Shares of Target (TGT) and Kohl’s (KSS) are sliding after the retailers reported quarterly results. While the former generated as much revenue as was expected, it fell short on earnings as the company spent more on higher wages and on its same-day delivery services. Nonetheless, the company is confident it could reach its earlier full-year outlook as it hopes investments will help compete against Amazon (AMZN) and Walmart (WMT) during the holiday season. While Kohl’s earnings per share and revenue for the third quarter topped expectations and the retailer raised its profit forecast for the year, the new view was still on the low end of what Wall Street had expected.
TARGET OPTIMISTIC ON PROFITABLE GROWTH AHEAD: This morning, Target reported Q3 adjusted EPS of $1.09, below consensus of $1.12, and revenue for the quarter of $17.8B, which was in-line with expectations. The company also said that Q3 sales growth included a 5.1% increase in comparable sales and a 0.6 percentage point contribution from non-mature stores. Comparable digital channel sales grew 49% and contributed 1.9 percentage points of comparable sales growth. Target said it sees fourth quarter same-store sales up about 5% and FY18 adjusted earnings per share between $5.30-$5.50, with consensus at $5.41. During the company’s earnings conference call, CEO Brian Cornell said that Target is benefiting from "healthy traffic and sales growth" in stores along with digital channel sales that "continue to grow rapidly." "Now we've been clear that all of our efforts to grow and transform Target involve a commitment of resources, which explains why I've already used the word investment five times in these remarks. […] While we are not providing 2019 financial guidance on the call today, I will say that we are optimistic about our ability to deliver profitable growth next year and beyond," Cornell said. Commenting on the company’s results, Baird analyst Peter Benedict acknowledged Target's earnings shortfall but said sales remain strong with digital growth continuing to accelerate. While he noted that gross margins were soft, reflecting higher digital fulfillment costs and other supply chain expenses, the analyst remains encouraged by its continued top-line momentum and said he is inclined to buy the shares on the pullback.
KOHL’S BEAT AND RAISE: Kohl’s also announced earnings this morning. The retailer reported Q3 EPS of 98c and revenue of $4.63B, both above consensus of 96c and $4.36B, respectively. Kohl’s also said third quarter same-store sales were up 2.5%. Further, the company raised guidance and now expects its fiscal 2018 diluted earnings per share to be $5.16 to $5.36, compared to its prior guidance of $4.96 to $5.36. Excluding the loss on extinguishment of debt, fiscal 2018 diluted earnings per share is expected to be $5.35 to $5.55, compared to prior guidance of $5.15 to $5.55.
BEST BUY RAISES GUIDANCE: Best Buy reported this morning Q3 earnings per share of 93c and revenue of $9.59B, both above consensus of 85c and $9.57B, respectively. The company also said enterprise comparable sales were up 4.3%. Additionally, Best Buy raised its FY19 EPS view to $5.09-$5.19 from $4.95-$5.10, and said it sees FY19 enterprise revenue of $42.5B-$42.9B and FY19 enterprise comparable sales growth of 4.0%-5.0%. For Q4, the company expects earnings per share between $2.48-$2.58, Enterprise revenue of $14.4B-$14.8B, and enterprise comparable sales growth of 0.0%-3.0%. Hubert Joly, Best Buy chairman and CEO, said, "The holiday season is here, and our team has put together a best-in-class assortment, prepared an amazing set of deals, and ensured we have great inventory availability across all the product categories we carry. In addition, we have continued to enhance our digital shopping experience and further improved our shipping speed, allowing us to delight customers with fast and free delivery."
PRICE ACTION: In morning trading, shares of Target and Kohl’s have slipped 9.2% to $70.03 and 8.5% to $64.94, respectively. Meanwhile, Best Buy’s stock has gained about 2% to $63.43.
Target
-6.99 (-9.06%)
Kohl's
-5.49 (-7.76%)
Best Buy
+2.71 (+4.36%)
Amazon.com
+8.12 (+0.54%)
Walmart
-2.6 (-2.69%)