Retail in Focus as Q4 Earnings Season Winds Down

The bulk of the Q4 earnings season is now behind us, with results from only about 18% of the S&P 500 members still awaited. The Retail sector is the only one at this stage that has a sizable number of reports still to come, particularly from the traditional retailers like Wal-Mart ( WMT ), Macy's ( M ) and Nordstrom ( JWN ) that are on deck to report results this week. With another 49 index members reporting results this week, the Q4 earnings season will have come to an end for 92% of S&P 500 members by the end of this week.

As we have been saying for the last many weeks, the Q4 earnings season has turned out to be a good one. Not only is growth on track to be the highest in two years, but total earnings for the quarter are also on track to be a new quarterly record. Please recall that earnings growth turned positive only in 2016 Q3, having declined in each of the preceding 5 quarters, as the chart below of year-over-year earnings growth for the S&P 500 index shows.

Importantly, the positive Q4 growth isn't a result of easy comparisons, but actually a function of strong gains in actual earnings. In fact, the overall tally of Q4 earnings for the S&P 500 index is on track to reach an all-time record for the index, surpassing the previous record achieved in 2014 Q4. The chart below shows the quarterly earnings totals for index, contrasting the highlighted Q4 tally with actual results from the last 8 quarters and expected tallies in the coming 4 quarters.

As you can see, this record isn't expected to last very long, with growth expected to ramp up notably in the coming quarters.

One other positive for this earnings season is the relatively modest negative revisions to current-quarter (2017 Q1) estimates; they have come down, but not by as much as has historically been the case. The chart below shows evolution of Q1 estimates since the start of the period.

Can Retail Maintain This Momentum?

Retail sector stocks have lagged the broader market since the November elections, with the Zacks Retail sector gaining +5.7% since November 8th vs. the +9.1% gain for the S&P 500 index in that same time period. We should keep in mind, however, that a number of Retail sector industries like the department stores, the discounters and others have done a lot worse, likely reflecting worries about unfavorable tax policy changes that are adding to the many issues that have been plaguing these industries already. You can see this in the recent stock-price performance of some of these industries, particularly since the elections. The Zacks Department Stores industry has lost -11.8% over its value since November 8th, with Macy's down -15.3% and Nordstrom down -12.6% in that same time period.

We will see how these companies report in the coming days, but the group's recent underformance sets them up for outsized gains on positive comps. The Retail sector results that we have seen already, admittedly weighted more towards the restaurant and e-Commerce industries, have been on the weak side.

Total earnings for the 46.5% of Retail sector companies in the S&P 500 index members that have reported Q4 results already are up +5.8% from the same period last year on +7.1% higher revenues, with 55% beating consensus EPS estimates and a much weaker 20% beating revenue estimates. These are weaker results than we have seen from the same group of retailers in other recent periods, as the comparison charts below show.

Total Q4 earnings as a whole for the Retail sector, combining the actual results that have come out with estimates for the still-to-come retailers, are expected to be down -1.2% from the same period last year on +4.7% higher revenues. Expectations for the still-to-come retailers remain low, which can be interpreted to mean that the odds of positive surprises from the traditional brick-and-mortar operators has increased. But the more likely outcome, in my view, is that results from the department stores and discounters will miss the mark.

Q4 Scorecard ( as of February 17, 2017 )

We now have Q4 results from 411 S&P 500 members, or 82.2% of the index's total membership. Total earnings for these 411 index members are up +8% on +4.9% higher revenues, with 68.9% beating EPS estimates and 54.7% coming ahead of top-line expectations.

The table below provides the current Q4 scorecard

The charts below provide a comparison of the results thus far with what we have seen from this same group of 411 S&P 500 members in other recent periods.

As you can see, the Q4 growth pace is notably tracking above what we had seen from the same group of 411 index members in other recent periods. But positive surprises (right-hand chart above) are tracking on the low side relative to historical periods, particularly on the earnings front. The 68.9% proportion of Q4 companies beating EPS estimates compares to 74.9% in the preceding quarter, 72.7% as the 4-quarter average and 71.4% as the 12-quarter average. Positive revenue surprises are tracking below what we had seen from the same group of companies in Q3, but are roughly in-line with historical periods.

The chart below compares the proportion of companies reporting Q4 results that are beating both EPS and revenue estimates with what this same group of companies had reported in other recent periods.

Standout Sectors

Finance : With results from 84.8% of the sector's market cap in the S&P 500 index already out, total earnings for the sector are up +18.8% from the same period last year on +5% higher revenues, with +72% beating EPS estimates and +54.9% beating top-line estimates.

This is better growth performance than we have seen from the sector in other recent periods, as the comparison charts below show. Please note that positive surprises are as hard to come by in the Finance sector as they are elsewhere.

Strong Finance sector growth is a big driver of the aggregate growth performance for the S&P 500 index as a whole. Excluding the Finance sector, the Q4 growth pace still compares favorably with other recent periods, but a lot less so, as the right-hand chart below shows.

Technology : For the Technology sector, we now have Q4 results from 94.1% of the sector's total market cap. Total earnings for these companies are up +8.7% from the same period last year on +6% higher revenues, with 74.1% beating EPS estimates and 74.1% beating revenue estimates.

This is better earnings growth than we have seen from this same group of Tech companies in Q3 or the preceding four quarters, but is about in-line with the 12-quarter average. Revenue growth, on the other hand, is tracking above historical periods. The revenue outperformance is visible in terms of positive surprises as well, with the proportion of Tech sector positive surprises notably tracking above Q3, the 4-quarter and 12-quarter averages, as you can see in the right-hand side chart. Earnings surprises (green bards in the right-hand chart) are tracking below historical periods, as is the case with other sectors as well.

