This Week in Earnings – Q4’24
The Sector Beat: Consumer Discretionary
29 min. read
Earnings season rages on as we endure daily, weekly policy updates from POTUS while the superpower technology war has begun. Big growth has yet to materialize as companies take a wait-and-see approach, opting for steady as she goes on the investment front — outside of continued AI-driven capex commitments from Big Tech — until the dust settles (and hopefully, it will). Market sentiment and hopes for a big 2025 remain intact but increasing uncertainty has the potential to chip away at optimism…and hope is not a strategy.
In today’s thought leadership, we cover:
- Key Events this week
- Earnings Snap, covering the S&P 500 stats to date
- Spotlight on Consumer Discretionary in The Sector Beat
Key Events
GDP
- U.S. GDP accelerated at a 2.3% annualized pace in Q4 vs. expectations of an 2.5% increase according to the advance estimate, down from 3.1% growth in Q3; for the full year, GDP accelerated 2.8%, compared with 2.9% in 2023. Consumer spending rose at a robust 4.2% pace and, as usual, amounted to about two-thirds of all activity. (Source: The Commerce Department)
Central Banks
- The Federal Reserve hit the pause button on recent interest rate cuts. The decision to leave the benchmark federal-funds rate at its current range around 4.3% followed three consecutive rate cuts beginning in September, when the rate stood around 5.3%. Now the Fed is entering a new wait-and-see phase and drawing a rebuke from President Trump, as it tries to determine whether and how much more to lower rates from a recent two-decade high. (Source: The Federal Reserve)
- Canada’s central bank lowered its policy rate by a quarter-point to 3%. In its decision, the Bank of Canada said a recent rebound, fueled by aggressive rate cuts since last June, is in jeopardy should President Trump follow through on his threat of a 25% tariff on imports from Canada and Mexico. Canadian officials have vowed to retaliate forcefully with their own tariffs in such an event. (Source: Bank of Canada, WSJ)
- The European Central Bank reduced its key interest rate to 2.75% from 3% Thursday, widening a gap in benchmark borrowing costs with the Federal Reserve. It was the fifth cut in six meetings and came hours after the Fed made their decision to hold steady. The ECB signaled more rate cuts to come, aiming to bolster a stagnant eurozone economy that is highly exposed to the trade tariffs threatened by President Trump. (Source: ECB, WSJ)
Employment
- Initial claims for state unemployment benefits dropped 16,000 to a seasonally adjusted 207,000 for the week ended Jan. 25, below estimates of 220,000. While claims remain at levels consistent with a labor market that continues to plod along, consumers are becoming less optimistic about their prospects of finding employment in the event of a layoff. (Source: Labor Department)
Home Sales
- The NAR Pending Home Sales Index, based on signed contracts, fell 5.5% last month to 74.2 from a downwardly revised 78.5 in November. Economists had forecast contracts, which become sales after a month or two, would be unchanged in December following a 1.6% increase in November. Pending home sales fell 5.0% from a year earlier. On a regional basis, signings declined on both a monthly and annual basis in all four regions. Month-over-month the declines were led by an 8.1% drop in the Northeast and a 10.3% slide in the West. (Source: National Association of Realtors)
Earnings Snap
36% of the S&P 500 has reported earnings to date
Q4'24 Revenue Performance
- 65% have reported a positive revenue surprise, above the 1-year average (62%) and below the 5-year average (69%)
- Blended revenue growth (combines actual reported results for companies and estimated results for companies yet to report) is 4.6%
- Companies are reporting revenue 1.2% above consensus estimates, above the 1-year average (+1.0%) and below the 5-year average (+2.1%)
Q4’24 EPS Performance
- 75% have reported a positive EPS surprise, below the 1-year average (77%) and the 5-year average (77%)
- Blended earnings growth (combines actual reported results for companies and estimated results for companies yet to report) is 11.5%
- Companies are reporting earnings 5.8% above consensus estimates, above the 1-year average (+4.9%) and below the 5-year average (+8.5%)
The Sector Beat: Consumer Discretionary
Guidance Trends
At the beginning of each year, we analyze annual revenue and EPS guidance spreads provided by calendar-year Consumer Discretionary companies with market caps greater than $1B that have reported to date.1 Below are our findings.
