Earnings

Retail earnings spotlight: How will Home Depot, Kohl’s and TJX share prices fare?

Home Depot [HD], Kohl’s [KSS] and TJX [TJX] announced disappointing earnings on Tuesday, confounding many as they failed to reach analysts’ expectations.

“October retail sales showed acceleration,” Michael Baker, analyst at Nomura Instinet had previously noted, according to the Wall Street Journal. He had pointed out that over the last three months the Commerce Department has noted the best retail-sales figures since Q2 2018.

However, individual share prices have performed somewhat differently this year. Home Depot, for instance, was up 41% year-to-date (YTD) at close 18 November but has suffered a 7% hit following its earnings yesterday. Kohl’s share price on the other hand, has dropped 30% this year, also suffering a 24% drop following its earnings announcement on 19 October. TJX’ share price however, has actually risen 32% YTD through to 19 November. 

-7%

Home Depot share price decline post earnings

Traders are particularly watching out for cost cutting trends and how the US-China trade tensions have impacted consumers’ appetites ahead of the critical holiday shopping period.

 

Home Depot cuts 2019 forecast for second quarter in a row 

The home improvement retailer reported earnings that missed Wall Street’s expectations on Tuesday, sending its stock price down by 5.4% on 19 November.

Total revenue of $27.22bn and same-store sales growth of 3.6% missed forecasts, with analysts at Refinitiv expecting $27.53bn and 4.7% respectively. The company said that recent investments have yet to materialise in sales.  

“We are largely on track with these investments and have seen positive results, but some of the benefits anticipated for fiscal 2019 will take longer to realize than our initial assumptions,” CEO Craig Menear said in a statement. 

Earnings, on the other hand, came in a penny better than expected at $2.53 per share compared to the forecasted $2.52.  

Home Depot still lowered its full-year same-store sales guidance from 2.3% to 1.8%, however. 

The company had already lowered its outlook for the year in the previous quarter, citing potential tariff impacts and lumber deflation as contributing factors. However, Oppenheimer analyst Brian Nagel told CNBC: “The lumber price issue is not as big a deal anymore, weather has been favourable and then we have this, what I have been really been excited about, is this improving overall housing environment.”

 

Kohl’s highlights department store blues 

The entire department store sector has been under pressure amid retail’s push to online, but Kohl’s Q3 quarterly earnings miss and lowered profit outlook could signal further trouble. 

The retailer reported results that missed analysts’ expectations for earnings, same-store sales and revenue, posting a 0.1% year-over-year fall in revenue to $4.6bn. Shares in the retailer plummeted more than 19.4% on 19 November. 

The slump has led it to a change in guidance for expected adjusted earnings per share of $4.75 to $4.95 for fiscal year 2019, considerably lower than the $5.19 analysts expected, according to CNBC.

While CEO Michelle Gass was positive about the upcoming holiday period, CNBC notes that Kohl’s efforts to launch its own brands, pop-up stores and use celebrity partners to spark a buzz does not appear to be bearing fruit.

 

TJX holiday guidance falters despite positive earnings 

Off-price retailers have surprisingly managed to maintain their position in the market as the wider retail sector shifts to online and TJX’s Q3 earnings results reflect that. 

The department store operator reported stronger-than-expected results. Net sales grew 6% year-over-year to $10.5bn, diluted earnings increased 11% to $0.68 per share and store sales were up 4%. 

The sales beat lifted its shares as much as 2% in early trading, however, its forecasted earnings of between $0.74 and $0.76 for Q4 came in below analysts’ expected $0.77, according to Investor’s Business Daily.

 

What next?

With Target, Macy’s, Lowes, Gap and Nordstrom having reported or reporting throughout this week, as well as the US government’s October retail sales report being released, there is an expectance of further divergence in stock prices.

Meanwhile, strong longer-term trends and a robust labour market in the US suggest that retail ETFs could be on the cusp of a breakout ahead of this holiday season, according to Investopedia.

However, currently the SPDR S&P retail ETF was barely unchanged throughout the third quarter however, climbing just 0.5% between 1 July and 30 September.

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