U.S. Consumer Spending Preview: Q3 2019

The Refinitiv U.S. Retail and Restaurant Q3 earnings index is expected to rise 2.5% — a bit less than the 3% considered healthy. When looking at the earnings growth rates for Q3 for the 209 retailers tracked by Refinitiv, the Hotels, Restaurant & Leisure sector has the highest earnings growth rate at 7.1%. On the flip side, the Household Durables has the weakest anticipated growth compared to Q3 2019.

The Household Durables earnings growth rate is being affected by negative earnings growth expectations among homebuilding and household appliances companies. The homebuilding companies William Lyon Homes (WLH) and Toll Brothers (TOL) are expected to post weaker earnings vs. last year and are bringing the sector down with a -55.9% and -36.6% estimated earnings growth rates. Likewise, iRobot, which makes high-tech household appliances, is expected to see -52.1% earnings growth vs. last year. Fourteen of the 28 companies in this group have negative earnings growth rates.

In the Hotels, Restaurant & Leisure sector, Carnival Corp. (CCL) (11.4%), and Darden Restaurants (DRI) (3.0%) already posted higher earnings compared to a year ago. Meanwhile, Red Robin Gourmet Burgers Inc. (RRGB) (-240.3%) has the weakest EPS growth estimate in the sector.

Exhibit 1: The Refinitiv Retail Earnings Growth Rate – Q3 2019

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

Q3 2019 Earnings and Revenue Guidance

Retailers are getting ready to report Q3 earnings and have been heavily discussing the issue of China tariffs this year. It’s come up in 321 earnings calls, and that might not be the end of it.

Moreover, retailers are also warning us not to expect much from them in the upcoming quarters. Q3 2019 preannouncements have become less positive compared to a year ago. To date, there have been 39 negative EPS preannouncements for Q3 2019 compared to 15 positive preannouncements, this is below the 23 positive preannouncements posted the same time last year. Likewise, when looking at revenue, there have been 29 negative preannouncements for Q3 2019 compared to 23 positive revenue preannouncements, down from 39 positive preannouncements last year (Exhibit 2). Accordingly, analysts polled by Refinitiv have been lowering Q3 estimates.

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