U.S. retail giants Macy’s (NYSE: M) and Kohl’s Corp. ( KSS) reported strong second-quarter earnings numbers on Thursday, but the market wasn’t buying it. The two retailers topped Wall Street’s expectations for the quarter, but the stocks plummeted on Thursday as investors see little reason for long-term optimism.
Macy’s reported adjusted earnings per share of 48 cents on revenue of $5.55 billion. Both numbers topped consensus analyst forecasts of 46 cents and $5.52 billion, respectively.
Same-store sales fell 2.5 percent, better than the consensus forecast of a 3.2 percent decline.
Despite the Q2 beat, Macy’s reiterated its full-year guidance for a total sales decline of between 2.2 percent and 3.3 percent. The retailer expects full-year EPS between $3.37 and $3.62.
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Kohl’s also exceeded Wall Street expectations on both the top and bottom lines. Kohl’s reported Q2 EPS of $1.24 on revenue of $4.14 billion. Analysts were anticipating EPS of $1.19 and revenue of $4.13. Kohl’s same-store sales were down 0.4 percent compared to consensus estimates of a 1.5 percent decline.
Macy’s shares declined more than 4 percent in early Thursday trading, while Kohl’s shares plummeted 8 percent. Market reaction to the reports was likely fueled by declining sales. Kohl’s total revenue was down 1 percent, its sixth consecutive quarter of year-over-year declines. Macy’s revenue was down 5.4 percent and has declined at least 4 percent in each of the past eight quarters.
“The revenue numbers are incredibly important,” TD Ameritrade chief strategist JJ Kinahan says of the retail sector earlier this week. “If they miss on earnings because of expenses on real estate, that will be forgiven. What won’t be forgiven is missing on revenue and not looking like you have a plan in the short term.”
Retailers have been cutting costs to become more efficient. Macy’s is in the process of closing another 100 stores in 2017.
CNBC analyst Jim Cramer says Macy’s is a lower-risk choice than Kohl’s for investors betting on a retail turnaround. “This is a lower-risk bet because they have cash flow to be able to pay back their debt and [6.8 percent] dividend and they’re closing underperforming stores,” he says.
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Retail investors will now be shifting their attention to J.C. Penney Co. ( JCP) earnings expected out before the market open on Friday.
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Macy’s, Kohl’s Revenue Continues to Slide originally appeared on usnews.com
