Discount clothing retailer Ross Stores and department-store chain Kohl's became the latest retailers to cut financial forecasts on Thursday, as the industry grapples with a broader consumer pivot to essentials while prices remain elevated.
Second-quarter earnings for both chains were mixed. Kohl's said rising prices strained spending for its middle-income shoppers. Ross, which reported after the close, noted "an increasingly promotional retail environment."
On Wednesday, discount clothing and home-goods retailer TJX also reported mixed results and cut some forecasts. Retail stocks were broadly down on Thursday.
The retailers report as Wall Street tries to gauge how much room consumers have to spend on items like clothing and home decor, after pandemic stimulus spending an array of supply constraints drove prices higher over the past two years. The stimulus aid also helped boost retailers' results last year, presenting touch comparisons this year and challenges in anticipating shifts in consumer demand.
Ross Stores Earnings
Ross Stores earned $1.11 per share. That was above estimates for $1. Revenue of $4.583 billion came in below estimates for $4.617 billion. Same-store sales fell 5.9%, according to FactSet, in line with estimates.
Ross said it expected full-year earnings per share of $3.84 to $4.12. In May, it forecast a profit range of $4.34-$4.58 per share. The company also forecast falling same-store sales for the third and fourth quarters.
CEO Barbara Rentler said in a statement that results were hit by "mounting inflationary pressures our customers faced as well as an increasingly promotional retail environment."
Ross Stores stock lost 1% after hours Wednesday. During regular trading, it edged up 0.2%. Shares are trending higher from the start of July but are still below a declining 200-day line.
ROST stock has a 41 Composite Rating and a 54 EPS Rating.
Target on Wednesday reported second-quarter per-share profit that was well below estimates, after efforts to clear inventories. Earlier in the week, Walmart's quarterly results beat estimates after earlier struggles to get a handle on costs and and cut clothing prices to juice more sales.
Kohl's Earnings
Kohl's earnings tumbled to $1.11 a share, below estimates for $1.12 per share. Revenue fell 8.1% to $4.09 billion. That was above estimates for $3.954 billion. Same-store sales fell 7.7%. But that wasn't as bad as Consensus Metrix forecasts for an 8.7% decrease.
"Second quarter results were impacted by a weakening macro environment, high inflation and dampened consumer spending, which especially pressured our middle-income customers," CEO Michelle Gass said in a statement. "We have adjusted our plans, implementing actions to reduce inventory and lower expenses to account for a softer demand outlook."
Kohl's now sees full-year earnings per share of $2.80-$3.20, compared to its prior target of $6.45-$6.85. The retailer said it expected sales to decline 5%-6%, worse than its old outlook of flat to up 1%.
The company, during its earnings call, said it was racing to cut prices and activate other promotions to thin its inventories. Kohl's said it ended up with extra women's apparel. And it found itself with what it said was the wrong assortment of gear for younger customers that it said amounted to "too much fashion, not enough of the basics." The company on Thursday also said it would expand its Sephora offerings to all stores.
Kohl's stock plunged 7.8% in Thursday's regular stock market trading, diving back below its falling 50-day line. KSS stock has a weak 19 Composite Rating. Its EPS Rating is 17.
Kohl's through much of this year and last year has resisted acquisition offers, and dealt with pressure from activist investors who have complained of weak sales results. Those investors have tried to shake up the retailer's board and other operations.
In March, the department store outlined plans to become "the retailer of choice for the Active and Casual lifestyle," including via efforts to overhaul stores, improve its loyalty program and expand its clothing offerings to women.
But in July, after considering interest from more than 25 possible suitors, Kohl's said efforts to reach an agreement on a sale to Franchise Group, the top bidder from that process, had fallen through. The stock has plunged since this spring.
TJX Earnings, Retail Stocks
TJX on Wednesday said it earned 69 cents a share, above FactSet estimates for 67 cents. Revenue of $11.84 billion missed estimates for $12.054 billion.
U.S. same-store sales fell 5%. CEO Ernie Herrman, in a statement, said that figure "came in lighter than we expected as we believe historically high inflation impacted consumer discretionary spending."
He also noted "more softness" in the chain's home goods segment. But the company said that clothing sales in its Marmaxx unit — that is, Marshalls and T.J. Maxx — were positive compared to last year.
TJX Cos. cut its full-year profit outlook, to a range of $3.05-$3.13 from $3.13-$3.20. And it lowered its U.S. same-store sales outlook, to a decline of 2% to 3%. Earlier, it expected a 1% to 2% gain. The company raised its full-year outlook for pretax profit margin.
TJX lost 0.7% during the regular session on Thursday.
The stock's Composite Rating is 71. Its EPS Rating is 48.
Among other retail stocks, off-price retail rival Burlington Stores fell 0.3% on Thursday. Burlington reports earnings on Aug. 25.
'A Trade-Down Is Coming'
BofA analysts Lorraine Hutchinson and Melanie Nunez, in a research note last week, said demand at retailers took a hit in June and July as customers recalibrated their budgets.
But they said "we think a trade-down is coming" in the second half of the year, following signs of weaker demand at Walmart, Target and Kohl's, as well as at higher-end names like fashion retailer Revolve and sneaker maker Allbirds.
Walmart last month lowered its profit outlook, as it cut prices on items like clothing. Clothing and other general merchandise have become tougher to sell as higher-priced groceries gobble up a greater share of consumer spending. The big-box retailer's forecast followed weak first-quarter results and guidance on May 17.
But, as the BofA retail stocks analysts suggested, off-price retailers stand to gain from their rivals' excess product.
"Inventory availability for off-pricers is better than ever, as retailers are looking to clear out high volumes of excess inventory that they cannot sell or hold," they said.
"The industry is becoming more promotional, but the fact that off-pricers buy most inventory in-season allows them to only buy product if it shows great value versus the current promotional/clearance pricing."
