This quarter, market watchers are gearing up for an earnings season like no other.
Last year, government mandates led retailers across the board to temporarily close their stores for weeks. Foot traffic dwindled — many saw a complete halt — and consumers largely avoided purchasing discretionary goods due to fears of a COVID-19-induced recession.
In recent months, however, retailers have found themselves propped up by federal fiscal stimulus and a widespread vaccine rollout. According to market watchers, that could lead investors to see larger-than-usual profit and sales gains that could be challenging to measure against the same period in a pandemic-plagued year.
“This earnings season is definitely very different than most since we are cycling the shutdowns from last year,” said Susan Anderson, B. Riley Financial senior research analyst and managing director. “Most companies are comparing to 2019 levels, which is more normalized.”
Here, the trends analysts are watching from the most recent three-month stretch.
Outsized profit and sales growth
Analysts will be more discerning about this quarter’s financial results, which are expected to beat Wall Street estimates and surge past last year’s figures. But it’s not just about unusual comparisons between this year and last. Market watchers have also pointed out a broader shift in consumers’ shopping behaviors — think “revenge spending” and the increasing adoption of contactless services like buy online, pick-up in store — that could have implications on the performance of brick-and-mortar business versus e-commerce.
“We are seeing record profits at many players,” Anderson added. “Also, given the pent-up demand and stimulus, many players are seeing record first-quarter top-line [results].”
In fact, according to Williams Trading equity analyst Sam Poser, even though direct checks and unemployment pay were disbursed to Americans starting early in the year, a number of retailers will continue to see incremental benefits from stimulus pop up in their balance sheets this quarter. Analysts — and, more so, investors — will also be keen to observe just how much better these companies are doing than their peers.
“Arguably, there’s still a lot of money falling from the sky,” Poser explained. “I don’t care if you’re a good, bad or OK company; it’s going to hit you even if you don’t open up your umbrella. So if you can’t run gangbusters with sales between the end of February and April, there’s something wrong.”
Still casual, but make it fashion
Although casual, athletic and athleisure wear remain robust, analysts have suggested that fashion categories are poised for a rebound as an increasing number of consumers feel comfortable heading back outdoors.
Last week, The NPD Group reported that total fashion footwear sales in the U.S. rose 7% year over year to $2 billion during the first quarter. The figures, noted the market research firm, increased not only compared to 2020, but also the year before that.
Among the companies that have observed an uptick in fashion styles is Steven Madden Ltd., whose CEO, Ed Rosenfeld, shared in its fourth-quarter conference call that it was beginning to see momentum in sandals and certain dress silhouettes that typically perform in the spring. (The shoe maker will report its next quarterly financial results before market open on Wednesday.)
Still, Beth Goldstein, NPD executive director and industry analyst of fashion footwear and accessories, said that “while nearly all types of footwear improved compared to 2020 as expected, in the fashion space it was the more casual, comfort and athleisure-oriented categories that continued to perform best and grew versus 2019.” Total U.S. leisure footwear sales, according to the firm, jumped 41% to $4.3 billion from the prior-year period.
Factoring uncertainties in full-year guidance
Even as uncertainties about the economic picture remain, companies have now had a full year of managing operations amid the pandemic — and analysts suggest they should be able to factor in those trends in their next quarter or fiscal year outlook.
Beyond the consumer-facing aspect of their business, many are still contending with supply chain issues and production costs, which could prevent brands and retailers from taking full advantage of pent-up demand. What’s more, experts have pointed out that COVID-caused behaviors are likely to stick, leading many executives to fortify their strategies to capitalize on those areas of consumer behavior.
“The question is going to be: If you end up crushing it in March and April, how much of that is controlled by you — the company — or money falling from the sky?” Poser posited. “Everybody is going to benefit from the stimulus, but there will be a number of head fakes. At the end of the day, it comes down to the best companies — whether they’re improving engagement with customers, controlling their distribution or building and protecting their brand.”