.8% beating revenue estimates.

The Q4 beats percentages for these retailers are contextualized in the comparison charts, highlighting their historical performance.

Zacks Investment Research

Image Source: Zacks Investment Research

The charts reveal that online players and restaurant operators have easily exceeded EPS estimates but have struggled to surpass revenue estimates. Notably, Amazonโ€™s phenomenal Q4 performanceโ€”up +410.9% on revenues up by +13.9%โ€”substantially contributes to this remarkable earnings and revenue growth.

The ongoing convergence of digital and brick-and-mortar retail, amplified by the Covid lockdowns, has significantly transformed the retail landscape. Amazon has evolved into a substantial brick-and-mortar operator following its acquisition of Whole Foods, while Walmart is steadily expanding as an online vendor. The impending Q4 earnings calls are expected to shed more light on this matter, particularly in the context of the companiesโ€™ outlooks for the coming periods.

Standout Features of the Q4 Earnings Season

The Q4 earnings season has underlined the industryโ€™s overall stability and resilience. Though corporate profitability was not robust, it has been relatively sturdy. The fear of an impending earnings cliff has somewhat dissipated.

With over 79% of S&P 500 members having released their quarterly results, the following key features have been confirmed:

First

The Q4 earnings and revenue growth pace represents an acceleration from recent quarters, a significant indicator of the industryโ€™s future trajectory.

For the 396 S&P 500 members that have reported results, total earnings and revenues are up +5.1% and +3.4% from the same period last year, respectively. Beat percentages are also relatively favorable, with 78.8% of the companies surpassing EPS estimates and 64.4% exceeding revenue estimates.

The comparison charts contextualize the Q4 earnings and revenue growth rates for these 396 index members, offering a historical perspective.

Zacks Investment Research

Image Source: Zacks Investment Research

Second

Companies have made notable progress on the margins front. The year-over-year change in net margins turned positive in 2023 Q3 after being negative for six consecutive quarters, becoming a key driver of earnings growth in subsequent periods.

This upturn in margins is demonstrably reflected in the chart below.

Zacks Investment Research

Image Source: Zacks Investment Research

The robust performance and underlying trends indicate a resilient industry positioning itself for growth in the coming periods. As the upcoming retail earnings season unfolds, investors eagerly await the revelations that will determine their next steps in this ever-evolving marketplace.

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