Q4 Expectations As a Whole

For Q4 as a whole, combining the actual results from the 411 S&P 500 members that have reported with estimates for the still-to-come 89 companies, total earnings are expected to be up +7.4% from the same period last year on +3.9% higher revenues. This would follow the +3.7% growth in Q3 earnings on +2.2% higher revenues, the first instance of positive earnings growth for the index after five quarters of back-to-back declines. Comparisons for the Energy sector, a big driver of the earnings recession, turn positive in Q4, with the sector's earnings growth turning positive for the first time after 8 quarters of declines.

The chart below shows the Q3 earnings growth contrasted with declines in the preceding 5 quarters. As you can see in the chart below, the growth pace is expected to ramp up in 2017.

The table below shows the summary picture Q4 contrasted with what was actually achieved in the preceding quarter.

For a complete analysis of the Q4 earnings season, please check out our weekly Earnings Trends report -

A Positive & Reassuring Earnings Picture

Note: Sheraz Mian heads the Zacks Equity Research department and is a well-regarded expert of aggregate earnings. He is frequently quoted in the print and electronic media and publishes the weekly Earnings Trends and Earnings Preview reports. If you want an email notification each time Sheraz publishes a new article, please click here.

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Here is a list of the 49 S&P 500 members reporting this week.

Company Ticker Current Qtr Year-Ago Qtr Last EPS Surprise % Report Day Time
Scripps Netwrks SNI 1.05 1.35 14.49% Tuesday BTO
Wal-Mart Stores WMT 1.3 1.49 32.14% Tuesday BTO
Advance Auto Pt AAP 1.09 1.22 8.11% Tuesday BTO
Home Depot HD 1.33 1.17 173.68% Tuesday BTO
Macys Inc M 1.97 2.09 64.49% Tuesday BTO
Henry Schein In HSIC 1.84 1.67 21.57% Tuesday BTO
Medtronic MDT 1.11 1.06 9.24% Tuesday BTO
Genuine Parts GPC 1.01 1.07 11.11% Tuesday BTO
Ecolab Inc ECL 1.28 1.22 25.00% Tuesday BTO
Newmont Mining NEM 0.39 0.04 5.71% Tuesday AMC
Quanta Services PWR 0.54 0.27 -46.67% Tuesday BTO
First Solar Inc FSLR 0.97 1.6 N/A Tuesday AMC
Concho Resourcs CXO -0.09 -0.07 -2.88% Tuesday AMC
Newfield Expl NFX 0.38 0.3 325.00% Tuesday AMC
Extra Space Stg EXR 0.97 0.87 N/A Tuesday AMC
Edison Intl EIX 0.95 0.88 13.16% Tuesday AMC
Eversource Egy ES 0.75 0.6 0.00% Tuesday AMC
Firstenergy Cp FE 0.39 0.58 25.71% Tuesday AMC
Amer Water Work AWK 0.56 0.55 -7.32% Tuesday AMC
Verisk Analytic VRSK 0.77 0.8 -44.74% Tuesday AMC
L Brands Inc LB 1.9 2.15 33.33% Wednesday AMC
Tjx Cos Inc New TJX 1 0.99 0.00% Wednesday BTO
Hp Inc HPQ 0.37 0.36 -1.96% Wednesday AMC
Garmin Ltd GRMN 0.58 0.74 37.50% Wednesday BTO
Transocean Ltd RIG 0.04 1.68 18.75% Wednesday AMC
Range Resources RRC 0.08 -1.93 N/A Wednesday AMC
Public Storage PSA 2.63 2.45 N/A Wednesday AMC
Realty Income O 0.75 0.71 0.00% Wednesday AMC
Welltower Inc HCN 1.08 1.13 -100.00% Wednesday BTO
Nisource Inc NI 0.34 0.31 -20.65% Wednesday BTO
Southern Co SO 0.31 0.44 0.00% Wednesday BTO
Hormel Foods Cp HRL 0.46 0.43 N/A Thursday BTO
Gap Inc GPS 0.51 0.57 52.63% Thursday AMC
Kohls Corp KSS 1.33 1.58 41.27% Thursday BTO
Nordstrom Inc JWN 1.14 1.17 31.58% Thursday AMC
Patterson Cos PDCO 0.57 0.68 N/A Thursday BTO
Lkq Corp LKQ 0.39 0.32 2.78% Thursday BTO
Hewlett Pkd Ent HPE 0.44 0.41 5.36% Thursday AMC
Intuit Inc INTU 0.06 0.13 -22.22% Thursday AMC
Apache Corp APA 0.09 -0.06 23.81% Thursday BTO
Chesapeake Engy CHK 0.07 -0.16 9.26% Thursday BTO
Southwestrn Ene SWN 0.13 -0.02 N/A Thursday AMC
Iron Mountain IRM 0.45 0.57 141.67% Thursday BTO
Alliant Engy Cp LNT 0.28 0.16 -28.07% Thursday AMC
Foot Locker Inc FL 1.3 1.16 -5.05% Friday BTO
Cabot Oil & Gas COG 0.01 -0.02 N/A Friday BTO
Berkshire Hth-B BRK.B N/A N/A 4.79 Friday N/A
Pinnacle West PNW 0.49 0.37 5.00% Friday BTO
Public Sv Entrp PEG 0.52 0.5 -4.76% Friday BTO

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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