Retail Revival Underway: Earnings This Week

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Remember when everyone thought traditional retailers were going extinct? This week’s earnings reports may have destroyed that narrative.

“This is the healthiest environment I have ever seen,” Target (TGT) CEO Brian Cornell told CNBC as his stock shot into record territory yesterday. “We’ve never seen traffic growth like this.”

Wall Street found a lot to applaud in the big-box merchant’s numbers, with profit, revenue, same-store sales and guidance all blowing past estimates. The good news resulted from a combination of positive macro and micro conditions.

The macro conditions are strong consumer confidence, robust employment and a generation of young adults hitting their prime as consumers and parents. Just today, for instance, initial jobless claims fell more than expected to remain near their lowest levels since the late 1960s.

Micro conditions are at the company level. How are business models evolving to survive in a world of Amazon.com (AMZN) and online shopping? TGT has answered that question by investing in e-commerce, shrinking stores and rolling out new clothing brands for millennials. Will those strategic moves keep paying dividends into the holidays?

Higher-end retailer Nordstrom (JWN) followed a similar path. Its shares also spiked to a new multi-year high after an aggressive push into the Internet drove results and guidance past expectations. As we said last week, investors simply love turnaround stories. Innovation makes the world go round.

Still, more traditional retailer TJX (TJX) continued its steady plod higher. “Customer traffic was once again the primary driver,” CEO Ernie Herrman said in the press release. “We have been attracting new customers to all our divisions, a significant share of whom are younger customers.”

Correction: Innovation — and millennial shoppers — make the world go round.

Others that rallied on strong results included home-improvement chain Lowe’s (LOWE), furniture seller La-Z-Boy (LZB) and kitchenware chain Williams-Sonoma (WSM). Firms like Kohl’s (KSS) and Urban Outfitters (URBN) encountered a mixed reaction.

And, of course, there were losers. L Brands (LB), the troubled parent of Victoria’s Secret, continued its spiral downward after issuing weak guidance for at least the third time this year. Cosmetics company Coty (COTY) also tumbled, along with food companies Hormel (HRL) and JM Smucker (SJM). Revenue missed. Revenue missed. Revenue missed.

There were also strong names in housing, health-care and tech. Luxury home builder Toll Brothers (TOL) beat on the top, bottom and order lines. Medical-device maker Medtronic (MDT), the target of bullish call buying in late June, ripped to new highs after profit and revenue surpassed consensus. Ditto for Synopsys (SNPS), which provides technology for automation. China e-commerce giant Alibaba (BABA) also leapt on strong numbers.

Speaking of tech, there was one noteworthy loser: Semiconductor-equipment firm Applied Materials (AMAT) dropped about 10 percent on weak guidance. Is it just me, or has there been a lot of sickly wheezing from the chip space?

In conclusion, earnings season is pretty much finished. And it ended on a positive note thanks to retailers and a strong consumer.

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