Shares of several major apparel retailers and department store chains were swinging wildly today after they released their third-quarter reports ahead of the key holiday season. Among the day's most pronounced moves as of 12:15 p.m. ET were drops of 16% and 10%, from American Eagle Outfitters (AEO -0.54%) and Kohl's (KSS -3.30%), respectively, as well as a 21.9% pop from Burlington Stores (BURL -1.03%).
Burlington Stores stock heats up
Burlington Stores stock stood out today after the chain not only posted solid third-quarter results, but also raised its full-year earnings outlook and issued strong preliminary guidance for 2024. On the former, Burlington's quarterly sales grew 12% year over year to $2.285 billion, helped by a 6% increase in comparable-store sales. That translated to non-GAAP (adjusted) net income of $64 million, or $0.98 per share, up from $0.43 per share in the year-ago period. Analysts, on average, were expecting slightly lower earnings of $0.97 per share on roughly the same revenue.
Looking ahead to the rest of the year, Burlington tempered its full-year 2023 guidance to call for total sales growth of 11% (near the lower end of its previous range of 11% to 12% growth). But the company also raised its earnings outlook to call for adjusted earnings per share of $5.72 to $5.87, up from its previous guidance range for adjusted earnings of $5.60 to $5.90 per share.
Burlington CEO Michael O'Sullivan also told investors the company's "2024 working assumption is for total sales growth of approximately 11% vs. 2023" -- well ahead of Wall Street's consensus estimates for growth in 2024 of closer to 8%. O'Sullivan added that the company will provide formal guidance for the coming year along with its next quarterly update in March 2024.
Other retailers issue chilly holiday guidance
Meanwhile, American Eagle is falling despite posting seemingly strong third-quarter results. The apparel retailer's quarterly revenue grew 5% year over year, to just over $1.3 billion, translating to a 16.7% increase in earnings to $0.49 per share. Both figures were above analysts' estimates for earnings of $0.48 per share on revenue of $1.28 billion. What's more, American Eagle also said it expects fourth-quarter 2023 sales to increase in the high single-digit percent range -- also above estimates for sales growth of around 3.4%.
At the same time, however, American Eagle called for fourth-quarter operating income in the range of $105 million to $115 million. Most analysts on Wall Street were looking for operating income of $114 million, near the high end of AEO's guidance.
To be fair, American Eagle management did note that in response to a comprehensive review of its cost structure launched earlier this year, the company has begun margin-expansion initiatives that should yield more significant profit improvements in 2024. But for now, Wall Street hates being told to hurry up and wait for those improvements to materialize.
Finally, shares of department store chain Kohl's are falling today after the company released its own mixed quarter. Kohl's third-quarter net sales fell 5.2% year over year, to $3.84 billion -- well below consensus estimates for $3.91 billion -- hurt by a 5.5% comparable-store sales decline. Quarterly net income dropped to $59 million, or $0.53 per share. That's down from $0.82 per share in last year's third quarter, but also technically above the $0.37 per share Wall Street was expecting.
Meanwhile, Kohl's lowered its full-year revenue outlook, calling for 2023 net sales to decrease in the range of 2.8% to 4% from 2022 (narrowed from its previous guidance for a decrease of 2% to 4%). But Kohl's also increased the bottom end of its full-year earnings outlook calling for a per-share range of $2.30 to $2.70, up from $2.10 to $2.70 before. That wasn't enough to appease this market, however, as most analysts came into this report modeling 2023 earnings of $2.41 per share on a narrower 2.5% revenue decline.
Similar to American Eagle, Kohl's CEO Tom Kingsbury emphasized management's efforts to "reposition Kohl's for improved sales and earnings performance remain in the early stages." Kingsbury added that the company looks forward to seeing the fruits of those initiatives become more apparent in 2024.
What's next for investors in retail stocks?
In the end, it seems as though many retailers are using the current uncertain macroeconomic environment to position their businesses for improved revenue and earnings growth in the coming quarters. But with so many stocks already operating from positions of relative strength, many investors simply aren't willing to bet on retail turnarounds until they see more tangible signs of improvement.
For now, the market obviously isn't taking that focus well if it means retailers must weather near-term weakness in the all-important holiday quarter.
