Retailer Results Send Mixed Signals on Consumer Spending
Wall St. Journal
Nov 19, 2019
Sluggish sales at Home Depot Inc. and Kohl's Corp. underscored challenges facing retailers ahead of the key holiday season, while growth at off-price retailer TJX Cos. showed that shoppers are still snapping up bargains.
Despite a strong U.S. economy, traditional retail chains have battled for customers as spending moves online and people do more of their browsing on their smartphones and less in the aisles of department stores.
Tuesday's mixed results follow a strong quarterly performance by Walmart Inc., the country's biggest retailer. Last week, the company said traffic to its U.S. stores was increasing and consumer spending was healthy. On Thursday, investors are set to hear from Target Corp., which like Walmart, has been taking market share from weaker chains.
"The winners keep winning and the losers keep losing," said Jefferies Group analyst Randal Konik.
Consumer spending has been helped by low unemployment, rising wages and low gasoline prices. Retail sales rose slightly last month, the Commerce Department said Friday, after a drop in September. Excluding vehicles and gasoline, categories that are often volatile, spending in October rose just 0.1% from a month earlier, as Americans spent less on clothing and eating out.
Executives and analysts said they weren't concerned about a big consumer slowdown. Charles Grom, with Gordon Haskett Research Advisors, noted that despite Home Depot's soft sales in the latest quarter, the chain experienced an uptick in foot traffic and an acceleration in big-ticket purchases. "Those are things that would lead you to believe that we are not heading into a consumer pullback," he said.
Home Depot blamed its disappointing quarterly sales numbers on investments taking longer than anticipated to pay off. The home-improvement chain has been trying to more closely integrate its online business with its network of about 2,290 brick-and-mortar stores over the last few years.
Kohl's is one of several department store chains struggling to attract shoppers. J.C. Penney Co. reported a sharp drop in same-store sales in its latest quarter, while the owner of Sears is closing dozens of locations. Macy's Inc. will report its latest results on Thursday.
Kohl's said comparable sales -- typically those from stores open at least a year -- increased 0.4% from a year earlier in the quarter ended Nov. 2, after several quarters of declines. The increase was less than Wall Street expected, and the chain lowered its profit forecast for the rest of the year.
Kohl's Chief Executive Michelle Gass said August got off to a strong start with a successful back-to-school season, but business weakened in September with unseasonably warm weather hurt demand for fall goods. That prompted competitors to ramp up discounts. Kohl's reacted by stepping up its own promotions, which hurt profit margins but helped it regain sales momentum in October.
"We're going to make the short-term investment in pricing and promotion as we need to, to make sure that we can capture these customers and importantly, get them" enrolled in our loyalty program, Ms. Gass said.
TJX, parent of the TJ Maxx and HomeGoods chains, reported a 4% jump in comparable sales in the quarter ended Nov. 2 and raised its profit forecast for the year. Executives cited strong traffic to its stores and an abundance of merchandise that the discount chain can buy to fill its shelves.
The company scoops up brand-name items at steep discounts from suppliers stuck with too much merchandise as traditional chains lose sales and close stores. In addition, a growing number of brands are making goods specifically for TJX, which is one of the few retailers to post consistent sales growth.
"We are seeing fantastic, widespread availability of quality, branded merchandise and are in a great position to capitalize on these opportunities," CEO Ernie Herrman said.
Home Depot lowered its sales forecast for the year after its third-quarter revenue fell short of Wall Street expectations. Same-store sales were up 3.6% for the period, below the 4.7% analysts were expecting.
Shares of Home Depot, which have rallied about 40% this year, lost 5.4% on Tuesday. Shares of Kohl's fell 19%, while TJX gained about 2%.
Ms. Gass said that despite challenges in the most recent quarter, Kohl's was well positioned for the holiday season. This will be the first holiday that the chain will accept returns of products bought on Amazon.com Inc. in all of its more than 1,100 stores. Ms. Gass said the program is bringing in new and younger customers to Kohl's.
Neil Saunders, managing director of research firm GlobalData Retail, said it was notable that TJX delivered strong sales growth in the face of heavier discounting from full-priced retailers.
"Theoretically, this gives the consumer greater ability to shop around and to snag a bargain," Mr. Saunders wrote in a note to clients. "In practice, however, much of the discounting is occurring at the weaker retailers which consumers are not inspired to visit."
Third-quarter sales at Home Depot rose 3.5% from a year earlier to $27.22 billion. Overall, the company posted net income of $2.77 billion, compared with $2.87 billion a year ago.
Home Depot executives said the number of transactions over $1,000 climbed 4.8% from a year earlier. "The consumer is alive and well," said Richard McPhail, the chief financial officer at Home Depot. "It was one of the most balanced quarters we've had in a long time."
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