The Refinitiv U.S. Retail and Restaurant Q4 earnings index, which tracks changes in the growth rate of earnings within the sector, is expected to show a weak 22.9% decline over last year’s levels. Our metrics show that ten of 11 consumer-related industries have turned negative (Exhibit 1). Of the 201 retailers tracked by Refinitiv, the Hotels, Restaurant & Leisure sector is headed for the highest earnings growth rate in the fourth quarter, recording a 257.4% surge over last year’s level.

In fact, it has been the strongest-performing sector this year. These firms have been benefiting from the fact that consumers feel more comfortable traveling, staying at hotels and eating out.

At the other end of the spectrum, Internet & Catalog Retail is facing difficult comparisons and has the weakest anticipated Q4 2022 estimate, with profits expected to decline by 92.7% (Exhibit 1).

Exhibit 1: The Refinitiv Retail Earnings Growth Rate – Q4 2022

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Source: Refinitiv I/B/E/S

Within the Hotels, Restaurant & Leisure sector, Six Flags Entertainment and BJ’s restaurant are on track to record the strongest earnings growth rates of 978.0%, and 131.8%, respectively. Of the 44 companies in this group, 31 are on track to post positive estimated earnings growth for Q4.

In contrast, the Internet & Catalog Retail group is hampered by difficult year-over-year earnings comparisons. Negative growth expectations are directly responsible for the forecast decline in the overall earnings growth rate within the group, as three of the four companies struggle to match pandemic-level earnings growth levels. During the pandemic, consumers gravitated to online retailers such as Amazon. However, the Internet behemoth reported a 97.8% decline in earnings growth in the fourth quarter of 2022; Petmed Express, meanwhile, has recorded the deepest earnings decline of 100%.

So far, 83 companies or 41% of those in our Retail/Restaurant Index, have reported earnings for Q4 2022. Of this group, 61% announced earnings that exceeded analysts’ expectations, while 5% matched those forecasts and the remaining 34% reported earnings that fell below analysts’ predictions (Exhibit 2). The blended earnings growth estimate for Q4 2022 is -22.9%.

To date, 83 companies in the Retail/Restaurant index have reported revenue for Q4 2022. For this group, the Q4 2022 blended revenue growth estimate is 5.1%; 63% have reported revenue above analyst expectations, and 37% reported revenue below analyst expectations.

Exhibit 2: Refinitiv Proprietary Research Restaurant & Retail Dashboard – Q4 2022

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Source: Refinitiv I/B/E/S

Guidance

So far, 83 retailers have reported Q4 earnings; of this group, 59 mentioned inflation and 64 flagged supply chain issues. In addition to the 29 negative preannouncements and nine positive EPS forecasts in Q4 2022, 39 retailers posted negative revenue outlooks while 22 offered a positive outlook for revenue (Exhibit 3). The bulk of the Q4 2022 negative guidance (47.8%) comes from the apparel and specialty retail sectors.

Looking ahead to Q1 2023, seven retailers issued negative preannouncements, while one issued positive EPS guidance so far. Of those retailers offering revenue guidance, 12 warned of disappointing results, while only five said revenue might be better than previously expected.

Exhibit 3: Earnings and Revenue Guidance: Q4 2022 And Q1 2023

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Source: Refinitiv I/B/E/S

Retail sales

Same Store Sales (SSS) also are commonly referred to as Comparable Store Sales. However, it’s impossible to come up with any years in history that are at all comparable to those that retailers endured in 2020 through 2022. Never before had governments required retailers and other businesses to close their physical locations. As a result, several retailers didn’t report SSS and many companies ceased providing this guidance during most of the pandemic.

The Refinitiv Same Store Sales (SSS) index is expected to see a 1.0% gain in Q4 2022 (Exhibit 4). An increase of 3.0% in SSS signals that consumer spending is healthy. Despite the fact that the forecast shows a rise of just 1.0%, it is considered a relatively healthy SSS, especially when considering the difficult comparison the index faces. Last year at this time, Q4 2021 SSS came in at a whopping 9.1%: one of the strongest SSS results recorded during the pandemic.

It’s very important to note that due to the pandemic, the 2022 results don’t offer an apples-to-apples comparison of current trends relative to previous years, as many retailers were closed due to shelter in place regulations.

