The retail and dining sectors presented a mixed picture leading into the upcoming ICR (Investor Conference) on January 13, 2025. According to Goldman Sachs, while overall revenues exceeded expectations, the landscape revealed stark divisions among the winners and losers within these industries.
On the whole, the trend in revenue growth across the retail and restaurant industries is sending out mixed signalsMany firms reported earnings that surpassed general market forecastsNotably, the performance of firms such as Purple Innovation, Zumiez, and Macy's stands out as exceptions to this trendAlthough the revenue figures exceeded expectations, the margins of these surprises were not particularly strikingMost of these companies found themselves at the higher end of their previous guidance ranges, surpassing estimates by a few percentage points.
When considering the restaurant sector, a more favorable trajectory appears to be unfolding
Companies like Shake Shack, First Watch Restaurant Group, Red Robin Gourmet Burgers, Noodles & Company, and Potbelly Corporation all reported revenues that exceeded common market expectations, indicating a robust demand within the restaurant consumption marketThis suggests that consumers remain eager to dine out, highlighting the strength of consumer spending in leisure and dining experiences.
However, a pronounced divergence is emerging within these sectorsSome firms are observing revenue increases without corresponding growth in net profit or earnings per shareAbercrombie & Fitch and Five Below are illustrative examplesBoth companies raised their revenue guidance for the fourth quarter, yet they merely reiterated their previous net profit forecasts without any corresponding adjustments, indicating a lack of confidence in sustained profitability.
Among the most-watched firms, performance varied widely
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High expectations surrounded brands like Lululemon and Boot Barn, which delivered impressive resultsYet investors remain skeptical about the potential for continued growth in light of various debates regarding the upside potential of these companies during the holiday seasonThis ongoing uncertainty is propelling market watchers into a period of deliberation regarding the sustainability of those growth trends.
Conversely, companies like Amer Sports stood out with what could be described as a "good but not great" performanceThe firm recorded a 17% increase in fourth-quarter revenue, suggesting that the narrative of growth may still be unfolding; however, questions loom around market expectations due to its limited revenue and net profit guidance adjustments, which could cast doubt on future performance.
Despite the optimistic backdrop, certain struggling entities find themselves still grappling with significant challenges
Macy's, for instance, anticipates fourth-quarter earnings to hover at or below its previous forecasted rangeRecent remarks from Goldman Sachs suggested a more cautious outlook regarding Macy's trajectory compared to many of its peers, who reaffirmed or improved upon their projected earningsThis contrasting shift emphasizes the difficulties facing the retail giant.
A deeper dive into specific company performances based on Goldman Sachs’ insights shines a light on key players in the industry:
Goldman Sachs harbors positive sentiments towards Five BelowGiven the uncertainties surrounding holiday trends, Five Below has emerged as one of the most closely scrutinized companies in recent timesEarlier criticisms regarding the stock prompted a sell-off, but recent revenue disclosures exceeded the concerning levels previously anticipatedThey preemptively released results indicating a comparable sales drop of 3.2%, which was considerably better than the market’s expectation of a 4% decline and positioned the sales figures at the higher end of the prior forecast.
Moreover, Goldman Sachs holds a neutral stance on Abercrombie & Fitch
The company has revised its fourth-quarter revenue guidance up to a range of 7-8%, up from a previous 5-7%. Market consensus had been positioned at the high end of 7%. Despite this adjustment, the company remains firm on its Q4 operating margin guideline of 16%, casting some doubt regarding the adequacy of this revisionInvestors tend to react poorly to suboptimal performance, often impacting stock prices negatively.
Positive outlooks also extend to Shake Shack, which aligned with forecasts by posting significant performance figures that exceeded expectationsThe restaurant chain's revenue edged upward with a fourth-quarter figure of $329 million, surpassing market estimates of $326 millionComparable store sales growth reached 4.3%, again outpacing market predictions of 4.1%, while EBITDA soared to $47 million, eclipsing anticipated expectations of $40 million.
Urban Outfitters also featured in the positive projections, with a solid performance driven by the holiday season, leading to a 10% revenue increase in the fourth quarter—well above the expected growth of 6%. Comparable store sales climbed by 6%, significantly outpacing market estimates of 2.3%. All three main business segments within the company transcended market expectations.
Lululemon emerged as a frontrunner among the most anticipated firms
The company is predicted to deliver figures surpassing expectations, raising anticipation around whether its momentum can be sustainedWith projections for fourth-quarter earnings per share estimated at $5.81 to $5.85, up from earlier forecasts of $5.56 to $5.64, and revenue estimates between $3.56 billion to $3.58 billion—also higher than previous market consensus—Lululemon is positioning itself strongly within the fabric of the consumer market.
Conversely, Goldman Sachs adopts a bearish perspective regarding Macy'sThe department store has reiterated its fourth-quarter earnings per share guidance at a range of $1.40 to $1.65, forecasting net sales to be at or slightly below the prior range of $7.8 to $8 billionThis performance forms a stark contrast with Nordstrom’s upward adjustments, painting a more somber picture for Macy's heading into the holiday period.
In regard to Amer Sports, the company has positioned its 2024 fiscal year revenue guidance at the upper end of its previous range of 16-17%. Adjusted operating profit margins are similarly at the high end of the prior guidance of 10.5-11.0%, with suggestions that currency headwinds are to account for just meeting the upper ends of its forecast.