Retail Sector Earnings Calendar: Cos fail to read evolving consumer behavior as sales fall, expenses rise and inventory builds up | The Financial Express

Retail Sector Earnings Calendar: Cos fail to read evolving consumer behavior as sales fall, expenses rise and inventory builds up

Retailers came up short in responding to an admittedly tough operating environment characterized by rising costs.

Retail Sector Earnings Calendar: Cos fail to read evolving consumer behavior as sales fall, expenses rise and inventory builds up
A significantly smaller proportion of retailers have been able to beat consensus EPS estimates.

The overall trend emerging from the Retail sector’s second-quarter results has been on the weaker side, with most operators suffering from softening sales, rising expenses, bigger than expected inventory builds, and lowered guidance for the current period.

Multiple factors are at play here says the recent equity research notes produced by Zacks Investment Research, Inc.. Many companies experienced merchandising missteps and failed to accurately read evolving consumer behavior. On top of that, retailers came up short in responding to an admittedly tough operating environment characterized by rising costs.

The consumer is still healthy, supported by low debt loads, adequate savings, and rising wages as a result of a tight labor market. But there is growing evidence that lower-income consumers are starting to feel the squeeze, with rampant inflation eating into, if not altogether offsetting, wage gains. It would make sense for such a consumer to spend less on discretionary items and more on everyday necessities.

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As a result of these factors, a significantly smaller proportion of retailers have been able to beat consensus EPS estimates. Also, while Q3 estimates have been coming down for most sectors, the Retail sector is among those suffering a larger magnitude of negative revisions.

With respect to the Retail sector scorecard, now there are Q2 results from 32 of the 34 retailers in the S&P 500 index. Total earnings for these retailers are down -20.3% from the same period last year on +7.7% higher revenues, with 71.9% beating EPS estimates and 43.8% beating revenue estimates.

A big driver of the -20.3% earnings decline for the quarter is the drag from Amazon, whose Q2 earnings were down -86.5% from the year-earlier period. Excluding the Amazon drag, Q2 earnings for the remaining retailers would be down -3.4%.

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There are a few ETFs linked to the fortunes of the retail sector. SPDR S&P Retail ETF tracks the S&P Retail Select Industry Index, which provides exposure across large, mid and small-cap stocks.

VanEck Vectors Retail ETF provides exposure to the 25 largest retail firms by tracking the MVIS US Listed Retail 25 Index, which measures the performance of the companies involved in retail distribution, wholesalers, online, direct mail and TV retailers, multi-line retailers, specialty retailers, and food and other staples retailers.

Amplify Online Retail ETF offers global exposure to companies that derive 70% or more revenues from online and virtual retail by tracking the EQM Online Retail Index.

ProShares Online Retail ETF offers exposure to the company that principally sells online or through other non-store channels, and then zeros in on the companies reshaping the retail space.

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