Today's stock market
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Real estate was a bright spot in the market, with the iShares US Real Estate ETF (NYSEMKT:IYR) up 0.8%. Consumer discretionary stocks continued their recent slide, with the Consumer Discretionary Select SPDR ETF (NYSEMKT:XLY) losing 0.9%.
Two more retailers reported earnings in the past day. Lowe's Companies (NYSE:LOW) reported sales gains that failed to match those of its principal rival, while American Eagle Outfitters (NYSE:AEO) beat expectations.
Lowe's fails to meet profit expectations
Shares of home improvement chain Lowe's fell 3.7% after the company reported disappointing earnings in the second quarter. Revenue, up 6.8% from last year to $19.5 billion, was generally in line with expectations, but adjusted earnings per share were up 14.6% to $1.57 when Wall Street was looking for $1.61.
Sales at comparable stores grew a respectable 4.6% in the quarter, up from 1.9% growth in the first quarter, and accelerated during the quarter, with a 7.9% gain in the month of July. For Q2, transactions grew 0.9% and the average ticket grew 3.6%. Particularly strong were sales of big-ticket items such as appliances, with comparable sales of items costing over $500 growing 7.1%. Profit was impacted by increased spending on advertising.
Nevertheless, company management expressed disappointment in the results, saying in the conference call that changes to the core staffing model in stores constrained sales growth, and whereas increased ad spending increased store traffic, sales growth should have been higher than it was. "While our results were below our expectations in the first half of this year, the team remains focused on making the necessary investments to improve the customer experience and drive sales," said CEO Robert Niblock in the press release. "This includes amplifying our consumer messaging and incremental customer-facing hours in our stores which will put pressure on our operating margin."
Despite decent sales growth, Lowe's results suffered in comparison to those of competitor Home Depot, which last week reported comps of 6.3%. Lowe's also didn't raise its forecast of full-year comp growth of 3.5% and revenue growth of 5% -- and lowered its 2017 EPS guidance, whereas Home Depot raised its guidance.
Less-bad is good for American Eagle
American Eagle provided some rare cheer to investors in teen fashion retail by reporting second-quarter results that beat low expectations, and the stock rose 7.7%. Revenue grew 3% to $845 million on comparable store sales gains of 2%. Adjusted earnings per share came in at $0.19, down from $0.23 last year. The analyst consensus was for earnings of $0.16 on sales of $824 million.
Gross margin in the quarter declined from 37.3% last year to 34.9% due to increased promotional activity. Net margin fell to 2.5%, less than half of last year's 5.1%.
"In the second quarter, we achieved sales and earnings above our expectations in a challenging retail environment," said CEO Jay Schottenstein in the press release. "Sales trends improved and I'm proud of the continued growth in jeans, bottoms, women's apparel and Aerie, with encouraging signs in men's tops beginning to emerge."
The environment for mall-based retailers in general, and teen fashion specifically, has gotten so challenging that at this point very low expectations are built into the prices of stocks like American Eagle. Today's results showed why some investors are beginning to think that American Eagle may represent a good value if it can continue to show any growth at all.