Which Retailers Are Cashing In On Strong Holiday Sales?

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Last year was a tough one for many major retailers. But as retail spending surged in November and December, comparable sales growth recovered for Kohl's (NYSE: KSS), Target (NYSE: TGT), and J.C. Penney (NYSE: JCP). Even Macy's (NYSE: M) and Nordstrom (NYSE: JWN) managed to see growth again.

In this episode of Industry Focus: Consumer Goods, the cast looks at how strong sales will impact fourth quarter profitability at these retailers. Kohl's dramatically raised its earnings per share guidance earlier this month, and several of its peers are raising their own forecasts, too.

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A full transcript follows the video.

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This video was recorded on Jan. 16, 2018.

Vincent Shen: We've covered a range here of some of the names that we talked about on that previous show in November, following up, giving a progress report. Overall, a lot of the retail industry group, some of the various research firms, had expected about 3.5% to 4% increase in consumer spending, a strong holiday. We're seeing that come through for most of these companies. Let's talk a little bit about, on the earnings side and profitability side, on the bottom line. I've seen a lot of guidance changes, guidance updates, not only for 2017, for the full year -- a lot of these quarters are ending at the end of this month -- but also for 2018 as well, a little bit more optimism in the results from these management teams. What are you seeing there?

Adam Levine-Weinberg: Kohl's, not surprisingly, given that 6.9% comp sales increase, increased their full-year guidance by about 9%. That's pretty remarkable, in the last month of the year, to raise your full year guidance by that much. That doesn't even include the impact of tax reform, which will probably give another 1% or 2% of growth in fiscal 2017. Most of the benefit of tax reform will actually come in fiscal 2018, when it will probably provide an additional 20% boost to earnings per share just because Kohl's, and many of these other retailers we're talking about today, is a full taxpayer under the old system. So they were paying about 37% to 38% a year. That's going to go down to maybe 23%. That's a really remarkable change in tax rate and really big savings. Target, also very strong comp sales results. Target raised its guidance by about 4% for the full year. That does include a small benefit from tax reform.

Looking at Macy's and Nordstrom, they also updated their guidance, and they were a little bit more conservative. They said guidance was going to be at the high end of the previously provided ranges in both cases. It's not surprising that they're not beating those guidances, just because they didn't have the same level of comp sales growth. As you recall, they were both up about 1%. Then, finally, you have JCPenney, which had 3.4% comp sales gain but did not update its earnings guidance. We'll have to wait and see there. It's possible that the original guidance was just pretty aggressive. It's also possible that JCPenney doesn't want to update the guidance until they're sure. It's also possible that they had to do more discounting to drive that sales growth. We'll just have to wait and see how they got that kind of sales growth.

Shen: Yeah, we'll definitely have a little bit more color to share. A lot of these companies will be reporting in the next month or two.

Adam Levine-Weinberg owns shares of J.C. Penney, Kohl's, Macy's, and Nordstrom. Vincent Shen has no position in any of the stocks mentioned. The Motley Fool recommends Nordstrom. The Motley Fool has a disclosure policy.

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