Pandemic booms and busts make the outcomes tough to gauge

A shopper walks past shelves in a paper product aisle of a store in Burbank, California on November 19, 2020.

Robyn Beck | AFP | Getty Images

In a typical profitable season, the rules of the game for investors can be relatively simple: rising profits and strong year-on-year sales growth signal success.

This formula won’t work in the quarters to come.

Some companies, including Walmart and Dollar General, have started making challenging year-over-year comparisons. That means sales growth and ecommerce gains can look disappointing compared to the rising numbers during the height of the pandemic. Others, like clothing retailers like Macy’s and Kohl’s, major airlines like Delta Air Lines, and hotel chains like Wyndham, are facing growth that will look stunning compared to a time when malls were closed and nearing the bottom.

Due to the pandemic, investors will again be navigating in uncharted waters. You need to work out the importance of companies’ quarterly performance, as the way people lived, worked and spent a year ago skewed the numbers. And they need to filter out factors that reflect unusual times rather than sustained demand, such as shopping sprees fueled by stimulus checks and a reopening economy.

“Welcome to the upside-down world,” said Jharonne Martis, director of consumer research at Refinitiv. “We’ve never had a comparable time. What’s good doesn’t mean it’s good. And what’s negative could actually mean they are.” [the companies] well done.”

Customers shop in the meat department of the Kroger Marketplace in Versailles, Kentucky, USA on Tuesday, November 24th, 2020.

Scotty Perry | Bloomberg | Getty Images

Different approaches

Investors are excited to see how companies do on the rebound. The question is: compared to what?

Some pandemic beneficiaries like Dollar General and Kroger share a new metric: a two-year stack that ties comparable sales for the past year and this year. Comparable sales, also known as sales in the same store, are an industry term that measures year-on-year growth, with the exception of locations that are newly opened or renovated.

Dollar General, for example, saw above-average sales growth in the same store during the pandemic, but expects some of that to fade as consumers become more free to spend their dollars. For example, some shoppers went into stores and refilled larger baskets because they were stopping for safety reasons or because the competitors were temporarily closed.

CFO John Garratt said during a profit call that the discounter expects sales in the same store to decline 4% to 6% year over year. In two years, however, the same performance looks better: Dollar General expects sales in the same store to grow by around 10% to 12% over two years.

The airlines took a different approach and, depending on the data point, provided a mix of 2019 and 2020 comparisons in the results reports. Delta Air Lines attributed its approach to “the drastic and unprecedented impact of the pandemic”.

“Comparing our results from 2021 to 2019 will provide an understanding of the full impact of the COVID-19 pandemic and the progress of our recovery,” the airline said.

The pandemic ravaged the travel industry perhaps more than any other, and US airlines combined lost more than $ 35 billion in 2020. The number of passengers dropped more than 60% to about 370 million people, the lowest number since 1984, and the airlines reduced flight operations In Response.

Demand for air travel has rebounded from the depths of the pandemic as more people are vaccinated, governments lift travel restrictions and open more tourist attractions, but it is still far from pre-pandemic levels as people continue to be largely on business and long haul forego international travel.

The Transportation Security Administration examined an average of 1.4 million people from April through Wednesday. That’s more than 13 times the 103,000 people screened a year ago when the US first closed, but it’s a 35% decrease over the same period in 2019.

Savanthi Syth, an airline analyst at Raymond James, said she’s comparing results and projections with 2019 but will use year-on-year comparisons next year. In a research report, she said comparing this year to 2019 “gives you an idea of ​​how 2021 compares to” normal “”.

Coca-Cola and CarMax have also compared their numbers with pre-pandemic numbers. Coke, in its call for a profit this week, stressed that global case volume fell back to 2019 levels in March, although aggregate demand in the first quarter was still below pre-health crisis levels as Europe and North America rebounded.

Bill Nash‌‍, CEO of CarMax, said the used car dealer’s “very volatile year” reflected government restrictions, not consumer demand. Because of this, on a earnings call earlier this month, he said 2019 was a better reference point.

