← BACK
 
 

Q1 Earnings: Hidden Trends in Consumer Spending the Market Couldn’t See

 

First quarter earnings smashed analyst estimates, leaving many investors bullish about economic recovery, consumer sentiment, and overall normalization. The retail sector was particularly buoyant in the quarter, with stores reopening and stimulus checks moving from bank accounts to cash registers. Investor optimism is justified, but there are clear quantitative trends running under the surface that tell a more nuanced story.

Facteus panel data can bring clarity to the narrative, uncovering the catalysts that are driving performance at various retailers. A deeper understanding of Q1 results can direct analysts towards the most relevant data points in coming quarters, and the Facteus panel can empower them to track and measure those trends before earnings are reported.

Tracking changing consumer habits

Re-opening is an obvious boon for brick-and-mortar retailers, but a closer inspection of spending data reveals a combination of predictable and less intuitive results. First, we’ve seen off-price retailers come roaring back to recapture share of consumer wallets.

Indeed, Nordstrom sales rose 44% in Q1, outpaced by Kohl’s (70%), which itself was dwarfed by TJX (130%).

These results aren’t shocking; off-price retailers tend to have less developed (or non-existent) online sales channels, so they were more deeply impacted during the initial wave of pandemic lockdowns. Further, more affluent demographics were largely ineligible for direct stimulus transfers, and those transfers represent a lower proportion of household income and discretionary spending, anyway. The off-price target customer is more likely to change their consumption more drastically after they get a check from the Treasury.

While much can be made of the return to in-store shopping, it still hasn’t resulted in a drastic shift away from online spending. E-commerce share of retail remains meaningfully above pre-pandemic levels, though it’s somewhat lower than the peak share we saw during lockdown periods.

The Facteus panel data here is consistent with the Census Bureau of the Department of Commerce Q1 publication

Brick-and-mortar might claw back more share in months to come, as not all Americans are fully comfortable entering crowded places quite yet. Still, this is compelling evidence that the pandemic accelerated existing trends in consumer behavior. That threatens a divergence in performance among retailers that are well- or ill-prepared for online channel dominance.

Because online sales maintained market share in a quarter that was influenced meaningfully by one-off fiscal stimulus, then investors should carefully monitor those brick-and-mortar retailers which were disproportionately supported by government spending. The stellar Q1 2021 results may become difficult to replicate in the upcoming quarters. That’s especially important if an increasingly bullish market isn’t able to quantify the impacts of catalysts that won’t carry over beyond Q1.

Stimulus played a major factor in some earnings surprises

The impacts of stimulus aren’t surprising on their own. However, Facteus card-type data can quantify the impact of stimulus for various companies, showing which ones benefited disproportionately. That diversity of card-type data provides much better visibility on consumer spending, and it can inform on trends in quarters to come.

For example:

  • Target
    • Year-over-year sales growth outpaced analyst estimates by 14 percentage points
    • Stimulus-attributed sales accounted for ~65% of the revenue beat
  • Gap Inc
    • Year-over-year sales growth outpaced analyst estimates by 26 percentage points
    • Stimulus-attributed sales accounted for ~20% of the revenue beat
  • Ulta Beauty
    • Year-over-year sales growth outpaced analyst estimates by 28 percentage points
    • Stimulus-attributed sales accounted for ~20% of the revenue beat

In each case, the better-than-expected sales growth was evident in Facteus panel data. The contribution of stimulus-attributed sales (labeled Alternative Debit in the charts above) is also apparent. The historical forecast MAPE for each company’s revenue is quite low, suggesting that card spending data is a rather reliable indicator for these particular stocks.

Having drastically under-estimated Q1 sales, analysts have now swung in the opposite direction. Consensus forecasts for all three stocks above fall near or above the top end of management guidance. It remains to be seen whether consumer sentiment and macroeconomic fundamentals will be enough to support the new bullish expectations without the support of fiscal stimulus. As that story plays out, Facteus panel data will be a powerful tool for analyzing the developments ahead of retail earnings publications.

Sources:

https://www.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_060421.pdf

https://press.nordstrom.com/static-files/7443ad6c-d7e8-4547-9f00-b8a9fa067154

https://investors.kohls.com/news-releases/news-details/2021/Kohls-Reports-First-Quarter-Fiscal-2021-Financial-Results/default.aspx

https://www.tjx.com/docs/default-source/default-document-library/tjx-first-quarter-fiscal-year-2022-earnings-press-release.pdf

https://www.census.gov/retail/mrts/www/data/pdf/ec_current.pdf

Back to Top
Skills

Posted on

June 9, 2021








This site may use cookies to support specific features and improve the user experience.
By using this website with cookies enabled on your browser, you are agreeing to our use of cookies. Find out more in our Privacy Policy