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Target Soars In Q3, But Doldrums Persist For Kohl’s, JCPenney

  • Written by  Glenn Taylor
Target Soars In Q3, But Doldrums Persist For Kohl’s, JCPenney

Target is continuing its quarter-after-quarter surge into the 2019 holiday season, beating Wall Street estimates in earnings, total sales and same-store sales. The star of Q3 is its same-day delivery services, which accounted for 80% of the company’s 31% digital sales growth.

But the great news at Target comes alongside lingering disappointments for major department store chains, once again suggesting that there is a major gap between retail’s winners and losers — one that doesn’t appear to be closing any time soon. Kohl’s cut its full-year guidance from a prior range of $5.15 to $5.45 per share to $4.75 to $4.95 per share for fiscal 2019, the second time the department store has cut the forecast this year. While Kohl’s 0.4% same-store sales increase seems paltry, that number looks like a major success when put next to the 9.3% same-store sales decline at JCPenney.

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Target same-store sales were up 4.5%, better than the expected growth rate of 3.6%. Net income grew to $714 million, or $1.39 per share, compared with $622 million, or $1.17 per share a year ago. Target now expects full-year adjusted earnings per share (EPS) to fall within a range of $6.25 to $6.45, compared with a prior estimate of $5.90 to $6.20 per share. Target’s stock has rallied nearly 88% this year. 

“With inventory levels down around $1 billion year-over-year, Target is well-positioned for holiday, and will therefore be able to avoid excessive promotions this season,” said Charlie O’Shea, VP and Lead Retail Analyst at Moody’s in commentary provided to Retail TouchPoints. “Target continues to validate the efficacy of the strategic initiatives it outlined in February 2017, with the execution of this plan resulting in significant improvement in its credit profile.”

While there have been profitability concerns attached to the retailer’s recent investments, namely in fulfillment, Brian Cornell, CEO of Target, told CNBC that when Target fulfills an online order from the back of its stores versus shipping from a distribution center, nearly 40% of the cost goes away. Cornell said this cost decrease jumps to 90% when customers buy online and pick up at a store, use curbside pickup or select shipping via Shipt.

Apparel Weakness Remains Bad News For Kohl’s

Target also has seen success in an area where department stores are underperforming — apparel. The retailer noted that same-store sales of apparel jumped 10% in Q3 — a big deal for Target since apparel represents more than 20% of its annual sales. Kohl’s cast blame for its revenue and earnings misses on an “increasingly competitive promotional environment” and warmer weather at the start of the fall season, but perhaps worse for the brand was that its vital women’s apparel business saw 1% sales declines in Q3, underperforming its other segments. Wall Street investors were not impressed, with Kohl’s stock dropping more than 19% the day the earnings report was announced.

“Apparel was a very weak category with consumer demand down and retailers pushing up discounting to try and stimulate sales,” wrote Neil Saunders, Managing Director at GlobalData Retail in a research note. “Like others, Kohl’s felt the cold wind of this and struggled to generate growth. It also had to response to increased promotional activity in the market which helped to erode margins and profits.”

Despite both Kohl’s and JCPenney’s attempts to reinvent themselves in their own ways, the retailers and their department store counterparts still can't dodge intense pressures from Target, Walmart and Amazon, as well as fast-moving digital natives and discount chains like TJX and Ross Stores. Macy’s and Nordstrom report earnings later this week, but the former hasn’t helped itself ahead of the holiday season, suffering an online payment data breach that may have resulted in stolen shopper data.

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