The good news is that no one bombed.
Department stores like Macy's Inc. (M) , Nordstrom Inc. (JWN) and J. C. Penney Company Inc. (JCP) posted less-than-rosy fourth-quarter earnings this week, sending shares tumbling at least momentarily. The only standout was Kohl's Corporation (KSS) , which reported a whopping 6% rise in comparable sales and a new partnership with the supermarket chain Aldi to sublet its extra space in downsized locations. TJX Companies (TJX) , technically not a department store, also posted an impressive quarter, to the dismay of its struggling competitors.
"Fourth-quarter earnings were less buoyant than we expected them to being after a round of really great holiday sales pre-announcement," Susquehanna analyst Bill Dreher told TheStreet on Friday, March 3, pointing to poor sales or profitability in January.
Is Macy's Ditching Retail?
Macy's Chief Financial Officer Karen Hoguet let it fly in the earnings call Tuesday that between 2015 and 2017, the department store raked in $1.3 billion from its real estate holdings. This tidbit, combined with its sales and earnings beat, drove up shares by 12% Tuesday morning. Its latest transaction was for the top seven floors of its Chicago flagship store on State Street, which it sold for $30 million to Brookfield Asset Management, with whom Macy's is redeveloping 50 other properties.
"Macy's is evolving at a glacial pace toward somewhere between a landlord and a REIT. When it comes to its fundamentals [it] operates as a retail business, we're concerned that it'll see ongoing declines in profitability," Dreher said.
Yet if Macy's is leaning into its real estate game, it really ought to try harder: the $30 million price tag for the 700,000-square-foot clocks in at less than $43 per square foot, which is at least seven times less than the asking prices of several commercial properties in downtown Chicago currently on the market reviewed by TheStreet.
Macy's shares were up 4% Friday at the close, trading at $30.41.
Nordstrom Scrapes by Before Going Private
This quarter, Nordstrom gave "both bulls and bears something to talk about in the coming days," Gordon Haskett analyst Chuck Grom wrote in a note, pointing to the Seattle-based retailer's 2.6% same-store sales increase but low earnings per share of $1.20, which missed analysts' expectations.
Given its investments in retail innovation — like its Nordstrom Local stores that don't have inventory — positive top-line growth is all the more impressive. As the retailer prepares to go private in its second attempt, a slightly lower stock wouldn't be the worst thing in the world as the deal price would be more affordable now for lenders to take on.
Nordstrom shares were up more than 5% Friday, trading at $53.04 at the close.
- The Stock of the Company That Owns TJ Maxx and Marshalls is Exploding
- Are Macy's and Other Struggling Retailers Finally a Buy?
J.C. Penney's Tricky Balancing Act
J.C. Penney's shares skyrocketed earlier this year when it announced in January that holiday sales posted a 3.4% increase in comp sales. But that figure, in its fourth-quarter earnings, dropped to 2.6%, largely due to a slump in January during which the company experimented with pricing and marketing strategies and less clearance inventory, CEO Marvin Ellison said.
It seems that Penney may still be dependent on promotions to drive sales, given its abundance of clearance merchandise, followed by low sales in January. Despite the company's plans to expand well-performing product categories, including home and beauty, investors were not pleased Friday. Shares dropped as much as 12% following its earnings release. The stock closed at $3.71 Friday, fluttering downward more than 5%.
Jeffries analyst Randal Konik called the sales increase "two steps forward [but] one step back on gross margins," pointing to the low gross-margin improvements in Q4 despite heavy promotions and store closures.
Kohl's Return to Form
"The only true home run was Kohl's this past quarter," Dreher said, highlighting its new partnership with grocer Aldi. Kohl's, he said, was created as a supermarket in 1946, but eventually sold off its grocery arm to the Great Atlantic & Pacific Tea Company, or A&P, in 1983. This move, coupled with Kohl's sustained growth — its shares increased more than 60% this year —indicates its commitment to generating customer traffic, analysts noted across the board.
"We believe KSS is at the forefront of using data to drive new customer acquisition & retention," Cowen's Oliver Chen wrote in a note Thursday. "We are impressed by 4Q strength and anticipate further momentum in FY18 as KSS continues to roll out and enhance initiatives."
Kohl's posted earnings of $1.99 per share versus the Wall Street expectation of $1.77. It also exceeded the revenue forecast with total sales of $6.78 billion versus $6.74. Its stock closed $66.50 Friday afternoon, with shares up 6%.
TJMaxx, the Market Share Thief
It's no help to the mall anchors that TJX, which operates TJMaxx and Marshalls, posted a killer fourth quarter with continued same-store sales growth.
"TJX is stealing market share in the form of sales and market cap in stock valuation from all the department stores," Dreher said. "It's just completely disturbing their 100-year-old business model."
To put size into perspective, TJX's market capitalization of $52.6 billion is nearly half the market caps of Macy's, J. C. Penney, Nordstrom and Kohl's combined.
The Framingham, Mass.-based discounter reported total sales of $10.96 billion Wednesday morning, exceeding Wall Street projections of $10.76 billion. Its 4% comp sales uptick marks its 22nd consecutive year of growth, according to CEO Ernie Herrman.
TJX shares were up 1% Friday at the close, trading at $83.65.