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Consumer discretionary names are poised to underwhelm

Traders work on the floor of the New York Stock Exchange.
Brendan McDermid | Reuters
Traders work on the floor of the New York Stock Exchange.

More retailers are out with quarterly earnings results this week. While some are late reporters for the Q4 season (GameStop) and others are early reporters for Q1 (Nike, Signet Jewelers and Finish Line), they all have one thing in common: analysts have been revising their estimates downward into the announcements.

First up this week is athletic retailing giant, Nike. Just ahead of its FQ3 2016 report, the company introduced the first-ever power lacing sneaker, an ode to Marty Mcfly in Back to the Future. Nike's creative and innovative prowess has been leaps and bounds ahead of the competition in recent years, solidifying its staunch market position in the footwear industry. In the past 12 months Nike has rode 4 consecutive earnings beats to a 29.6% increase in share price.

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Still this wasn't enough to carry Nike, which reported mixed results in its third quarter earnings. The sportswear giant beat the Estimize consensus by 2 cents on the bottom line but missed its revenue estimates by $176 million. The quarter was highlighted by strong year over year growth in its core North America and Chinese businesses. Moreover, Nike's most important metric, future order growth, crushed expectations. On a constant currency basis, global future orders rose 17% which was supported by China's 36% growth in the same metric. Regardless shares of Nike fell 6% in after hours trading reflecting lingering concerns over weak consumer spending. If this is any indication for the rest of the consumer discretionary companies, this isn't too promising.

Following Nike, we get results from Signet Jewelers and Finish Line before the bell, and Game Stop after the bell. Signet Jewelers, parent company of Kay Jewelers and Zales, and the self-proclaimed "world's largest retailer of diamond jewelry" has been posting substantial results over the last 4 quarters on the top and bottom-line, showing consumers are still spending on certain large ticket items. Despite an eight cent miss during their fiscal third quarter 2016 which ended Jan 30 and includes the holiday shopping season, profits were still up 57% on a YoY basis.

The crowd has drawn down their fourth quarter EPS estimate for Signet to $3.62, a 2% decrease since the prior report, and in-line with what the Street is expecting. Revenue expectations have only fallen 1% during that time, to $2.42 billion. Preliminary results released by the company at the end of February are calling for a beat, with fourth quarter EPS expected to come in at $3.61, which would prolong a long running trend of the company surpassing estimates on the bottom-line, which it does 71% of the time. This would also be the fifth consecutive quarter of double-digit profit growth for Signet, at 18%. No color was given on revenues however, a metric they only beat 17% of the time historically. Same store sales are expected to have come in at 4.9%, ahead of last year's 4.2%.

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Also before the open on Thursday is Finish Line, hoping to reconcile some of the losses it incurred in the third quarter, in which it missed on both the top and bottom-line by a mile. Both the crowdsourced and Wall Street consensus had expected marginal losses in the the single digits for the quarter, but ultimately Finish Line posted EPS of -$0.49 and missed on the top line by $20 million. As a result, shares have taken a beating, falling 26.8% in the past 6 months.

The company's third quarter performance was severely impacted by a disruption in its supply chain following the implementation of a new enterprise management system. Finish Line ended the quarter with net sales decreasing 3.5% on a YoY basis and comp sales down 5.8%. In an effort to improve profitability, Finish Line announced it would be closing 150 stores in the next 4 years.

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Analysts are still bearish on Finish Line, pushing EPS estimates down 18% in the past 3 months and 5% in the past month. This currently leaves earnings at $0.80, a 9% decline on a year-over-year basis, on relatively flat revenue of $570.66 million.

However, Finish Line is not alone. GameStop will also be looking for a boost this Thursday. The video game retailer has seen shares fall 28% in the past 6 months, as prior generation and portable units continue flounder. Moreover, currency headwinds have severely impacted earnings, costing GameStop $100 million in sales last quarter and 2 cents on the bottom line.

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Unfortunately, early indications look bleak for the video game industry and GameStop this quarter. In the past 3 months, overall U.S. software sales reported consecutive declines highlighted by a 10.3% decline in February. Moreover, industry sales of prior generation and portable units declined 74% and 54%, with the only bright spot being next gen hardware. Ahead of their Q4 earnings, the crowdsourced community have frantically revised earnings down 6% to $2.26 on the bottom line and $3.57 billion in sales.

After a weak holiday season and start to the year, expectations have been tepid even for high profile names. Companies like Nike, Signet Jewelers, Finish Line and GameStop have all been adversely impacted by weak economic conditions. Between currency headwinds and macroeconomic volatility, it may be tough for these names to make a splash this week, regardless of their size and scale.

How do you think these names will report this week? Be included in the Estimize consensus by contributing your estimates here!