One of the consequences of the coronavirus pandemic has been a shift to consumers “nesting” at home. Consumers were asked to stay at home and became teachers, fixed their homes, ordered takeout, took online workouts, cooking and DIY lessons. This has substantially accelerated the pace and shift to online shopping, which became evident when retailers reported strong digital sales in Q1 2020.

Looking forward to anticipated Q2 performance, we used StarMine’s SmartEstimate to determine which companies in the Refinitiv Retail and Restaurant Index are better poised to continue beating earnings estimates. The results tell us that there is a nesting theme in consumer purchasing patterns.

The pandemic has many corporations withdrawing their earnings guidance. Therefore, the SmartEstimate may be more significant than ever for anticipated clues, as it helps determine the direction of future earnings and revenue surprise results.

This year, some brands took the opportunity to strengthen their relationships with their consumers with online experiences. This definitely helped brands like Nike offset the sales weakness caused by closed stores around the globe. The retailer offered free workout classes through its app, gaining new followers and thus converting those visits into digital sales. Now, Lululemon is also attempting the same with its acquisition of Mirror, a fitness start-up.

This bodes well for these retailers as consumers told us that they crave and miss experiences more than visiting malls. What’s more, they are not ready to go out as they did pre-COVID. The recent Refinitiv/Ipsos reading on consumer sentiment around reopening the economy suggests that the bulk of consumers are willing to attend a live concert, theater performance or movie theater — when there is a proven coronavirus vaccine, even if that’s a year or more from now.

DIY – home improvement

Consumers have been fixing their homes by themselves in 2020, and as a result the home improvement sector continues to grow and outperform the other retail groups. This comes at a time when over 80% of retailers are expected to post negative Same Store Sales (SSS) in the second quarter of 2020. And yet, despite facing difficult year-ago results, the home improvement sector is one of the few standouts as it continues to post robust SSS (Exhibit 1).

Exhibit 1: Home Improvement vs. Department and Apparel sectors: 2019 – 2020

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

Do-it-yourself business outpaced pro sales at Home Depot during the first quarter. The retailer leveraged its e-commerce platform and said online sales increased approximately 80% during the quarter. More than 60% of the time, customers opted to pick up online orders curbside. That trend may continue.

Looking forward to anticipated Q2 performance, we used StarMine’s SmartEstimate to determine which companies in the Refinitiv Retail and Restaurant Index are better poised to beat earnings estimates. The results show that positive surprises for Home Depot (HD) and Lowe’s (LOW) might be in the offing.

Exhibit 2: Q2 2020 SSS Estimate and Quarterly Earnings

Source: Refinitiv I/B/E/S

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 (I/B/E/S mean) by more than 2%, the company is likely to post subsequent earnings surprises directionally correct 70% of the time. This percentage difference is referred to as Predicted Surprise (PS%).

For Q2, the SmartEstimate data shows investors can expect positive surprises from both Lowe’s and Home Depot. The later currently has an EPS mean forecast of $3.30 a share. However, there’s a five-star rated analyst with a very accurate rating that published a Bold Estimate, which is different (in this case higher) than the consensus estimate. The analyst expects Home Depot to report earnings of $3.38 a share, well above the mean.

Home workstations

Many corporations are discussing permanent working-from-home conditions. Accordingly, shoppers have been buying office and home furniture to improve the stay-at-home experience. This has boosted sales at stores like Lovesac, Tempur Sealy, Wayfair and Williams Sonoma.

Wayfair (W) has an EPS mean forecast of $0.80 a share. However, there’s a five-star rated analyst with a very accurate rating that published a Bold Estimate, calling for Wayfair to report earnings of $1.01 a share, well above the mean.

Meanwhile, the Lovesac (LOVE) company, dubbed the “world’s most adaptable couch,” consistently has the strongest SSS results in our retail universe. This is remarkable considering it has also been facing difficult year-ago comparison, and still manages to outperform. The retailer posted a robust 50% SSS during the first quarter of 2020, above last year’s 43.1% Q1 SSS result. “Lovesac’s origins as an ‘e-commerce-first’ platform confers a distinct competitive advantage in this environment” (Source Lovesac Q1 2020 Earnings, 6/9/2020).