For comparison purposes, we provide an “All-Company” benchmark, which tracks in real-time a basket of calendar-year companies larger than $1B in market cap across all sectors that have reported earnings to date (n = 81).
Guidance Breakdown by Industry
| Industry | Number of Companies |
|---|---|
| Household Durables | 2 |
| Leisure Products | 2 |
| Automobile Components | 1 |
| Automobiles | 1 |
| Diversified Consumer Services | 1 |
| Hotels, Restaurants & Leisure | 1 |
| Specialty Retail | 1 |
| Textiles, Apparel & Luxury Goods | 1 |
| Total | 10 |
Annual Revenue and EPS Guidance
Revenue
- Most spreads Widened (43%) relative to last year, followed by 29% Narrowing their guidance compared to the all-company benchmark of 38%; 50% of midpoints are above 2024 actuals
EPS
- Most spreads were Narrowed (50%) relative to last year, well above the all-company benchmark (28%); 57% of midpoints are above 2024 actuals
Earnings Call Analysis
We analyzed the earnings calls for this group and the broader Consumer Discretionary universe to identify key themes.
Demand trends are mixed across the sector, with relative pockets of strength among travel/leisure, restaurant/QSRs, and lifestyle apparel names (with some noting good momentum into Q1 and a resilient consumer). On the other end of the spectrum, the group has seen its share of Q4 disappointments and lower-than-expected guides, with those tied to automotive/recreational vehicles and housing continuing to face a challenging demand backdrop amid still-elevated interest rates.
Executive commentary broadly reflects a cautious stance toward the near-term macro environment, driven in part by heightened policy uncertainty under the new administration. To that end, many remain in wait-and-see mode, characterizing 2025 outlooks as “status quo” and similar to 2024. That said, comments skew toward appropriate conservatism rather than outright dourness, with some optimism for gradual improvement as the year progresses.
Trump 2.0 policy remains a hot topic on earnings calls, with analysts probing for the potential impacts from tariffs (particularly threats of 25% tariffs on Canada and Mexico as soon as this weekend), stricter immigration policy (labor supply), and changes to the tax code. Broadly speaking, executives maintain they are watching closely and will share updates when they gain greater clarity from the new administration, while readying playbooks and preparing for various outcomes.
Looking abroad, views toward China show an expectation for continued softness in 2025 amid prolonged consumer weakness despite government stimulus efforts. Still, executives highlight success navigating a challenging environment and remain optimistic longer-term given the size of the market opportunity.
Investor Communication Spotlight
Recommendations for Investor Communications amid President Trump’s Policy Announcements
In light of the recent wave of announcements from President Trump and his administration, we’ve outlined selected recommendations this earnings season to help navigate upcoming earnings calls and investor discussions.
We will continue to monitor communication trends and provide best practice considerations throughout our earnings coverage:
- Be Prepared to Highlight Labor Flexibility Amid Immigration Policy Impacts on Workforce Availability: With two full weeks under the new administration’s belt, analyst questions are percolating around the ramifications of stricter immigration policies on labor availability and associated costs, especially in sectors heavily dependent on immigrant workers. For those with exposure, be prepared in Q&A to discuss historical resilience in handling labor shortages, the potential regional limitations of these impacts, and proactive strategies like diversifying labor sources and advancing automation to reduce dependency on any single workforce group. This remains an incredibly fluid situation, so forecasting impacts may prove difficult. That said, if the company has already implemented measures to adapt, clearly articulate these changes and their benefits to remain transparent with the investment community.
