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Department Stores Disappoint Again

he one-year stock price of Macy’s (M - Free Report) and the department store industry chart vividly tells the story; these are tough times for the space. Macy’s shares have lost -48.2% of their value over the past 12 months, underperforming the Zacks Department Store industry’s -36.2% decline.

The green line in the chart shows Amazon’s performance over the same time period. Amazon is working on a number of fronts, but it has been a big contributor to the department store space’s ongoing pain. The issues are well known by now - these operators needed literally to reinvent their businesses to effectively operate in an environment where consumers are steadily shifting their spending dollars to the online medium instead of visiting the physical store.

Please note that we have a stand-alone Retail sector, unlike the official Standard & Poor’s placement of this space in the Consumer Discretionary sector. The Zacks Retail sector includes, besides the traditional department stores and other brick-and-mortar retailers, the online vendors like Amazon and Priceline and restaurant operators. Results from the online vendors and most of the restaurant operators are already behind us at this stage.

The side-by-side charts below compare the sector’s results thus far with what we have seen from the same group of 23 retailers in other recent periods.

As of Friday, August 11th, we now have Q2 results from 23 of the 42 retailers in the S&P 500 index. This week brings results from the big-box operators Wal-Mart (WMT- Free Report) , Target (TGT - Free Report) , Home Depot (HD - Free Report) and others. Total earnings for the 23 retailers that have reported already are down -1.7% from the same period last year on +6.7% higher revenues, with 73.9% beating EPS estimates and 78.3% beating revenue estimates.

The aggregate growth pace from the 23 retailers that have reported results already are tracking below what we had seen from the same companies in other recent periods. Positive surprises are as numerous in this sector as they have been all along in other sectors this earnings season. We will get Retail’s complete picture following this week’s results from Wal-Mart, Target, Home Depot and others.

Q2 Earnings Season Scorecard (as of Friday, August 11, 2017)

The Q2 earnings season has come to an end for 10 of the 16 Zacks sectors, with results from 456 S&P 500 members or 91.2% of the index’s total membership already out. Total earnings for these companies are up +10.8% from the same period last year on +5.8% higher revenues, with 74.3% beating EPS estimates and 68% beating revenue estimates.

The table below shows the current Q2 Scorecard.

The charts below compare the Q2 results thus far from the 456 index members with what we had seen from the same group of companies in other recent periods.

As pointed out earlier, the proportion of companies beating revenue estimates is tracking above historical periods (right-hand chart). The earnings and revenue growth pace for these 456 companies is below what we had seen from the same sample of companies in Q1, but an improvement over other recent periods.

Here are the four takeaways from the results that have come out already.

First, the earnings and revenue growth pace has steadily gone up relative to pre-season expectations. Total Q2 earnings for the index are currently expected to be up +10.1% from the same period last year on +5.3% higher revenues.

Please note that the +10.1% growth rate is the blended growth rate; it combines the actual growth for the 456 S&P 500 members that have reported with estimates for the still-to-come 44 index members. At the start of the quarter, the expectation was for earnings growth of +7.9%, which came down as the quarter unfolded, reaching as low as +5.6% just ahead of the start of the...