Events on the Horizon
The consumer discretionary sector continues to be in focus this week, not just as investor’s eye the group as potential winners of the “return to normal” trade, but also as they are the group that closes out Q4 earnings season. The last trickle of consumer names will report earnings this week, including: Stitch Fix (3/8 AMC), Dick’s Sporting Goods (3/9 BMO), Children’s Place (3/9 BMO), AMC Entertainment (3/10 AMC), Fossil Group (3/10 AMC), JD.com (3/11 BMO), Ulta (3/11 AMC), Zumiez (3/11 AMC), Buckle (3/12 BMO) and more.
Recent Dividend Resumptions – Consumer Discretionary on its way back
In 2020 we tracked over 300 companies that suspended dividends, signaling to the investing world that business conditions were deteriorating. By the end of the year, however, many had already resumed as the promise of vaccines and gradual re-openings came. In recent weeks, several hold-outs in the Consumer Discretionary space have now resumed their dividends, including:
Gap (GPS) – suspended on June 4, 2020, resumed on March 2, 2021
Ross Stores (ROST) – suspended on May 19, 2020, resumed on March 2, 2021
Kohl’s (KSS) – suspended on April 17, 2020, resumed on March 2, 2021
Steven Madden (SHOO) – suspended on May 28, 2020, resumed on February 25, 2021
Columbia Sportswear (COLM) – suspended on April 16, 2020, resumed on February 4, 2021
The above retailers are seemingly telling the markets that better times are ahead, although all have not fared equally during the pandemic. As in the consumer space in general, those that were able to get online shopping and shipping right have been winners during this time. Gap is one of those names.
Just last week GPS reported Q4 2020 results, and while they missed revenue expectations, they were able to swing to a profit by selling more merchandise at full price, shuttering underperforming stores and increasing online sales which were up almost 50% YoY and accounted for 46% of total sales. Their quarterly ex-dividend date is April 6, with a cash dividend payment of $0.243 per share scheduled for April 28.
Similarly, Kohl’s saw a jump in online sales when they reported for Q4 last week. Online sales were up 22%, accounting for 42% of total sales. Their stock is up ~48% YTD. Their quarterly ex-dividend date is March 16, with a cash dividend payment of $0.25 per share scheduled for March 31.
Steve Madden beat on the top and bottom-line when they released results on February 25. Despite the positive surprise, SHOO’s stock initially fell in the days following the report due to hefty YoY declines, but has since recovered. Their quarterly ex-dividend date is March 15, with a cash dividend payment of $0.15 per share scheduled for March 26.
Ross Stores on the other hand missed EPS by a whopping $0.43, falling 55% YoY. Their stock is also slowly recovering after falling in the days after the report. Ross Stores, a discount department store that mostly sells high-end apparel and accessories, doesn’t have much of an online presence and most of its brick and mortar stores are in locations that have had slower recoveries of in-store traffic (California, Florida, New Jersey). However, many analysts predict that retailers such as Ross Stores, as well as competitors TJ Maxx and Burlington Stores, are poised to benefit from a value-driven consumer that is expected to return in the back half of this year. Their quarterly ex-dividend date is March 15, with a cash dividend payment of $0.285 per share scheduled for March 31.
Lastly there is Columbia, who beat on the top and the bottom-line when they reported for Q4, but still saw YoY declines of 4% and 9%, respectively. Online sales saw an uptick of 41% YoY. All in still a decent quarter, with the stock rising slightly (1%) since the report. Today is their quarterly ex-dividend date, with a cash dividend payment of $0.26 per share scheduled for March 22.
Unusual moves in earnings dates this week
Despite the good news around consumer discretionary dividend resumptions, all of the unusual moves in earnings dates this week belong to names in the space, and they are all signaling that bad news may be on the horizon.
Fossil Group (FOSL)
Company Confirmed Report Date: Wednesday, March 10, AMC
Previously Inferred Report Date (based on historical data): March 3, AMC
DateBreaks Factor: -3
Since 2005, FOSL has been reporting Q4 results between February 11 – 21, typically on a Wednesday. That date got pushed forward last year, when they reported Q4 2019 on February 26. On February 24 they confirmed they would be reporting on March 10, two weeks later than normal. This change resulted in a high Z-score of 3.19. A high positive Z-score (we consider anything higher than 3 or lower than -3 to be significant) reflects a later than usual confirmed earnings date, which in this case could signal that FOSL is getting ready to announce disappointing results. Z-score is also incorporated into our DateBreaks Factor*, for which FOSL has a factor of -3, meaning there is a high negative deviation from the historical trend for the same quarter.
Fossil has been in decline for a while as consumers move away from traditional watches in favor of tracking time on their phones or smartwatches. Fossil tried to make a play in the smart watch space with little traction against competitors such as Apple, Fitbit and Garmin. After 5 quarters of consecutive profit declines, FOSL was able to cut their way to earnings growth in Q3 after mostly shuttering their Dallas distribution center and letting go of 220 workers in April. In July they followed on with more layoffs at the corporate level, as well as pay cuts. Revenues have been declining YoY since Q4 2014.
Potbelly Corporation (PBPB)
Company Confirmed Report Date: Thursday, March 11, AMC
Previously Inferred Report Date (based on historical data): March 2, AMC
DateBreaks Factor: -3
Since their 2013 IPO, Potbelly Corporation has reported Q4 results between February 14 and February 25. On February 23 they confirmed they would be reporting 2020 results on March 11, two weeks later than normal. This change resulted in a high Z-score of 3.88. A high positive Z-score (we consider anything higher than 3 or lower than -3 to be significant) reflects a later than usual confirmed earnings date, which in this case could signal that PBPB is getting ready to announce disappointing results. Z-score is also incorporated into our DateBreaks Factor*, for which PBPB has a factor of -3, meaning there is a high negative deviation from the historical trend for the same quarter.
Unfortunately for Potbelly, issues that were mounting before the pandemic were only exacerbated once COVID-19 hit the US. The fast casual restaurant was on a mission to become a cult favorite stock like peer Chipotle, but failed to deliver since it’s 2013 IPO. Year-over-year earnings growth has been in decline since Q4 2018, and revenues haven’t grown since Q2 2018. Their concentration in city centers such as Chicago, Detroit, New York, Boston and Washington DC has also made it particularly difficult to recover with people moving from cities, and commuters visiting less frequently as they work from home.