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, including 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
spent more on its 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
9% in Tuesday morning 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 our 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 sales growth reflects
the company's efforts to add services as well as the favorable
economic environment. "Because of the investments we've made, we
are competitive in the marketplace," he said on a conference
call.
Best Buy cited strong demand in the quarter for smartphones,
videogames, home appliances and wearable gadgets. Those gains were
partly offset by declines in tablet computers, it said.
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 increased slightly from a year earlier, but
sales growth was slower than recent quarters.
"I feel really good about where the customer is today," Kohl's
CEO Michelle Gass said on a conference call. "There is no reason to
believe that will change as we head into the holidays."
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. Without a lower tax rate,
Kohl's profits would have missed analysts' expectations.
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 9% early Tuesday, while Best Buy bucked
the trend, gaining 3%. Shares of TJX Cos. fell about 2% after the
parent of TJMaxx and HomeGoods lowered its profit goals amid higher
inventory and expenses.
TJX, which reported strong sales and profit growth in the
recently completed quarter, was also hurt by higher freight costs,
a problem facing many retailers. Kohl's warned that higher shipping
costs in the holiday quarter would be a drag on margins.
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 Walmart and Macy's were down about 3% Tuesday
morning, while Amazon was flat.
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 lingerie brand. Wedding
gown retailer David's Bridal filed Monday for bankruptcy
protection, cutting $400 million in debt while it restructures
operations.
Some retailers are 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.
Retailers have been raising wages to attract talent in the tight
labor market 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 11:39 ET (16:39 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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