Stocks made a comeback on Tuesday, advancing broadly throughout the day. The Dow Jones Industrial Average (DJINDICES: ^DJI) and the S&P 500 (SNPINDEX: ^GSPC) both gained just under a percentage point.
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Today's stock market
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Biotech and retail stocks were particularly strong today. The iShares NASDAQ Biotechnology ETF (NASDAQ: IBB) gained 1.9% and the SPDR S&P Retail ETF (NYSEMKT: XRT) added 1.5%.
As for individual stocks, DSW Inc. (NYSE: DSW) soared on strong shoe sales, but Coty (NYSE: COTY) plummeted on disappointing earnings.
Strong sales propel DSW
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Investors in DSW, parent company of Designer Shoe Warehouse stores, breathed a sigh of relief when the company reported second-quarter sales significantly above expectations, and investors sent shares up 17.5%. The company beat on both top and bottom lines, with sales up 3.3% to $680 million and adjusted earnings per share up 8.6% to $0.38. Wall Street was expecting EPS of $0.29 on $666 million in revenue.
Comparable-store sales grew 0.6%, improving on last quarter's 3% decline and a 7% decline in the last quarter of 2016. Gross profit margin improved by half a percentage point, primarily due to fewer markdowns and improved sourcing, and despite some costs related to last year's acquisition of Ebuys.
"We were pleased to report our first positive comp quarter since 2015. This resulted in a healthy increase in regular priced sales and improvements across all selling metrics," said CEO Roger Rawlins in the press release.
After a disastrous report by Foot Locker last week and continued pressure on mall-based retailers, the market was relieved to see good news from DSW for a change. Despite the big jump in the share price, the stock is still down 13% for the year and below its price in early May, before the company reported its disappointing first-quarter results, indicating that investors are still waiting for more signs that the business is on the upswing.
Coty's quarter wasn't a thing of beauty
Shares of beauty products provider Coty got crushed on news of disappointing profit in its fiscal fourth quarter, falling 9.4% today. Net revenue of $2.24 billion beat expectations by 3.7%, but the company only broke even on adjusted earnings per share, whereas analysts had expected a profit of $0.09.
Coty is in the process of integrating the beauty products business of Procter & Gamble, acquired in a complicated, multibillion-dollar deal that was completed late last year. Comparing Coty's sales this quarter with the sales of the two businesses as separate entities last year, and excluding contributions from other acquisitions, organic net revenue declined 3% on a constant currency basis. The company highlighted a 10% decline in organic revenue in the Consumer Beauty segment, including weakness in the acquired P&G brands, as a particular challenge for sales. Also, fixed expenses in the acquired businesses are turning out to be higher than management expected.
CEO Camillo Pane said in the press release: "Fourth quarter adjusted operating income declined year-over-year as a result of materially higher marketing spend to drive further revenue momentum in our business and to achieve flawless execution at retail for key launches. Profit was also impacted by a higher combined company fixed cost base that we are rapidly working to address as part of our synergy program and organic efficiency initiatives."
Coty management is apparently just now learning about some of the challenges that the acquired P&G beauty business is facing. Whereas the deal gave Coty some strong brands and much larger scale, Coty's recent quarter stood in stark contrast to the blowout success that competitor Estee Lauder announced last week, and gave Coty investors good reason to be concerned.
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