Today's stock market
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Investors sought relative safety in high-yielding utility stocks again today, with the Utilities Select SPDR ETF (NYSEMKT:XLU) gaining 1.2%. Energy stocks were hit hard on a 2% decline in the price of crude oil; the SPDR S&P Oil & Gas Exploration & Production ETF (NYSEMKT:XOP) plunged 3.5%.
Retail companies continue to turn in mixed results for the third quarter. Investors saw something to like in the report from Advance Auto Parts (NYSE:AAP), but TJX Companies (NYSE:TJX) didn't quite make the grade after a miss on the top line.
Advance Auto Parts soars on profit surprise
Shares of retailer Advance Auto Parts soared 16.3% today after the company announced third-quarter earnings that trounced expectations. Adjusted earnings per share were $1.43, down 17% from the period last year, but well above the $1.21 that analysts were expecting. Sales fell 3% to $2.18 billion, which missed expectations of $2.21 billion.
Comparable-store sales declined 3.4%, compared with a decline of 1% in the period last year and flat growth last quarter. Gross margin declined from 43.9% last year to 43.4%, and adjusted operating income margin fell from 9.7% to 7.9%. The company maintained previous guidance for full-year same-store sales.
"We continue to take steps to build the foundation for future growth," said CEO Tom Greco in the press release. "We executed key transformational initiatives, including a complete restructure of our field operations and professional sales leadership teams."
With declines in sales, margins, and earnings, one might be tempted to think the quarter was less successful than the movement in the stock price would imply. But Advance Auto Parts did continue to make progress in reducing inventory and actually grew free cash flow from last year. With a stock that had plunged 51% in 2017 up to yesterday, expectations had simply gotten so low that the beat on bottom line was good enough for investors.
TJX falls following sales miss
Off-price retailer TJX reported third-quarter results that met expectations for earnings but missed on the top line, and the stock slumped 3.9% on the news. Sales increased 5.7% to $8.76 billion and EPS jumped 20.5% to $1.00. Wall Street analysts were expecting sales to come in at $8.86 billion.
Same-store sales were flat, compared with a gain of 5% last year and 3% in the second quarter. Weather played a role in the results, with the hurricanes and other adverse events knocking 2% off the results of the Marmaxx division (TJ Maxx and Marshalls). Looking ahead, TJX forecast Q4 comparable-store sales growth of 1% to 2% and adjusted EPS to increase 11% to 13%. For the full year, the company expects earnings to tick up 13% to 14%.
"While sales were not as strong as we would have liked, we were pleased that sales trends at Marmaxx improved as the weather turned more seasonable," said CEO Ernie Herrman in the press release. "Further, customer traffic, or transactions, were strong and up at every major division. Importantly, our consolidated merchandise margin increased, which we believe speaks to the flexibility of our off-price business model."
It's been tough for investors to make a buck in retail companies not named Amazon in 2017. TJX has been one of a few that continue to grow and turn in impressive quarters, but today's results were not good enough to change the market's pessimistic mood.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jim Crumly owns shares of AMZN. The Motley Fool owns shares of and recommends AMZN. The Motley Fool recommends The TJX Companies. The Motley Fool has a disclosure policy.