For example, he said, CarMax’s California locations lagged significantly behind the rest of the company as the state’s demand for lower occupancy restricted customer pedestrian traffic – and ultimately revenue.


When companies excavated from the global financial crisis in 2010, there were unusually high growth rates, said John Butters, senior earnings analyst at FactSet. Just like then, investors need to “keep the growth rate in context”.

“The result is improving, but you are comparing it to a very weak base and so some of those numbers are much larger than we normally see,” he said.

After the pandemic, however, there will be different groups: companies that are booming from extremely weak sales and companies that have slowed or worsened sales growth as the pandemic tailwind wears off, and possibly a third group: companies that have the Maintain momentum.

Martis from Refinitiv pointed out two examples that capture this “wrong” dynamic. Delta’s revenue growth rate is expected to more than quadruple year over year in the second quarter of its fiscal year, according to Refinitiv. However, estimated revenue for the quarter is $ 6.22 billion – less than half of the $ 12.54 billion reported in the same quarter of 2019 before the pandemic.

On the other hand, Walmart’s revenue growth rate is expected to decline 2.2% year over year in the first quarter of fiscal year – a decline that usually indicates weakness and is cause for concern. However, the estimated revenue of $ 131.66 billion is likely to be higher than the pre-pandemic revenue of $ 123.93 billion in the same quarter of 2019.

Even so, Refinitiv doesn’t plan to use two-year stacks, Martis said.

“It masks the dramatic changes we see in percentage changes. It smooths them out,” she said. “But it really doesn’t compare to the old days.”

Martis and Butters both said their financial data firms would instead try to explain what the numbers mean – and how to jump or drop off sharply with a grain of salt.

She said she saw 2021 as a year of transition. She anticipates consumption patterns to evolve rather than snap back as people gradually start receiving vaccines, becoming comfortable in changing rooms again, or realizing the need to buy new pairs of shoes or work clothes. It could be early next year for companies and investors to see more predictable patterns, she said.

“2021 is almost like pressing a reset button,” she said.

“Your worst enemy”

For many, the worst pandemic comparisons won’t begin until the second quarter, said Matt Miskin, co-chief investment strategist at John Hancock Investment Management. Only a week or two of home behavior were recorded in the first calendar quarter.

First, he said, the comparisons will make some companies that have seen a sharp downtrend during the pandemic look good – only to potentially bite them when spending patterns turn into some sort of normal. For home based businesses, this will come first. It could kick in again for those experiencing a shopping spree in 2021 that will cool off in 2022.

“The comps will go from your best friend to your worst enemy,” he said.

Other data points will also be meaningful, said Martis of Refinitiv. Among them, she said, is e-commerce growth. She will see retailers cling to recent profits. She said she’ll also watch companies’ margins to see how much money everyone can make. This will show whether discounts were needed to move goods and whether retailers learned to juggle brick and mortar and online stores efficiently.

Forecasts are back

Butters of FactSet said it would help if many companies returned to forecasting – something that was largely discontinued last year. The analysts’ guidelines and estimates provide helpful benchmarks, and it remains a positive sign if companies can outperform these benchmarks.

Even more than in the past, assessing a company’s strengths or weaknesses will be “a very company-specific task,” said Zack Fadem, senior equity analyst at Wells Fargo. The background for the industry is different, he said. Some companies are in hot sectors – like home improvement retailers – who will continue to benefit from the real estate market even as the pandemic-induced “nesting” subsides. For these, he said, the “wall of concern” could be postponed until next year for comparable numbers.

Also, consumer spending could rise across the board if Americans put money they put in savings or received from the government. He said if the overall pie is growing, it’s important to compare a company to its competitors and see if its market share grows or shrinks.

“With the benefits of incentives and heavy consumers, you have to comb through other sounds to see if business has gotten better or worse,” he said.

– CNBC’s Leslie Josephs contributed to this story. Nate Rattner contributed to the data visualization.

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