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Stock Market News: Kohl's and Home Depot Sink as Earnings Underwhelm

After initially climbing to fresh highs early Tuesday, major market indexes pulled back amid reports that Chinese authorities are "pessimistic" over coming to terms with the U.S. on rolling back tariffs to resolve a long-running trade war between the two countries. As of 11:15 a.m. EST, the Dow Jones Industrial Average (DJINDICES: ^DJI) was down 113 points to 27,923. The S&P 500 (SNPINDEX: ^GSPC) also lost 4 points to 3,118, and the Nasdaq Composite (NASDAQINDEX: ^IXIC) had moved about 30 points lower to 8548.

As for individual stocks, earnings news from Home Depot (NYSE: HD) and Kohl's (NYSE: KSS) left shares of both retail chains falling even harder than the broader market this morning.

Home Depot lowers its 2019 view

As of this writing, shares of Home Depot are down 5.1% after the home-improvement retailer announced mixed third-quarter 2019 results. Revenue climbed 3.5% year over year to $27.2 billion, helped by a 3.6% increase in comparable sales. On the bottom line, that translated to net income of $2.8 billion, or $2.53 per share, compared to $2.9 billion, or $2.51 per share in the year-ago period.

Analysts, on average, were expecting slightly lower earnings of $2.52 per share, but on higher revenue of $27.5 billion.

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"Our third quarter results reflected broad-based growth across our business, yet sales were below our expectations driven by the timing of certain benefits associated with our One Home Depot strategic initiatives," explained Home Depot Chairman and CEO Crag Menear. "We are largely on track with these investments and have seen positive results, but some of the benefits anticipated for fiscal 2019 will take longer to realize than our initial assumptions."

As such, Home Depot now expects full-year 2019 sales to increase roughly 1.8%, including 3.5% comparable-sales growth. For perspective, the company's previous targets called for sales and comps growth of 2.3% and 4%, respectively.

Kohl's falls far short of estimates

Shares of Kohl's are down a staggering 18% as of this writing after the department store chain delivered its own disappointing quarterly update. For the quarter ended Nov. 2, 2019, Kohl's quarterly net sales declined slightly from the same period last year to $4.36 billion, as a 0.4% increase in comparable-store sales was more than offset by store closures. That translated to adjusted (non-GAAP) net income of $116 million, or $0.74 per share, down from $161 million, or $0.98 per share, a year ago.

Most analysts were modeling significantly higher earnings of $0.86 per share on net sales of $4.4 billion.

Even so, Kohl's CEO Michelle Gass insisted the company was "pleased" to see the business return to comparable-sales growth in the quarter, adding that its back-to-school season was successful.

"We enter the holiday period with momentum and are strategically increasing our investments to take advantage of the unique opportunity to fuel growth and customer acquisition," she elaborated. "We believe that investing in the short-term will support our strategies to drive profitable growth over the long term."

However, Kohl's also told investors it now anticipates full-year earnings per share in the range of $4.75 to $4.95, down from its previous target of $5.15 to $5.45.

In the end, investors obviously aren't pleased with Kohl's decision to forsake near-term earnings in the name of driving longer-term growth.

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Steve Symington has no position in any of the stocks mentioned. The Motley Fool recommends Home Depot and recommends the following options: long January 2021 $120 calls on Home Depot and short February 2020 $205 calls on Home Depot. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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