Kohl’s earnings miss echoes Target’s warning on inflation

Yahoo Finance Live anchors discuss the retail slump among Khol’s, Target, and Walmart.

Video transcript

- Next up on our list, and perhaps maybe causing investors to not go out there and aggressively nibble, is retail earnings, next up on our list here. And they weren't-- they continue to not be good. Out this morning, Kohl's, and out last night, Bath Body Works, keeping both of these companies out here, reducing their full year profit estimates, just like we heard from Walmart and Target.

I'll start with Kohl's here because it is the fresher of the stories, and it's a fan favorite of mine. Company lowering their full year profit guidance of $6.45 to $6.85 a share. Previously, these guys were looking for $7 to $7.50 a share. The company acknowledged a disappointing end to the quarter at the latter stages of April. Heard that, of course, from the likes of Home Depot and Lowe's this week, and then of course, obviously, Walmart and Target.

But bottom line is here, just looking at some of the notes starting to come in here from Wall Street on this Kohl's, a terribly mismanaged situation at the company. Here's a company, guys, that is in the process of trying to sell itself, and now coming out here with a major profit warning. Theoretically, this deal should have been done months ago before they came out here and warned. So you really have to wonder if Kohl's does in fact sell itself, and they did talk a little bit about that in the press release. What price could they get after exiting in a quarter with inventory up 41% and another profit warning. Not a good look.

- You know, something interesting that we've continued to see within retail is that they are passing costs onto the consumer, but not all the costs. This showed up within Walmart's earnings, within Target's results as well. Walmart particularly here, if I call that into the conversation, you saw the actual ticket prices as well as sales move higher by about 3% year over year. But the operating margins at the end of the day, that operating income, that actually decreased by about 23%.

And so that particularly coming into focus here as we move forward and really evaluate the broader retail sector and where, on the wage front, on the inventory front. They're navigating very direct headwinds that they're all facing right now. And quite frankly, looking back at yesterday's activity, there's no reason to believe that would not permeate into today's trade as well, as there has been this broader heavy selling within even some of those staples.

Many of them, as we do know Walmart, and we're going to talk about BJ's a little bit later on as well, there is this persistent thought that maybe, in an environment like this, in a either pre-recessionary or recessionary in the minds of consumer environments, that they might lean towards bulk. And I think that's where it's started to show up in the details for Walmart and Sam's Club, that 10% year over year growth. But then, additionally, moving forward from here for BJ's and what they were able to see, pre-market, that stock's higher, too.

- Yeah, although we're seeing some of the other retailers like Bath and Body Works and Children's Place that reported that are sharply lower. And Soz, it's interesting what you talked about in terms of the consumer spending concerns here because a lot of the commentary that I'm seeing in the wake of Walmart, in the wake of Target, and as we process some of the smaller retailers, Kohl's included this morning, is that it's not necessarily a consumer spending pullback. It is a shift.

Even at Target, it was the mixed shift that was challenging. In other words, consumers buying a different mix of stuff. Target was caught basically completely unprepared for that, right. It didn't-- it had its inventory mismanaged for that.

And as we see people go out and spend on restaurants and on travel-- we have seen, obviously, demand for travel up huge-- part of it is, yes, we are seeing, particularly the lower income consumers, perhaps a straight up pullback. But I think everyone else, it's a mixed shift into other things. And the retailers who had gotten in this pandemic mindset of build up inventory, now are really having to adjust and adjust very quickly.

- Right. And a shift from goods to services as some of our market guests have continued to break down, too. We'll see exactly what that means for those inventory levels and moving through those as well.