BBY Best Buy Company

By Khadeeja Safdar and Suzanne Kapner 

A parade of U.S. retail chains on Tuesday reported rising sales in the latest quarter, another sign of healthy consumer spending heading into the critical holiday shopping season.

But investors were unimpressed, dumping shares of Target Corp., Kohl's Corp. and others that released their quarterly results. The selloff, part of a broader market decline, included retailers like Amazon.com Inc. and Walmart Inc. that didn't report on Tuesday.

A tight labor market and increasing wages have buoyed consumer confidence, prompting Americans to purchase more fashion apparel, flat-screen televisions and homewares. But retail profits have been under pressure from online competition as well as higher spending on worker wages, shipping costs and recent tariffs on Chinese-made imports.

Target said more shoppers visited its stores and website, and bought products across all its merchandising categories, particularly toys, beauty products and baby items. The company reported a 5.1% increase in comparable sales in the third quarter from the same period a year earlier, which includes a 49% increase in digital sales.

"We continue to benefit from a very healthy consumer and macroeconomic backdrop," Target CEO Brian Cornell said on a conference call Tuesday, adding that the company's investments have helped it capture business from retailers that are closing stores or liquidating.

However, profit margins declined in the latest quarter, as Target faced higher costs on supply chain and wages. The company has made investments heading into the holidays, including several delivery and pickup options, new products and lower prices.

Target shares, which had rallied for most of the year, tumbled 12% in premarket trading.

Mr. Cornell said Target wouldn't provide 2019 financial guidance, but said he was optimistic about the company's ability to boost profits next year. "We're poised to benefit from far greater scale across all of initiatives," he said.

Some analysts said a decline in operating profit is necessary to support Target's growth. "Some on Wall Street may lament the dip, but the truth is you cannot reinvent a retailer on the cheap," Neil Saunders, managing director of GlobalData Retail, wrote in a note Tuesday.

Best Buy Co., which has been reporting strong demand for electronics in recent quarters, said comparable sales increased 4.3% in the third quarter for its domestic stores and website. It was the sixth straight quarter of comparable growth above 4%.

The company's profit margin, however, slipped on supply chain and other spending. CEO Hubert Joly said the performance reflected the company's efforts to add services as well as the favorable economic environment.

Meanwhile, Kohl's reported a 2.5% increase in comparable sales for the latest quarter, citing demand for apparel. The department store chain's margins and profit increased from a year earlier.

The results failed to reassure investors, who have been unloading shares of many retailers following the latest batch of earnings reports after driving up the stock prices earlier in the year.

Shares of Kohl's fell 10% in premarket trading, while Best Buy declined 3%. Shares of TJX Cos. fell about 7% premarket after the parent of TJMaxx and HomeGoods slashed its guidance amid higher inventory and expenses.

Tuesday's results follow strong sales reports from the country's biggest retailer Walmart, department store chain Macy's Inc. and the internet giant Amazon.com, which are all competing for American wallets. Shares of all three companies were down 3% or more Tuesday morning.

Not all chains are riding the tide of rising consumer spending. Mall-stalwart L Brands Inc., the parent of Victoria's Secret, said Monday it was halving its annual dividend after posting another quarter of falling sales at its flagship brand. Wedding gown retailer David's Bridal filed Monday for bankruptcy protection, cutting $400 million in debt while it restructures operations.

Some retailers are also benefiting from the struggles of others. Following the collapse of Toys "R" Us and store closings at Sears Holdings Corp., retailers including Best Buy and Target have pursued their business and picked up market share.

Both Target and Best Buy reported higher quarterly profits than a year ago, but much of the gains came from lower tax rates following the U.S. federal overhaul. Operating profits declined in the latest quarter from a year ago.

Retailers have been raising wages to attract talent in the tight labor marketing and building fulfillment centers for online orders. At the same time, they are pushing discounts in a marketplace where smartphones make low prices and comparison shopping easier.

Some chains are still struggling with strategic and operational challenges. Lowe's Cos. said Tuesday it plans to exit its Mexico retail operations and shed two U.S. home-improvement businesses, after the home-improvement chain reported slower same-store sales gains than rival Home Depot Inc. and a 27% decline in profit from a year ago.

Write to Khadeeja Safdar at khadeeja.safdar@wsj.com and Suzanne Kapner at Suzanne.Kapner@wsj.com

(END) Dow Jones Newswires

November 20, 2018 09:37 ET (14:37 GMT)

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