Key Consumer Discretionary Themes
Macro and Outlooks
Executives Across Consumer Sub-Industries ‘Not Anticipating a Sudden Improvement’ in Macro Conditions, though Cautious Optimism Takes Root for 2025 as the Year Progresses; Leisure Remains a Bright
- Whirlpool ($7.3B, Household Durables): “As we look into 2025, we do not anticipate a sudden improvement of what has been a very challenging macro environment, in particular in the U.S. We are highly optimistic about mid- and long-term prospects of the U.S. housing market; at the same time, realistic about the pace of recovery and expect only a slow and gradual improvement in 2025.”
- Polaris ($3.1B, Leisure Products): “Right now we view the industry is probably down LSD in 2025. For us, from a retail expectation standpoint, we think the first half is still going to be continued challenges. And that really is just reflective of the trends we’ve seen coming into Q4. As we exit Q4, there isn’t anything magical about the new year. Who knows how many interest rate changes there will be this year? Consumers are still carrying a lot of debt. Inflation is stalling out in the mid-2s, which would signal that there may not be that many interest rate cuts this year. And as we’ve talked about in the past, it’s going to take time for this to work through.”
- Levi Strauss ($7B, Textiles, Apparel & Luxury Goods): “We are pleased with our Q4 results and the momentum into Q1 2025. However, we recognize there continues to be a lot of uncertainty related to the macro environment, potential tariffs, changes in the tax code, as well as worsening foreign exchange. While we have a number of initiatives that we believe will help us to drive organic sales and earnings in the next few years, the best approach for us is to plan .”
- General Motors ($53.6B, Automobiles): “We’re looking at 2025 on a SAAR basis to be fairly similar to 2024. There is some speculation out there that we saw a big pull ahead in demand in the month of December, whether that was EV-driven or just consumer-driven ahead of inauguration. I think one of the things is we’re adopting a little bit of a wait and see on that. January has been really noisy regarding both the weather, the fires in California, et cetera. It’s tough to glean whether there was a big pull forward, so we’ve got projected demand to be pretty similar to last year.”
- Mobileye Global ($13.5B, Automobile Components): “We prefer to take a conservative approach that accounts for the risk that uncertainties negatively affect earnings. Our top 10 customers were assuming global production volumes meaningfully worse than that assumed by third-party forecasters. With Chinese OEMs, forecasting remains difficult due to less visibility we received. Volumes appear to have stabilized from the $2M plus annualized range in the second half of 2024, higher than we had expected several months ago. But we’re assuming a deterioration from that level simply to account for the low visibility.”
- D.R. Horton ($47.1B, Residential Construction): “Overall, the demographics supporting housing demand remained favorable. And although both new and existing home inventories have increased from historically low levels, the supply of homes at affordable price points is generally still limited. To help spur demand and address affordability, we are continuing to use incentives such as mortgage rate buydowns, and we have continued to start and sell more of our smaller floor plans.”
- M/I Homes ($3.8B, Household Durables): “There’s tremendous uncertainty, almost every day, whether it’s immigration or tariffs or inflation or interest rates or you name it. It’s the word cloud of the day. But against that backdrop, I do think that new home building and new home construction has a very solid foundation of underlying metrics. And while there may be some noise quarter to quarter, we’re poised to grow this company in 2025 and 2026 and 2027, and we believe we can.”
- Royal Caribbean ($65.4B, Hotels, Restaurants & Leisure): “We continue to see very positive sentiment from our customers, bolstered by strong labor markets, high wages, surplus savings, and elevated wealth levels. At the same time, they continue to prioritize travel experiences. American households are wealthier than ever, with continued wage growth and low unemployment driving strong consumer spending. We see positive sentiment from our customers in a macro environment that favors experiences over things as leisure and travel spend continue to grow.”
