February 3, 2023
Earnings Snap and Consumer Discretionary Sector Beat
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With 50% of the S&P 500 reporting earnings to date, 70% have reported a positive EPS surprise, below the 1-year average of 75%. Companies are reporting earnings 1.3% above consensus estimates, well below the 1-year (+6.5%) and 5-year average (+8.6%).
We analyzed earnings calls and annual revenue and EPS guidance provided by calendar-year consumer discretionary companies with market caps greater than $500M that have reported to date.
- Inflation is still here and wreaking havoc among most sub-industries. While prices may not be increasing at the brisk pace they were in the middle of last year, recent data indicates credit card balances increased to a new record high in Q4’22 at $931B, representing 18.5% growth year-over-year, led by quarter-over-quarter increases in subprime (+19%) and near prime (+13.8%) balances, according to TransUnion, a leading American consumer credit reporting agency.
- Executive commentary on the consumer increasingly suggests a poignant divide among various income groups. The high-end consumer appears to be spending at a “resilient” clip, while lower-income individuals are trading down and digging deeper into their savings as pandemic-era stimulus expires. While most companies continue to pass input cost inflation onto the end consumer, we are seeing some refrain, noting they don’t want to further burden their customer.
- While still challenged in the near-term, supply chains are “beginning to stabilize” due to inventory normalization and partial commodity improvement. Most executives expect marginal top- and bottom-line tailwinds in the second half of 2023, a result of steady pricing and enhanced operational efficiencies.
- Labor remains a top challenge. Front-line service workers – line cooks, waitresses, hospitality staff – remain in high demand, and most are seeing large wage increases. Despite tech layoffs dominating the airwaves, labor remains very tight; however, some report becoming more “disciplined” with their salaried head counts.
- Overall, a challenging environment has resulted in a mixed outlook for 2023. For revenue, most spreads Widened (42%) relative to last year, more than double the all-company benchmark (20%) and indicative of continued uncertainty, while EPS spreads were generally Maintained (43%) relative to last year.
- Investor bears continue to outpace bulls by a large margin for the fourth consecutive quarter, according to our quarterly Inside The Buy-Side®️ Sentiment Index.
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.