The earnings focus continues to be on the retail space, with several bellwether operators on deck to report results this week, including Target TGT, Best Buy BBY, Costco COST, Macy’s M, and others.
The earnings releases thus far provide a reassuring view of consumer spending, with broad spending trends largely stable and in-line with what we have seen in recent quarters. While the latest consumer confidence readings show a pullback in this key measure, the relatively longer-run trend remains favorable, reflecting the robust labor market and steady wage gains.
In recent quarters, we have seen that accumulated inflation has been a drag on consumer spending. This has been particularly notable at the lower end of income distribution, but it has prompted most consumers to be value oriented and spend primarily on essentials. Spending on consumer durable goods and other discretionary goods categories has been anemic in recent quarters, and we will see more confirmation of that trend in this week’s Target and Best Buy results.
The chart below shows the one-year performance of Target (blue line; down -19%), Best Buy (orange line; up +11.1%), Costco (red line; up +37.8%) and the S&P 500 index (green line; up +16.6%).
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Image Source: Zacks Investment Research
As you can see above, Target shares were down big following the last quarterly release on November 20th when it missed all estimates, including comps. Management had indicated positive sales momentum during the first two months of the quarter at the mid-January update. However, demand trends softened in January, and that trend likely continued in February.
The expectation is for Target will report $2.24 per share in earnings on $30.77 billion in revenues, which represent year-over-year changes of -24.8% and -3.6%, respectively. Estimates had modestly inched up following the mid-January management update, but have remained unchanged since then. Comps are expected to be up +1.2%, which would follow the company’s disappointing showing on this count in the preceding period when it had come out with +0.30% comp growth vs. expectations of +1.53%.
With Target shares trading near their 52-week lows, sentiment is likely weak enough to limit further downside risks. Given the stock’s history of big moves on quarterly releases, it likely wouldn’t take much to push the stock higher following the Tuesday morning earnings print.
Best Buy is expected to come out with EPS of $2.39 on $13.65 billion in revenues Tuesday morning, representing year-over-year changes of -12.1% and -6.8%, respectively. Concerning same-store sales, the expectation is for -1.54% decline, which will follow the -2.9% decline in the last quarterly release on November 26th. The stock was down following the November release as the Q3 comp had missed expectations in a big way.
All indications are that Best Buy’s Q4 results will represent a sequential improvement, with active promotions during the holidays juicing sales activity. But there is no escaping the overall weakness in absolute terms, with revenues in 2024 (fiscal year ended in January 2025) of $41.2 billion down -5.1% from the year-earlier level. In fact, revenues have been a steady downtrend since the Covid peak of 2021 (fiscal year that ended in January 2022) of $51.76 billion. The revenues in the following years were $46.3 billion in 2022 (fiscal year that ended in January 2023), $43.5 billion in 2023, and the aforementioned $41.2 billion expected in 2024.
The expectation is that revenues will start growing this year, with the current Zacks Consensus estimate of $41.76 billion representing a +1.3% gain. While demand for most of Best Buy’s appliance and other durables categories remains weak, the demand outlook for computers and smartphones remains favorable, reflecting new AI-centric offerings and typical product replacements. We saw some of this in the preceding period already, and this quarter likely experienced an acceleration in that trend. The stock’s roughly in-line performance with the broader market reflects this constructive view.
Costco has been a true category leader, with a higher-income customer group that is loyal to the company’s value offerings. This fact was reconfirmed by the company’s January same-store sales data, with company-wide comps for the month of +7.5%, representing +7.1% gain in traffic and +0.4% gain in average ticket price.
Costco is expected to report $4.09 per share in earnings on $63.2 billion in revenues, representing year-over-year changes of +10.2% and +63.2%, respectively. Estimates have inched up since the quarter got underway, with the current $4.09 estimate up from $4.06 a month back and $3.97 three months ago. Costco’s earnings and revenues in the current fiscal year (ends in August 2025) are expected to increase +11.9% and +7.4% from the preceding year’s level, respectively. The company remains well positioned to sustain this growth momentum the following year on the back of mid-single digit comp growth and growth in membership fee income in high-single digits.
With respect to the Retail sector’s 2024 Q4 earnings season scorecard, we now have results from 26 of the 33 retailers in the S&P 500 index. Regular readers know that Zacks has a dedicated stand-alone economic sector for the retail space, which is unlike the placement of the space in the Consumer Staples and Consumer Discretionary sectors in the Standard & Poor’s standard industry classification. The Zacks Retail sector includes Target, Best Buy, and other traditional retailers, online vendors like Amazon (AMZN), and restaurant players.
Total Q4 earnings for these 26 retailers that have reported are up +32.2% from the same period last year on +6.9% higher revenues, with 73.1% beating EPS estimates and an equal proportion beating revenue estimates.
The comparison charts below put the Q4 beats percentages for these retailers in a historical context.
Zacks Investment Research
Image Source: Zacks Investment Research
As you can see above, the proportion of these companies beating consensus EPS estimates represents a notable improvement over what we had seen from this group of Retail sector companies in the preceding two quarters, but otherwise remains below the average for the preceding 20 quarters. The revenue beats percentage for this group of companies is tracking above other recent periods as well as the historical average.
With respect to the elevated earnings growth rate at this stage, we like to show the group’s performance with and without Amazon, whose results are among the 26 companies that have reported already. As we know, Amazon’s Q4 earnings were up +86.9% on +10.5% higher revenues, as it beat EPS and revenue expectations.
The two comparison charts below show the Q4 earnings and revenue growth relative to other recent periods, both with Amazon’s results (left side chart) and without Amazon’s numbers (right side chart)
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Image Source: Zacks Investment Research
As you can see above, most of the earnings growth at this stage for the Retail sector is coming from Amazon, with Q4 earnings for the rest of the group that have reported up only +4.9% on +5.3% higher revenues. There is decent top-line growth even on an ex-Amazon basis, effectively reflecting headline inflationary trends in the economy.
Q4 Earnings Season Scorecard
Through Friday, February 28th, we have seen Q4 results from 485 S&P 500 members or 97% of the index’s total membership. Total earnings for these companies are up +14.9% from the same period last year on +5.9% higher revenues, with 76.3% beating EPS estimates and 65.4% beating revenue estimates.
The comparison charts below put the Q4 earnings and revenue growth rates relative to other recent periods for the same group of index members.
Zacks Investment Research
Image Source: Zacks Investment Research
The comparison charts below put the Q4 EPS and revenue beats percentages relative to other recent periods for the same group of companies.
Zacks Investment Research
Image Source: Zacks Investment Research
The Earnings Big Picture
The chart below shows the Q4 earnings and revenue growth expectations in the context of where growth has been in the preceding four quarters and what is expected in the coming four quarters.
Zacks Investment Research
Image Source: Zacks Investment Research
Excluding the contribution from the Mag 7 companies, Q4 earnings for the rest of the S&P 500 index would be up +10.1% on +4.7% higher revenues.
The chart below shows the overall earnings picture on a calendar-year basis, with double-digit earnings growth expected in 2025 and 2026.
Zacks Investment Research
Image Source: Zacks Investment Research
For a detailed look at the overall earnings picture, including expectations for the coming periods, please check out our weekly Earnings Trends report >>>> Retail Earnings: An In-Depth Analysis
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