Exhibit 4: Refinitiv Same Store Sales Index: 2017 – Present 

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Source: Refinitiv I/B/E/S

Consumers continue to feel the pressure of higher food prices on their spending power. At a time when economists are predicting that consumer discretionary spending is likely to decline, analysts polled by Refinitiv remain bullish on discounters. They are seeing that consumers continue to trade down in search of lower prices, and that discount retailers lure shoppers in with lower gasoline prices.

In spite of the difficult comparisons, discounters are demonstrating their ability to maintain business volume, as the labor market continues to fire on all cylinders. The dollar stores are also receiving a boost from a resilient bargain-hunting consumer. Dollar Tree is on track to report a 5.3% SSS gain, on top of a 2.5% SSS growth last year.

Some retailers that witnessed strong SSS a year ago remain on track to better their performance for Q4 2022. Lovesac is facing the most difficult SSS comparison from last year of 50.0% and is still on track to report double-digit comp at 10.5% (Exhibit 5). This shows that consumers also remain willing to spend to improve their stay-at-home experience.

Likewise, some of the pandemic’s outperformers continue to deliver strong gains in SSS. Despite facing difficult SSS comparisons, this group is posting robust SSS growth estimates for Q4 2022.

A few standouts within this select group include Lululemon, Aritzia and Hibbett Sporting Goods. The latter is on track to report a robust 20.2% SSS gain in Q4 2022 as customers gravitated to sports and wellness gifts during the holidays, clinging to new year health resolutions.

As offices and public places reopened, consumers also wanted to look good and Ulta is benefiting from this trend. The beauty store is on track to report a robust 7.9% comp, despite facing a difficult 21.4% comparison from last year.

Exhibit 5: Strongest Same Store Sales Estimates: Q4 2022 Estimate vs. Q4 2021 Actual

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Source: Refinitiv I/B/E/S

Mall stores, including apparel retailers and department stores, had been struggling with weak traffic even before the coronavirus pandemic forced most to shut their doors in the spring of 2020; now, they remain the most vulnerable to seeing underwhelming SSS growth. (Exhibit 6). Accordingly, Bed Bath & Beyond is expected to post the weakest Q4 SSS at -24.2%, followed by Zumiez at -21.7%.

Exhibit 6: Weakest Same Store Sales Estimates: Q4 2022 Estimate vs. Q4 2021 Actual

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Source: I/B/E/S data from Refinitiv

Restaurant Same Store Sales

Not surprisingly, the Refinitiv Restaurant Same Store Sales (SSS) index nosedived into negative territory in 2020, hitting a record low in Q4 2020. Since then, the picture has improved and the index is expected to see a healthy 5.6% growth in SSS in Q4 2022, in spite of the difficult comparison offered by a 13.1% gain in SSS last year. (Exhibit 7).

It’s important to note that, once again, the 2020-2021 results don’t offer an apples-to-apples comparison over previous years, given that quarantine rules and other pandemic restrictions forced many restaurants to close. As a result, a number of restaurants didn’t report SSS data during the pandemic.

Exhibit 7: Refinitiv Restaurant Same Store Sales Index: 2019 – Present

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Source: I/B/E/S data from Refinitiv

Easy comparisons

The Restaurant SSS data is in line with the restaurant earnings data suggesting that despite difficult comparisons from last year, they are still on track for healthy profits. This is due to consumers feeling more comfortable with the reopening and eating out.

As a result, over 90% of the restaurants in our SSS index are on track, or have, posted positive Q4 2022 SSS. Still, despite taking the biggest beating of all the restaurants in this group last year, Yum China recorded a -4.0% SSS above its -4.8% Q4 SSS estimate (Exhibit 8). Meanwhile, McDonald’s and Darden Restaurant beat their comp estimates with gains in SSS of 12.6% and 7.3%, respectively.

Exhibit 8: Restaurants facing easy SSS comparisons: Q4 2021 Actuals vs. Q4 2022 Estimates

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Source: I/B/E/S data from Refinitiv

Difficult comparisons

Within this category, Ruth’s Hospitality faced the most difficult comparison. Last year, it recorded a SSS gain of 61.2% for the fourth quarter; this year, it still has a robust SSS growth estimate of 5.2%. Similarly, a few standouts in this category include Pot Belly, BJ’s Roadhouse, Texas Roadhouse and BJ’s Restaurant that despite facing difficult SSS from a year-ago, are still on track to report strong Q4 2022 SSS.

Exhibit 9: Restaurants Facing Difficult Same Store Sales Estimates/Actuals: Q4 2022

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Source: I/B/E/S data from Refinitiv

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