Summary

First-quarter earnings season is winding down, as the retailers wrap up with their reports. The overall growth rate is set to land in the mid-teens range, which is above our forecast for 10%-12% growth. Yes, earnings typically do beat expectations, but let's take a closer look. There are three drivers to EPS growth: higher sales, a wider operating margin, and a reduced share count. A decline in shares outstanding, which is the result of corporate share buybacks, is the lowest-quality driver of EPS growth. Higher sales -- as customers demand and pay for more products and services -- is the highest quality, especially when those sales totals are driven by an increase in volume. (First-quarter revenue growth has been about 5%, or about 300 basis points above long-term U.S. GDP growth, which is healthy.) Margin management is in the middle. Consistently wider margins, quarter after quarter, are often a sign of a good management team, which should, over time, be able to grow revenues faster than it grows costs. That's a tall order in periods of high inflation, which raises the prices of Cost of Goods Sold, and of high interest rates, which result in higher financing costs. What's more, there's a cap to and they don't rise indefinitely. (This is one of those statistics for whic