Consumers are also investing in new mattresses. Online bedding sales surged, causing Tempur Sealy’s (TPX) revenue to spike 19.03%, and a record 148.15% growth in earnings in the first quarter of 2020. As various economies have reopened, the retailer is now seeing an improvement in its wholesale channels. Additionally, the company said bedding sales rocketed 125% due to global e-commerce sales in the second quarter of 2020. Analysts polled by StarMine are bullish on the stock (Exhibit 3).

Exhibit 3: Tempur Sealy’s StarMine Analyst Revisions Model Score

Source: Eikon

The StarMine ARM model is highly predictive of both the direction of future revisions and price movement. Tempur Sealy scores 96 out of a possible 100 suggesting that analysts are likely to revise earnings estimates upward.

Exhibit 4: Tempur Sealy StarMine Analyst Revisions Model Score vs. Stock Price Performance

Source: Eikon

What’s more, earnings are of good quality. According to the StarMine Earnings Quality model, the company scores an 86 out of a possible 100. Its high score suggests that profits could be from sustainable sources. The company’s cash flow and operating efficiency components also suggest the company is a top performer in these areas.

Exhibit 5: Tempur Sealy StarMine Earnings Quality Model Score

Source: Source:Eikon

Health and wellness – working out at home

Consumers quarantined at home stocked up on workout gear, including weights, workout clothes and other fitness gear to keep them healthy and in shape. Weights sold out everywhere, including Amazon (AMZN), Target (TGT), Walmart (WMT) and others. As a result, Dick’s Sporting Goods’ (DKS) eCommerce sales, including curbside contactless pickup, increased by 210%. The retailer said, “We believe coming out of the current crisis, health and fitness will become even more important to the consumer.” (Dick’s Sporting Goods Earnings Report, 6/2/2020)

Analysts polled by Refinitiv seem to agree. The retailer is expected to report 0.70 cents a share for the second quarter of 2020. Still, a 5-star rated analyst who has been more accurate, with early estimates, different from consensus in the past, thinks its earnings could be as high as 0.92 cents a share.

The sporting goods retailer scores a 90 out of a possible 100 in the StarMine ARM model, suggesting that analysts are likely to revise earnings estimates upward. Accordingly, analysts polled by Refinitiv have been upgrading their stock recommendation. In April 2020, Dick’s Sporting Goods stock had six buy recommendations, and 19 neutral. Today, the buy recommendations have increased to nine and there are fifteen neutral recommendations.

Exhibit 6: Dick’s Sporting Goods Stock Recommendations

Source: Eikon

Takeout and food delivery

Most restaurants have suffered from weak sales during the pandemic, especially fine dining. However, among the many restaurants that are expected to post negative Q2 2020 Same Store Sales, there are a few standouts. Papa John’s, Domino’s Pizza and Wingstop are all expected to post robust SSS.

Online consumer spending continues to grow, and the coronavirus crisis amplified and accelerated the process, even beyond most companies’ expectation. Pre-COVID, Wingstop (WING) was already making the move towards digital sales. The company received a huge boost from its digital transaction platform during the first quarter of 2020. Pre-COVID-19, digital represented about 40 percent of sales and that has now grown to 65 percent.

As a result of their online strategies, these restaurants are among consumers’ favorites. Papa John’s (PZZA) CEO said, “the events of the past few months have accelerated Papa John’s transformation into an innovation-driven organization, contributing to our strong business momentum.” Initiatives like “no contact delivery” have been attractive during the pandemic.

All three of these restaurants are expected to see double digit comp growth in the current quarter (Exhibit 7). They also rank in the top quartile scores on both the StarMine ARM and Earnings Quality models, suggesting analysts polled by Refinitiv are bullish on these companies and earnings are from sustainable sources.

Exhibit 7: Restaurant Same Store Sales: 2019 – 2020

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

Consumer buying patterns show a nesting theme and their strong desire for experiences has allowed some brands to capitalize on digital experiences, which translates into stronger sales.

Ultimately, retailers with a solid e-commerce strategy continue to show the capability to provide greater organization resilience to ensure business continuity during the pandemic. Various retailers and restaurants continue to tell us that the pandemic accelerated their e-commerce transformation, resulting in strong digital sales.

As a result, consumers have learned to rely on their business during the pandemic, which could potentially translate into loyal customer following in the future.