What's in the Offing for Tanger (SKT) This Earnings Season?

Tanger Factory Outlet Centers, Inc. SKT is slated to report second-quarter 2019 results on Jul 31, after the market closes. The company’s performance is likely to reflect a year-over-year decline in revenues and funds from operations (FFO) per share.

In the last reported quarter, this Greensboro, NC-based retail real estate investment trust (REIT) delivered an in-line performance in terms of FFO per share, while the top-line growth was lower than anticipated.

Over the trailing four quarters, Tanger Outlet beat estimates on three occasions, the average positive beat being 2.48%. The graph below depicts this surprise history:

Tanger Factory Outlet Centers, Inc. Price and EPS Surprise

Tanger Factory Outlet Centers, Inc. Price and EPS Surprise

Tanger Factory Outlet Centers, Inc. price-eps-surprise | Tanger Factory Outlet Centers, Inc. Quote

Let’s see how things are shaping up for this announcement.

Factors at Play

The recent data from Reis shows that the vacancy rate of neighborhood and community shopping center shrunk 10 basis points sequentially to 10.1% in the second quarter, denoting its first decline since first-quarter 2016. The Regional Mall vacancy rate was flat in the second quarter at 9.3%. Store closures continue to affect Regional Mall vacancy. Nonetheless, both, national average asking rent and effective rent, which nets out landlord concessions, inched up 0.4% sequentially and 1.7% from the year-ago quarter.

The retail real estate market continues to be affected by store closures and is undergoing structural changes. However, the latest stability in the vacancy rate and rent levels reflects that the sector has been able to weather such challenges to some extent as retail landlords continued their transformation initiatives, while there is minimal construction activity in the pipeline.

Tanger Outlet has been making strategic efforts to boost its mall traffic, and is filling vacancies with new high-quality in-demand tenants. The company focuses on merchandising its centers, and targets popular and productive tenants. It is also focusing on helping online brands, which are seeking addition of retail store components, to their growth strategy. With targeted marketing programs and experiential events, the company is likely to have enjoyed a healthy traffic at its centers.

Nonetheless, the disappointing retail real estate environment might partly limit its growth momentum. This is because secular industry headwinds, including retailer downsizing and tenant bankruptcies, keep dampening industry fundamentals. Rental growth is likely to remain tempered, and occupancy and same-center NOI may be softer amid store closures and lease modifications.

Amid these, the Zacks Consensus Estimate for second-quarter revenues is pinned at $115.5 million — indicating a year-over-year fall of 1.3%.  Furthermore, Tanger Outlet’s activities during the quarter were inadequate to win analysts’ confidence. Consequently, the Zacks Consensus Estimate for second-quarter FFO per share has been revised downward by a cent to 54 cents, over the last 30 days. The figure also indicates a 10% decline, year on year.  

Here is what our quantitative model predicts:

Tanger Outlet has the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
 
Earnings ESP: The Earnings ESP for Tanger Outlet is +1.23%.

Zacks Rank: Tanger Outlet carries a Zacks Rank #3, currently.

A positive Earnings ESP is a meaningful and leading indicator of a likely beat in terms of FFO per share. This, when combined with a favorable Zacks rank, makes us reasonably confident of a positive surprise.

Other Stocks That Warrant a Look

Here are a few other stocks in the retail REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Pennsylvania Real Estate Investment Trust PEI, set to report quarterly results on Jul 30, has an Earnings ESP of +3.70% and carries a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Federal Realty Investment Trust FRT, scheduled to release earnings on Aug 1, has an Earnings ESP of +0.49% and currently carries a Zacks Rank of 2.

Realty Income Corporation O, slated to report second-quarter results on Aug 5, has an Earnings ESP of +0.78% and holds a Zacks Rank of 3.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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Realty Income Corporation (O) : Free Stock Analysis Report
 
Tanger Factory Outlet Centers, Inc. (SKT) : Free Stock Analysis Report
 
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