Trump 2.0 Impact
Most Stop Short of Speculating around Vague Tariff Details, Instead Opting to Highlight Operational Adaptability and Supply Chain Levers; Labor Availability a Burgeoning Concern and Focus in the Household Durables Industry
Tariffs
- Whirlpool ($7.3B, Household Durables): “Any impact of additional tariffs are not included in our guidance, because we wouldn’t know at this point what to plan for. There’s a lot of speculation. To remind everybody, more than 80% of the products which we sell in the U.S. are produced in the U.S. That is very different for our competitors. We are S. producer and we’re highly dependent on the U.S., and we’re proud to be in the U.S. So, most people read that you should be beneficiary from tariffs, as you also know tariff have positive consequences and sometimes, they have also unintended negative consequences. So, once we know what might be communicated, when we can give you a proper dimension of this one, but right now it’s not factored in.”
- Tesla ($1361.3B, Automobiles): “There’s a lot of uncertainty around tariffs. Over the years, we’ve tried to localize our supply chain in every market, but we are still very reliant on parts from across the world for all our businesses. Therefore, the imposition of tariffs, which is very likely, will have an impact on our business and profitability.”
- General Motors ($59.3B, Automobiles): “As many people have asked here on the call, what happens to consumer tax credits, what happens to IRA, et cetera. There’s a lot of moving parts out there. Whether we’re talking about IRA or tariffs, we’ve got multiple playbooks that we have been working on to make sure that we can respond or even anticipate some of those moves. We’ve got ways to be able to respond to that. The reason that we guided to the status quo is because there are really infinite permutations on policy, and we didn’t want to get into advocacy in our guidance. But rest assured, we’ve got plans in place.”
- Group 1 Automotive ($6B, Specialty Retail): “There’s a great deal of conjecture at the moment about Washington and the impact the new administration’s policies will have on retailers and OEMs. While we don’t know the outcome of the impact on changes and things like EV subsidies, taxes, tariffs or interest rates, we feel the best way to capitalize is to ensure that Group 1 stays nimble and focused on execution. We have to be ready to compete on whatever playing field exists with whatever set of variables we’re presented.”
- Brunswick ($4.6B, Leisure Products): “The uncertain tariff environment has become an elevated consideration. We have the benefit of reducing the large majority of our products in the U.S. and for the U.S. market. And we have significantly reduced our exposure to China over the past few years. However, at current tariff rates, we anticipate an annualized impact of approximately $35M in 2025. We are preparing for a range of scenarios and have many short- and long-term mitigating actions already underway, including continued migration of our supply base, inventory staging and optimization of our facilities.”
- Polaris ($3.1B, Leisure Products): “First and foremost, if that [25% tariffs] were to happen, I think we as American citizens would have bigger issues in front of us, because I think there would be a larger economic implication given the trade flows between Mexico and the U.S. and even between the U.S. and Canada. So, I think there’s going to be a tempered approach. I think it’s going to be very specific and there’s going to be negotiations. You saw that play out with the President of Colombia relative to immigration, so that’s what I’m hopeful for. But, if we get to a point where it’s a reality, we’ve got the most diversified footprint. It would take time, but we have a presence that we would be able to leverage if we viewed this as a more permanent situation that we needed to move content back into the U.S.”
Immigration
- KB Home ($4.8B, Household Durables): “With respect to trade labor, even in times past when trade labor was very tight, we relied on our longstanding subcontractor relationships to ensure that we had the crews necessary to get our homes built. Working from a backlog of sold homes, our even-flow production provides visibility to our trade partners, which is advantageous in their planning process.”
- D.R. Horton ($46.1B, Household Durables): “I think, today, we have access to the labor we need, and we have the materials we need, and that’s what’s allowed us to continue to see improvements in our cycle time. And given that, we’ve been able to hold pretty tight on pricing for both materials and labor. It has yet to play out what happens with this administration and what that impact is, either through tariffs and/or labor, if it becomes a little scarcer. But we feel good about our positioning in the markets with our market share and our ability to maintain the labor and the parts and pieces we need and still don’t expect to see much inflation in either of those over the next 12 months.”
- PulteGroup ($23.8B, Household Durables): “Let me first start with it’s been a long standing policy of our company that all of our trade partners and the labor that are on our job sites, we require verified residency status and our work permits that allow them to work legally in the U.S. That’s been our position for a long time, and it’ll continue to be our position. In terms of impacts to the broader labor force, even beyond just construction labor, the extent that there are deportation activities there’s no question there’ll be less labor available. And that will have an impact on all wage rates.”
