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Summary

  • As the retail industry’s Q4 earnings season closes, investors are judging the pace of Q1, which ends April 30 for many. So far, that pace could be described as "snail-like".
  • Analysts currently expect S&P 500 earnings to grow 2.2% - down from an estimate of 6.5% at the beginning of the quarter.
  • With negative guidance from many companies, analysts have become bearish on retailers, and have been lowering both earnings and same store sales expectations since the beginning of the quarter.

By Jharonne Martis and Greg Harrison

Analysts currently expect S&P 500 earnings to grow 2.2% -- down from an estimate of 6.5% at the beginning of the quarter. However, the Consumer Discretionary sector has seen an even bigger drop, falling to the currently 6.2% expectation from 14.5% expected growth forecast on January 1. For retailers, the Same Store Sales growth estimate for Q1 now bumps along at 1.3%, down from 2.4% in January.

View our corresponding video on Q1 Earnings here.

With negative guidance from many companies, analysts have become bearish on retailers, and have been lowering both earnings and same store sales expectations since the beginning of the quarter.

Grim outlook

Within the S&P 500, guidance is very negative for Q1, with 7.2 negative pre-announcements for each positive one (108 negative, 15 positive, 11 in line with expectations). Within the Consumer Discretionary sector, guidance is even more bearish, with 24 companies issuing profit warnings and no companies stating they expect to exceed analyst estimates.

The harsh winter weather was a big factor, preventing many consumers from getting out to the malls. February marks the first month of the Q1 2014 fiscal period, and retailers are already warning of continued low earnings expectations.

In our retail universe, there have been 50 negative EPS pre-announcements for Q1 2014 compared to four positive EPS pre-announcements. By dividing 50 by 4, one arrives at a negative/positive ratio of 12.5.

Who will beat estimates?

Looking forward to anticipated Q1 performance, we used StarMine's SmartEstimate to determine which companies in our retail universe are better poised to beat earnings guidance. The SmartEstimate is a weighted average of analyst estimates, with more weight given to more recent estimates and more accurate analysts. Our studies have shown that when the SmartEstimate differs from the consensus (IBES Mean) by more than 2%, the company is likely to post subsequent earnings surprises directionally correct 70% of the time.

Of the 121 retailers in our universe:

Ten are likely to beat (about 8%):

Ticker

Company Name

Predicted Surprise %

(NASDAQ:GKNT)

Geeknet Inc

27.6%

(NASDAQ:CTRN)

Citi Trends Inc

13.6%

(NASDAQ:CWTR)

Coldwater Creek Inc

5.9%

(NYSE:BKS)

Barnes & Noble Inc.

4.8%

(NASDAQ:KIRK)

Kirkland's Inc

4.3%

(NASDAQ:MAT)

Mattel Inc

4.0%

(NYSE:ODP)

Office Depot

2.8%

(NASDAQ:TUES)

Tuesday Morning Corp

2.8%

(NYSE:ZLC)

Zale Corp

2.4%

(NYSE:CBK)

Christopher & Banks Corp

2.0%

Twenty-two are likely to miss estimates (about 18%):

Ticker

Company Name

Predicted Surprise %

(OTCQB:BODY)

Body Central Corp

-55.7%

(NASDAQ:CACH)

Cache Incorporated

-45.8%

(NASDAQ:BONT)

Bon-Ton Stores Inc

-15.8%

(NYSE:AEO)

American Eagle Outfitters

-12.7%

(NYSE:EXPR)

Express Inc

-12.4%

(NYSE:SSI)

Stage Stores

-10.2%

(NYSE:RSH)

RadioShack Corporation

-9.2%

(NYSEMKT:APP)

American Apparel Inc

-8.8%

(NYSE:ANN)

Ann Inc

-7.4%

(NYSE:BWS)

Brown Shoe Company

-7.3%

(NASDAQ:PSUN)

Pacific Sunwear Of California

-7.3%

(NASDAQ:OSTK)

Overstock.com

-7.3%

(NYSE:CHS)

Chico's Fas Inc

-6.9%

(NYSE:ARO)

Aeropostale Inc

-6.1%

(NYSE:DSW)

DSW Inc

-4.8%

(NYSE:ETH)

Ethan Allen Interiors Inc

-4.8%

(NYSE:HZO)

MarineMax Inc

-4.0%

(NYSE:MW)

Men's Wearhouse Inc

-3.7%

(NASDAQ:SMRT)

Stein Mart Inc

-3.1%

(NYSE:BBW)

Build-A-Bear Workshop Inc

-2.3%

(NASDAQ:EXPE)

Expedia Inc

-2.2%

(NASDAQ:GMAN)

Gordmans Stores Inc

-2.2%

Apparel woes

The bulk of those with negative predicted surprise are in the apparel sector. These stores continue to hurt from lack of compelling fashion. What's more, the teen apparel stores are expected to do worse, as they have been hurting from steep competition and have been losing market share to H&M and Forever 21, which offer lower price points.

At American Eagle, in response to weaker-than-expected SSS, analysts have been lowering earnings projections to a mean consensus forecast of 2 cents per share. However, most highly-rated analysts believe it will be flat. And those downward revisions may not be at an end -- the StarMine Analyst Revision Model (ARM) indicates that analysts are likely to continue reducing their earnings forecasts as the quarter progresses.

American Eagle has a StarMine ARM score of 3, which places it at the bottom of the bottom decile of all U.S. companies with respect to this measure of change in the way analysts perceive the outlook for the company. The lower a company's ARM, the more top-ranked analysts have been lowering their earnings forecasts and the greater the likelihood that they will continue to do so.

Similarly, StarMine's Price Momentum (Price Mo) model shows Aeropostale doing worse than 97% of its peers. The teen store is expected to post a loss of 68 cents for the first quarter. However, a highly rated analyst with a very accurate rating thinks it will be worse, and has given the retailer a bold estimate of a loss of 73 cents.

Editor's Note: This article covers a stock trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Editor's Note: This article covers a stock trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

Source: Winter Winds Are Blowing Over Q1 Retail Earnings Outlook