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Most apparel-focused retailers have had a rough time over the past few years, bearing the brunt of declining U.S. mall traffic. However, No. 2 department store chain Kohl's (NYSE: KSS) and off-price leader TJX Companies (NYSE: TJX) have been able to outperform most of their rivals, partially due to their focus on non-mall store locations.
On Tuesday morning, Kohl's and TJX demonstrated that their success is continuing this year. Both companies reported strong first-quarter results, with sales and earnings coming in ahead of analysts' estimates and the companies' own forecasts.
Kohl's continues its resurgence
In the fourth quarter of fiscal 2017, Kohl's posted a stunning 6.3% increase in comparable-store sales. This represented a remarkable turnaround after several years of flattish comp sales results. However, investors have been skeptical that Kohl's could maintain its momentum in 2018.
Kohl's confounded the skeptics by achieving a 3.6% comp sales increase last quarter. This was particularly impressive because the company -- like many of its competitors -- was negatively impacted by unseasonably cold weather at the beginning of the spring selling season.
Gross margin rose by 0.5 percentage points in the first quarter, reaching 36.9%, helped by Kohl's strong sales performance and superb inventory management. Meanwhile, operating expenses rose 3.7%, driven by investments the company is making to drive future growth. Kohl's outperformed its own forecasts for both gross margin and operating expenses.
Kohl's first-quarter results exceeded management's expectations on all fronts. Image source: Kohl's.
The net result was that adjusted earnings per share soared 65% year over year to $0.64. This was far ahead of the company's EPS forecast of $0.45 to $0.50 and the average analyst estimate of $0.50. Additionally, Kohl's boosted its full-year EPS guidance range from $4.95-$5.45 to $5.05-$5.50 on the back of this Q1 earnings beat.
A return to form for TJX
TJX also posted strong sales and earnings results last quarter, following an uncharacteristically sloppy performance last year (TJX's fiscal 2018).
Comp sales rose 3% in the first quarter of fiscal 2019, ahead of the company's forecast of 1% to 2% growth. In the key Marmaxx segment -- which includes T.J. Maxx and Marshalls stores in the U.S. -- comp sales growth was even stronger at 4%. Total sales surged 11.6% to $8.69 billion. Sales growth probably would have been even better if weather trends had been more favorable.