In the retail sector, fourth-quarter earnings reports are challenging acts to follow. This period includes the busiest shopping days of the entire year, including Black Friday and Cyber Monday.
However, this doesn’t diminish the value of first-quarter retail sales data for investors. In fact, the January to March stretch can offer significant insights into the health of the American consumer. Outside the winter holiday promotions, Q1 retail data can reveal consumer willingness to spend on discretionary items like spring clothing, lawnmowers, and car repairs.
Recent updates from the National Retail Federation (NRF) indicate that consumer spending has had a cautious yet positive start this year. After a slight decline in January, core retail sales grew 0.27% and 0.23% month-over-month in February and March, respectively. The NRF forecasts that U.S. retail sales will increase by 2.5% to 3.5% in 2024, reaching up to $5.28 trillion. While this represents a slowdown from last year’s 3.6% growth, it still points to steady growth and a resilient consumer base.
In the next few weeks, domestic retailers will release their first-quarter earnings reports, which will collectively provide insights into how resilient Americans have been amid persistent inflation and high interest rates. Among the first to report will be these three S&P 500 companies:
Amazon.com (AMZN)
Amazon is set to report first-quarter earnings after the market closes on April 30th. The e-commerce behemoth is expected to post a 12% year-over-year revenue increase, matching its 2023 performance. This expectation surpasses the 10% growth projected by management during its Q4 earnings call, likely reflecting anticipated gains in Amazon Web Services (AWS) rather than a surge in online shopping.
AWS has been revitalized by the global adoption of generative artificial intelligence (AI) technologies. While retail revenue comprised 86% of the company’s revenue in the fourth quarter of 2023, it was the AI-driven AWS that generated 55% of operating profits. With both e-commerce and AI cloud infrastructure demand on the rise, analysts predict Amazon will report a 171% increase in first-quarter EPS. If Amazon exceeds the consensus EPS estimate for the fifth consecutive quarter, its stock could build on its 16% year-to-date increase.
O’Reilly Automotive (ORLY)
Auto aftermarket parts retailer O’Reilly Automotive has outpaced consensus EPS estimates for six consecutive quarters, boosting its stock to a record high of $1,169.11 last month. However, ORLY has seen a 6% pullback amid broader market weakness. The company’s revenue and profit growth accelerated in 2023 as car owners opted to extend the life of their existing vehicles to avoid the steep costs of new car ownership.
However, profit growth may decelerate this year due to cooling car prices and loan rates, as well as rising labor costs. Management anticipates slower comparable sales growth in 2024. With tempered market expectations for Q1 growth compared to recent quarters, it will be interesting to see if O’Reilly maintains its EPS beat streak and whether management will adjust its 2024 outlook in the earnings release on April 24th.
Tractor Supply (TSCO)
Tractor Supply announces Q1 financial results before the open on April 25th. Wall Street is anticipating a return to profit growth after Q4 EPS fell 6% largely due to unfavorable weather and the impact of inflation and rates on consumer spending. CEO Hal Lawton believes better times are ahead for the rural retailer saying the macro “headwinds are temporary” in last quarter’s earnings call.
But with inflation and high rates sticking around longer than expected, Tractor Supply’s discretionary item sales may have suffered again in Q1. The company’s consumable, usable, and edible (CUE) segment has been a source of strength, but will it be enough to deliver above-consensus earnings?