Rich Retail Trade Working, But Low-End Leading To Losses

Betting on the rich is working for retail stock traders this earnings season. Banking on budget stores, however, has proved a relatively bad idea.

$TIF just raised it FY guidance on earnings and revenue. Luxury market is still performing 3x-over generic retailers. Shares up 7%.

— Pierce Crosby (@CrosbyVenture) May. 21 at 08:15 AM

Perhaps no two retailers illustrate this point more than Tiffany, $TIF, and Target, $TGT. Both stores were among the top trending tickers on Wednesday morning after reporting first quarter earnings before the bell.

Tiffany’s earnings were as flawless as a perfect cut diamond. The luxury jewelry retailer reported $0.97 EPS on $1.01 billion in sales, well-surpassing analyst consensus estimates for $0.78 EPS on $955.05 million in revenues. Tiffany’s also raised full year EPS guidance to between $4.15 and $4.25 from a prior forecast of $4.05 and $4.15.

Tiffany’s earnings report was packed with justifications for management’s bullishness. Tiffany reported sales growth acceleration. Excluding the impact of foreign exchange, sales increased 15% in the quarter from the same period a year ago, according to the report. Comparable store sales jumped 11%. For comparisons sake, Tiffany’s saw 10% sales growth in the fourth quarter, compared to the prior year, excluding the impact of currency exchange rates.

Japanese customers in particular couldn’t wait to buy something in a little blue box. Sales in Japan climbed a currency-neutral 29% to $174 million. Same-store sales rose 30%.

Strength at Cartier & Tiffany shows growth opp for branded jewellery in mostly unbranded market is among best in #luxe. $TIF

— Rahul Sharma (@retail_guru) May. 21 at 07:19 AM

Tiffany shares opened 9% higher. Excluding today, the stock is up 2% in the past month.

Target’s earnings, on the other hand, disappointed. The budget-friendly retailer reported $0.70 EPS on $17.05 billion in revenue. Those numbers missed consensus EPS predictions by a penny, but edged past sales estimates, according to stats on the Analyst Ratings Network. Same-store sales fell 0.3%.

$TGT is going all $JCP on us. Set the bar low enough and anyone can succeed. Reports 16% drop in Q1 profit.

— Anne (@abubnic) May. 21 at 08:55 AM

The results showed that the budget retailer is still struggling to regain its footing after last year’s data breach, which exposed millions of customers credit card numbers to hackers—ultimately resulting in the resignation of Target’s CEO Gregg Steinhafel. Target has also suffered from a disappointing Canadian launch, which led to the firing of Canadian operations head Tony Fisher Tuesday. And if luxury retail results are any indication, Target may also be feeling the pinch of higher-end consumers trading up.

$TGT yep moving to Canada was a bad move which will keep on giivng… sort of a money pit

— Old Turkey (@Partridge) May. 21 at 08:20 AM

Though Target missed, results ultimately weren’t as bad as most had predicted. The firing of Steinhafel and Fisher had many expecting a terrible quarter that would be blamed on the leadership—or lack thereof—of the two men. The stock is down nearly 6% since Target fired Steinhafel. It opened 0.6% higher Wednesday.

my 1st take on Target, more to come: Target’s Canadian sales surge in first quarter but loss widens $TGT

— marina strauss (@MarinaStrauss) May. 21 at 09:29 AM

Target and Tiffany confirm the relative strength of the high-end trade. Retailers that topped EPS expectations last quarter include Nordstrom, $JWN, and Bloomingdale’s owner Macy’s, $M. Meanwhile, budget stores such as WalMart, $WMT, and Target, $TGT, have missed consensus EPS estimates.

As tough as rest of US retail is, high-end still spending away in Q1. From Estee to Tiffany & Nordy to Victoria's Secret $EL $TIF $JWN $LB

— Rahul Sharma (@retail_guru) May. 21 at 07:06 AM

Investors say the strength of high-end store results are leading them to bet on other luxury retail brands, namely Michael Kors, $KORS. The company reports earnings on May 28, before-the-bell.

with $TIF and $JWN beating on earnings, i am more and more convinced that $KORS will beat

— will hassell (@WillHassellws) May. 21 at 09:03 AM

But few watching the retail numbers would want to load up on cheaper brands.

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