Demand & Consumer Health
Trends Bifurcated by End Market but with Some Pockets of Strength, Including Leisure and Specialty Retail; Those Tied to Housing Still Feeling the Pain
- Brinker International ($6.8B, Hotels, Restaurants & Leisure): “Every income level is growing, every demographic is growing, all the dayparts are growing, off premise, on premise, all of it. So, there’s no real standout of, oh, it’s one region or it’s one daypart. So that really gets back to we know that the fundamentals of improving food, service and atmosphere is just improving the overall business. So all these things are working together so that all pieces of the business are getting better. And that’s, again, why we’re so confident that this is sustainable.”
- Stride ($5.1B, Diversified Consumer Services): “We continue to execute against the backdrop of ongoing strong demand. Coming out of the pandemic, we were all uncertain if the increase in demand for our programs was structural or temporary. And for three consecutive years now, we have seen increasing growth in our business and also for three consecutive years, we see continued in-year strength in demand. The macro environment for our business is as strong as ever. And as long as we can continue to execute effectively, I believe we can benefit from these conditions.”
- Group 1 Automotive ($6B, Specialty Retail): “Our indication is the consumer is pretty healthy. And you know, we were pleased with those, and I don’t see anything that would lead me to believe it’ll get worse. I think if anything it could potentially get better if there’s some stimulation on tax rates or something like that, or interest rates for that matter.”
- Asbury Automotive Group Inc ($5B, Specialty Retail): “We did see an uptick [in traffic] after the election. It feels like the affordability issue is still up there, but the sentiment is much more positive. And as we saw it, there was pent up demand, and it took place in Q4.”
- Whirlpool ($7.3B, Household Durables): “Starting with industry demand, we expect the global industry to be approximately flat in 2025. In the U.S., we expect to see similar demand trends that we saw throughout 2024. Resilient replacement demand creates a solid foundation for industry volumes, while consumer discretionary demand continues to be negatively impacted by elevated mortgage rates, resulting in weak existing home sales.”
- D.R. Horton ($46.1B, Household Durables): “Overall, the demographics supporting housing demand remained favorable. And although both new and existing home inventories have increased from historically low levels, the supply of homes at affordable price points is generally still limited. To help spur demand and address affordability, we are continuing to use incentives such as mortgage rate buydowns, and we have continued to start and sell more of our smaller floor plans.”
- Century Communities ($2.4B, Household Durables): “We’ve been able to really ensure that we’re rightsizing the amount of inventory that we have on the ground for what we see as the current demand obviously at community submarket as well as a division level. Generally speaking, we’re very bullish in terms of the demand that is out there and our ability to provide affordable housing in markets where we continue to see the demand.”
Margins & Efficiency
Executives Emphasize Operational Efficiencies throughout Commentary; Cost Takeout and Automation Investments Key to Bolstering Profitability ‘When Volume Does Return’
- Whirlpool ($7.3B, Household Durables): “Turning to cost, as we look back at 2021 and 2022, we had unprecedented inflation of approximately $2.5B. However, we have not seen cost deflation to this magnitude yet, making our cost takeout priorities critical for our continued margin expansion. We’ve demonstrated our ability to deliver on our priorities by eliminating approximately $800M of net cost over the past two years. We will continue to deliver cost actions of over $200M this year, driven by our ongoing portfolio transformation that enables us to take additional cost actions to simplify our organization, product design changes that optimize cost while delivering innovative solutions, and further manufacturing efficiencies through our world-class manufacturing and automation solutions.”
- Starbucks Corp ($111.3B, Hotels, Restaurants & Leisure): “We expect that margin and earnings, on an absolute basis, will be the lowest in Q2. That’s based on seasonality, but it’s also reflecting the organizational restructure, as well as the elevated investments. What that means is YoY earnings pressure will intensify, and that’s largely driven by the organizational restructure. Specific to EPS, we would expect that you’ll see improvement sequentially and YoY in the back half of the year.”
