May 5, 2023
Consumer Discretionary Sector Beat
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With 84% of the S&P 500 reporting earnings to date, 74% have reported a positive revenue surprise, below the 1-year average 77%. Companies are reporting revenue 2.5% above consensus estimates, and in line with the 1-year average (+2.5%) and above the 5-year average (+2.0%). Continuing, 77% have reported a positive EPS surprise, above the 1-year average of 73%. Companies are reporting earnings 7.2% above consensus estimates, well above the 1-year average of (+2.8%) but below the 5-year average (+8.4%).
We analyzed annual revenue and EPS guidance provided by 55 consumer discretionary companies with market caps greater than $500M that have reported to date. On average, a greater number of Consumer Discretionary companies are maintaining guidance across both revenue and EPS, with slightly fewer raising than our all-company benchmark. Consistent with the broader universe, few are lowering guidance at this time, yet another reflection of executives’ conservative 2023 projections introduced last quarter.
- Revenue: 20% raised, 71% maintained, 10% lowered
- EPS: 29% raised, 63% maintained, 8% lowered
An analysis of consumer discretionary earnings calls reveals the following key themes:
- Consumer Health: Consumer Weakness Largely Registered Among Low-Income Shoppers as Companies Highlight Trend toward Value-Oriented Products; Travel Remains a Bright Spot and Selected Companies Point to an Uptick in Direct-to-Consumer Activity
- Margins and Pricing: Q1 Margins Under Pressure as Higher-Priced Inventory Meets Lower Demand Levels and Pricing Power Stutters; Lower Freight and Input Costs Should Benefit 2H Bottom Lines While Cost Take-out Includes Real Estate Reductions and Layoffs
- Inventory: Destocking Expected to Settle by Year-End as Wholesale Customers Dial in Mix
- Labor: While Wages Remain Elevated and Competition for Workers Remains High, Some Executives Report Signs of Improving Conditions
- Regional Spotlight: Europe Contends with Continued Labor Tightness While China Experiences ‘A Clear Rebound’ in Consumer Demand Following COVID Reopening
Corbin Advisors is a strategic consultancy accelerating value realization globally. We engage deeply with our clients to assess, architect, activate, and accelerate value realization, delivering research-based insights and execution excellence through a cultivated and caring team of experts with deep sector and situational experience, a best practice approach, and an outperformance mindset.