Major market benchmarks were boosted by some strong earnings reports from retail companies Wednesday, indicating that the U.S. consumer remains healthy and helping to ease recession worries. The Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) both gained nearly 1%. All sectors rose, with consumer staples and technology leading the way.
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Innovation and remodels power Target profits
Target blew past Wall Street's profit expectations for second quarter, continuing its recent streak as one of the retail industry's big winners, and shares soared 20.4% to an all-time high. Revenue increased 3.6% to $18.42 billion and earnings per share jumped 22% to $1.82. Analysts were expecting the company to earn $1.62 per share on revenue of $18.34 billion.
Comparable sales increased 3.4% thanks mostly to growth in transactions of 2.4%. Physical stores contributed 1.5% to the overall comparable sales growth, while Target's digital channel contributed 1.8%. Comparable digital sales grew 34% and sales originating digitally accounted for 7.3% of total sales, compared with 5.6% in Q2 last year. Growth was strongest in essentials, beauty, and apparel, which had comp growth of over 5%.
Margins expanded across the board, with gross margin rising a full percentage point from Q1 and up 30 basis points from Q2 last year, the first year-over-year increase in gross margin in nearly three years. Operating margin expanded 80 basis points both year over year and sequentially, exceeding the company's expectations.
Lowe's sees better-than-expected profit
Home improvement chain Lowe's reported an increase in comparable sales and strong gains in EPS fueled by cost-cutting and share buybacks, and the stock jumped 10.4%. Net sales in the second quarter inched up 0.5% to $21 billion, which edged out expectations of $20.94 billion. Adjusted EPS rose 3.9% to $2.14, which was much better than the 12% drop analysts were expecting. Per-share results were boosted by a 4.1% decline in shares outstanding, as Lowe's has been aggressively buying back its stock.
Comparable sales rose 2.3%, with a gain of 3.2% in the U.S. Lowe's said on the conference call that U.S. sales improved progressively through the quarter, up 0.7% in May, 4.2% in June, and 4.7% in July. The company saw strong growth in paint sales and in sales to professionals, offsetting weather challenges and lumber price deflation. Margins improved from disappointing results last quarter.
Looking forward, Lowe's maintained its guidance for the full year despite a headwind from new tariffs on goods from China. The company expects sales to increase 2% this year and adjusted EPS between $5.45 and $5.65.