- VF Corp ($9.7B, Textiles, Apparel & Luxury Goods): “On the gross margin side, we do expect gross margins to be up. There’s a couple of factors at play here. One is the actions from last year are still benefiting us YoY. And then, secondarily, some of the product costs have improved, and lower promotions as well. So, overall margins sort of organically are heading in the right direction. “
- Polaris ($3.1B, Leisure Products): “We will continue our lean journey in 2025, focusing on sustaining and building on the gains we’ve made so far. Our savings target in 2025 is approximately $40M through these efforts. Given we’re expecting lower production volumes in 2025, much of this will continue to be offset with negative absorption. However, we’re executing on these items to build higher incremental margins when volume does return.”
- Royal Caribbean ($65.4B, Hotels, Restaurants & Leisure): “And then, of course, all the different technology that we’re now utilizing is just getting stronger and stronger on what I would describe as disruptive tech, whether that is using AI or gen AI and other things to enhance the guest experience or to just get a better read on what we can be recommending to our guests, whether it’s on pricing or whether it’s on the guest experience. That’s in the early innings of all of this, and I think we will continue to see outperformance in these different trends.”
- Kura Sushi USA ($1B, Hotels, Restaurants & Leisure): “Moving to new initiatives, I’m pleased to share that the new reservation and self-seating system is progressing as scheduled with our first in-restaurant test expected in February. This will be a very significant improvement to the guest experience, as we currently do not offer reservations. Today, guests can remotely check in into restaurant waitlist, but cannot choose a specific time to dine. The reservation system is coupled with the self-seating system, and we believe the implementation of these systems will eliminate the need for dedicated host position as well as bolster shoulder period sales.”
China
Unfavorable Consumer Conditions Extend into New Year while Uncertainty over Near-term Economy Proliferates
- General Motors ($53.6B, Automobiles): “In China, we have been working with our JV partners to drive better performance in the market by rightsizing the businesses, launching new products, reducing dealer inventory and building to demand. To improve YoY results and make SGM sustainably profitable, they will be implementing a wide range of restructuring initiatives this year that include reducing capacity to operate within utilization levels of about 80% or better. We are in the process of finalizing details with our partner.”
- Adient ($1.5B, Automobile Components): “Based on current outlook, we see China revenue flat to slightly declining in fiscal year 2025, primarily driven from unfavorable production mix from increasing export and local OEM volume. Challenging market conditions that emerged in late calendar year 2024 have continued into calendar year 2025 with underlying auto demand continuing to soften outside of short-term scrappage schemes. Government stimulus has been modestly effective, but mostly in entry level segments where Adient has minimal content.”
- VF Corp ($9.7B, Textiles, Apparel & Luxury Goods): “On China, we’re probably seeing the same thing everybody else is. The economy itself is pretty soft relative to the past. The good news is we’ve got a very strong business, especially The North Face in China, continue to grow double digits, so another good performance there. I am, as most people here are, probably uncertain about what will happen near term, but really optimistic about the long term in China. So, we’re going to keep the pedal to the metal and keep investing there and building business there.”
WEBINAR
Q4’24 Earnings Season
In case you missed it, you can access a replay of our webinar The Big So What™ – Q4’24 Earnings Season. Thank you to all who attended the session live and submitted questions!
In Closing
The Consumer Discretionary sector continues to face challenges, with macro commentary remaining conservative across the board. However, a sense of cautious optimism is building among executives who anticipate improvement over the course of the year — a theme we are hearing across sectors.
In light of mixed Q1 demand expectations, continue to highlight the efficiency measures and cost reductions implemented over the past year. Focus on what is controllable and clearly articulate the strategic levers at your disposal to position yourself for future growth when demand rebounds.
We will continue to monitor these trends and more as we seek to support you, our valued clients, and as we work through the quarter and the rest of the year.
Up next week: Tech Sector Beat.
- As of 1/30/25