Here at the Fool, we love our seasons: football season, flip-flop season, and our favorite, earnings season. It's that wonderful time of year when we get to celebrate those picks that outperformed and be humbled by those that didn't.
Each quarter we get to arm ourselves with a new set of expectations and estimates to better judge the economic landscape. We don't always nail our bets, but taking the initiative to learn about the expectations for a given sector will place investors well ahead of many of their peers. Woody Allen put it best when he observed that "80% of success is showing up."
With that in mind, here is what you can expect to see out of some of the biggest stocks in clothing retail this earnings season just by showing up and staying engaged.
The consumer discretionary sector on a whole expects a 7.6% decrease over last quarter's performance but a 12% increase over the same quarter last year. Considering the lingering sensitivity of consumer spending, and the seemingly constant trend of economic fits and starts, this is a bold estimate. Then again, the sector as a whole has rebounded impressively from the consumer dog-day estimates of the last quarter of 2008 -- negative $0.37.
Let's see how some of the notable players in clothing retail are expected to perform, and what to look for with these releases.
|
Company
|
Report Date
|
Current Estimated Earnings
|
Earnings Estimate 90 Days Ago
|
Year-Ago Earnings
|
| Under Armour (NYSE: UA ) |
Oct. 25 |
$0.82 |
$0.83 |
$0.68 |
| Macy's (NYSE: M ) |
Nov. 9 |
$0.16 |
$0.14 |
$0.08 |
| Gap (NYSE: GPS ) |
Nov. 17 |
$0.32 |
$0.34 |
$0.48 |
| Dick's Sporting Goods (NYSE: DKS ) |
Nov. 17 |
$0.26 |
$0.29 |
$0.22 |
| Ralph Lauren (NYSE: RL ) |
Nov. 17 |
$2.23 |
$2.20 |
$2.09 |
| Urban Outfitters (Nasdaq: URBN ) |
Nov. 17 |
$0.35 |
$0.43 |
$0.43 |
| American Eagle (NYSE: AEO ) |
Nov. 23 |
$0.23 |
$0.27 |
$0.29 |
| Pacific Sunwear (Nasdaq: PSUN ) |
Nov. 23 |
($0.14) |
($0.05) |
($0.07) |
| Aeropostale (NYSE: ARO ) |
Dec. 1 |
$0.12 |
$0.46 |
$0.67 |
| lululemon athletica (Nasdaq: LULU ) |
Dec. 8 |
$0.25 |
$0.24 |
$0.18 |
Source: S&P Capital IQ. Earnings reporting dates are estimates.
This is a pretty divided group, with exactly half of the earnings estimates pegged higher than earnings a year ago, and half estimated lower. So how do you decide what to look at? One way I'm going to frame this earnings season through what's known as the "Consumer Hourglass Theory." This theory has highlighted the increasingly barbell-like spending habits of consumers, where only the very high-end or very low-end retailers are seeing gains. The theory cites the financially squeezed middle class and growing wealth disparity as the main culprits.
Some of these estimates may give implicit credence to this theory. For example, decidedly middle-class retailers Gap and American Eagle are expected to underwhelm, with analysts estimating earnings 33% and 21% lower than this same quarter last year.
Conversely, higher-end retailers such as lululemon are expected to outperform. Analysts are expecting lululemon to report earnings 39% higher than last year. Ralph Lauren is also expected to outperform last year's earnings. Investors would be wise not to dismiss the Hourglass Theory as overly simplistic; the potential impact of investing with it in mind is huge. Citigroup created an index based on this principle, and it beat the market by 45% over two years.
Still, I'm not recommending that investors buy and sell exclusively based on this principle. I am, however, suggesting that they closely monitor clothing retailers this earnings season with it in mind. Remember, the investor with the best information is the most likely to profit in the market. If you'd like additional material to arm yourself with this earnings season, I encourage you to check out The Motley Fool's free report "13 High-Yielding Stocks to Buy Today." In it you'll find some compelling cases for stocks across the retail, health-care, energy, and industrial sectors. Access your copy now!
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