What's going on?
On a day that saw the US stock market erase what was left of its 2018 gains, retailers Best Buy and Kohl’s managed to avoid the worst of it – but shares of Target and Lowe’s fell by 11% (tweet this).
What does this mean?
All four retailers reported quarterly results on Tuesday. Best Buy’s stock rose 1%, thanks to better-than-expected sales growth and a higher forecast for the rest of the year. Kohl’s fell short of investors’ quarterly profit goal, but increased its prediction for 2018 overall: indulgent investors sent its stock down “just” 4%.
Target also missed: its sales growth and profit were below expectations, partly thanks to higher wages and aggressive price cuts. And Lowe’s didn’t do much home improvement of its own, with sales growth also lower than hoped and spirit levels for the rest of 2018 knocked down. Lowe’s new CEO might have chosen to “kitchen sink”, setting himself a low bar for future success.
Why should I care?
For markets: Thin margins for error.
Investors have been focusing recently on traditional retailers’ sales growth in the face of online competition – and as most have delivered (sorry, Sears), the lens has shifted to profit margins. Companies are spending big on ecommerce and inventory management, but both are expensive and come with heightened costs, like shipping. Getting either wrong can leave retailers stuck with dud stock which they then have to discount in order to sell – meaning lower margins.
The bigger picture: Taking profit, or taking money off the table?
Stock markets fell again on Tuesday, wiping out the last vestiges of 2018’s once-meteoric rise. Some investors may be selling their best-performing stocks, like tech, hoping to lock in profit. Others might be taking advice from the Goldman Sachs analysts who advised clients on Tuesday to put more money into predictable sectors like utilities, or to take it out of stocks altogether. And with some US investors on their Thanksgiving holidays, fewer would-be buyers to match sellers could’ve exacerbated Tuesday’s declines.