What's going on?
Major retailer Target hit the spot on Tuesday: both it and rival Kohl’s saw their shares rise over 5% after reporting better-than-expected earnings. Across the Atlantic, however, an update from British department store chain Debenhams caused its stock to fall 3% (tweet this).
What does this mean?
Store-based retailers around the world are all facing the same quandary: how to simultaneously please both their customers and their shareholders. One should take care of the other, since happy customers’ increased spending translates to growing sales and profits – but the high (and rising) cost of satisfying customers’ demands is irksome.
Big spending on digital upgrades like ecommerce, app shopping, and in-store collection helped push Target’s revenue beyond forecasts last quarter – but the amount of profit it made from those sales declined. The same was true of department store chain Kohl’s. Sales at Debenhams, by contrast fell 5% over the last six months.
Why should I care?
For markets: Some US retailers are back on target.
Target’s and Kohl’s higher-than-expected earnings growth guidance for 2019 probably contributed to investors sending their shares higher on Tuesday. Analysts forecast sales across existing US retail stores to grow by 2.8% this year – but slightly below 1% when stripping out the effect of rising prices (a.k.a. inflation), according to FactSet. Investors already expected Target to hit that mark in 2019, although they were less sure about Kohl’s. So they were pleasantly surprised by the company’s own improved sales forecast on Tuesday – which, coupled with cost cutting, should lead to higher profit than previously thought.
Zooming out: Que será, será for Debenhams.
Debenhams’ long flirtation with oblivion continues – and it could still go the same way as Sears. Just two months after saying it was on track to meet investors’ annual profit predictions, Debenhams admitted that advice was “no longer valid”. Despite sales growth improving slightly, convoluted discussions with lenders to save and restructure the company may distract its management from the tricky business of actually selling more stuff.