Wall Street was awash in red ink Tuesday, as the recent tech-sector-focused sell-off spread to the broader market. The Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) are now in negative territory for the year.
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There weren't many places for investors to hide Tuesday. The price of crude oil plummeted 6.8%, dragging down energy stocks; the SPDR S&P Oil & Gas Equipment & Services ETF (NYSEMKT: XES) dropped 5.4%. Investors fled to bonds, causing interest rates to fall and hurting financial stocks, with the Financial Select Sector SPDR ETF (NYSEMKT: XLF) closing 2.1% lower. Even bitcoin lost more than 10% of its value.
Two retailers in particular reported results that had investors bailing out of their stocks, and those of other retailers as well. Target (NYSE:TGT) and Lowe's (NYSE:LOW) grew sales last quarter, but both gave skittish investors reasons to worry.
Target misses the bullseye
Target reported robust growth in its third quarter that met its guidance. However, it missed profit expectations, and investors punished the stock, sending it down by 10.5%. Net sales growth of 5.6% met analysts' consensus expectations, but the 20.2% growth in adjusted earnings per share to $1.09 fell short of the bar Wall Street analysts had set at $1.12, despite earlier guidance by the company for adjusted EPS in the $1.00 to $1.20 range.
Comparable sales grew 5.1%, beating Target's guidance for 4.8%. Digital channel sales increased 49% and contributed 1.9 percentage points to comparable sales growth, with comps from physical stores contributing 3.2%. Gross margin slipped 0.9 percentage points, due mainly to higher supply-chain costs as the company built up its inventory for the holiday sales season.
Target is having one of its best years in recent memory, but the lower margin and miss on profit were ill-received by a market that was already in a sour mood and apparently anticipating a downturn next year.
Lowe's lowers guidance
Home improvement chain Lowe's reported uninspiring third-quarter results, then lowered its full-year outlook for the second quarter in a row. Investors reacted, and shares dropped 5.7%. The retailer's sales did increase 3.8% to $17.41 billion, edging out the analyst consensus of $17.36 billion, and adjusted earnings per share only decreased 1% to $1.04, better than expectations for $0.98. The company now expects full year sales growth of 4%, down from guidance of 4.5% three months earlier.
Comparable sales increased by 1.5% overall, and by 2% for the U.S. home improvement business, while gross margin fell 1.57 percentage points. Recently appointed CEO Marvin Ellison was not satisfied with the company's execution in the quarter, saying in the press release, "continued challenges with inventory out of stocks, poor reset execution, and assortment concerns in certain categories pressured our ability to turn those visits into transactions."
Ellison is attempting to re-position the company for higher growth. Today, it announced that it will exit retail operations in Mexico, in addition to previously announced store closures in the U.S. and Canada.