Luxury, Discount Retailers Post Higher Quarterly Earnings

A mix of luxury brands and discounters reported quarterly earnings that topped expectations, results that underscored a broader report showing U.S. retail sales broke three consecutive months of declining growth in July as consumers regained some semblance of confidence this summer.

Strong results issued on Tuesday by Michael Kors Holdings Ltd (NYSE: KORS) and Estee Lauder Companies Inc (NYSE: EL) were the latest signals of strength in high-end brands, which confirms that wealthy shoppers are still buying despite lingering concerns about the global economy.

Discount retailer The TJX Companies, Inc. (NYSE: TJX), owner of the Marshalls and T.J. Maxx chains, saw an influx of shoppers seeking inexpensive designer products in the second quarter, which prompted the company to raise its full-year profit forecast.

Retail sales surged 0.8 percent in July, the Commerce Department said Tuesday. This was the biggest gain in sales since February and topped expectations of a 0.3 percent gain. The sharp increase suggests that, after three months of holding back on spending, consumers loosened their purse strings.

Even after the slight downward revision to June's figures, the level of retail sales in July were back to where they were in May.

Details of the report were also strong, with monthly sales rising across the board.

Consumers increased spending on general merchandise with department store sales up 0.6 percent and non-store retailers posting a solid 1.5 percent gain. Sporting good sales also up 1.6 percent, clothing up 0.8 percent and electronics gained 0.9 percent. The gain in non-store retailers, which capture internet shopping, has been impressive over the past several years, up over 15 percent this year.

"Despite high unemployment, and political and fiscal uncertainty, consumers are spending again, albeit cautiously," Jack Kleinhenz, chief economist of the National Retail Federation, said in a note. "Retail sales continue to remain resilient in the face of bleak international news, with retailers on track with sustained sales growth year-over-year and year to date. Retail sales will continue to see modest growth in the fall and winter."

Economists pay close attention to retail sales, which account for about two-thirds of demand in the U.S. economy. Following weak readings throughout the second quarter, July's retail sales figure represents a strong start to the third quarter.

After the release, Bank of America added 0.4 percentage points to its third-quarter GDP growth forecast, and is now tracking 1.7 percent for third-quarter GDP growth.

However, Tuesday's solid retail sales report might have dashed any hopes for a fresh round of quantitative easing at the September meeting of the Federal Reserve's Federal Open Market Committee.

"While this is certainly far from healthy growth, it is also clearly not at recession levels either," Bank of America economist Michelle Meyer and her team wrote in a note to clients. "Combined with the solid payroll report for June, today's retail sales data further reduces the likelihood of QE3 in September but does not take it off the table.

"All eyes are on durable goods next week and July payrolls in early September. Today's data may have bought the Fed some time," Meyer said.

Earnings Roundup

Retailers reporting earnings this week have sent out some pretty encouraging signals.

Michael Kors Holdings Ltd (NYSE: KORS), the luxury-goods company, reported Tuesday a profit for the first quarter that nearly tripled from last year and comfortably topped expectations.

The Tsim Sha Tsui, Hong Kong-based company said net income was $68.65 million or $0.34 per share for the first quarter, sharply higher than $18.92 million or $0.13 per share in the prior-year quarter. Analysts polled by Thomson Reuters had expected earnings of 20 cents per share for the quarter.

Total revenues for the quarter rose 71 percent to $414.87 million from $243.13 million in the same quarter last year, and exceeded analysts' consensus estimate of $367.96 million.

Michael Kors boosted its full-year estimates, now expecting per-share earnings between $1.32 to $1.34 on revenue of $1.8 billion to $1.9 billion. It previously guided for per-share earnings between $1.08 to $1.12 on revenue of $1.7 billion to $1.8 billion.

Shares of Michael Kors Holdings Ltd (NYSE: KORS) jumped 16.93 percent, or $7.17, to $49.52 apiece in Tuesday's afternoon trading.

Estee Lauder Companies Inc (NYSE: EL), which owns the Clinique, Origins and Smashbox brands of cosmetics, as well as its namesake line, saw gains in every product category and geographic region in its fiscal fourth quarter.

Estee Lauder said Tuesday earnings rose 25 percent and beat analysts' estimate. The New York-based beauty products maker reported net earnings of $51.2 million, or 13 cents a share, compared with a year-earlier $41.1 million, or 10 cents. Revenue grew 9 percent to $2.25 billion from $2.06 billion a year ago, matching the Street's view.

Estee Lauder anticipates first-quarter adjusted earnings of 71 cents to 77 cents per share, with revenue up 5 percent to 7 percent on a constant currency basis.

For fiscal 2013, it foresees adjusted earnings of $2.44 to $2.56 per share. Revenue is expected to increase 6 percent to 8 percent.

Shares of Estee Lauder Companies Inc (NYSE: EL) rose 10.31 percent, or $5.67, to $60.68 in Tuesday's trading.

Saks Inc (NYSE: SKS), the upscale department store, maintained its forecast that same-store sales will rise in the mid-single-digit range in the second half despite an "uncertain" economy.

The New York company reported a narrower than expected second quarter loss on Tuesday. Saks said it lost $12.3 million, or 8 cents per share, in its fiscal second quarter. That compares with $8.37 million, or 5 cents per share, in the year-ago period. Wall Street analysts were expecting a loss of 9 cents. Excluding charges, Saks lost 5 cents per share in the latest quarter. Revenue rose 5 percent to $704.1 million.

Shares of Saks Inc (NYSE: SKS) are up 6.18 percent, to $11.52 a share, in Tuesday's session.

Dicks Sporting Goods Inc (NYSE: DKS), the largest publicly traded U.S. sporting goods retailer, reported a quarterly profit slightly above Wall Street estimates.

The Pittsburgh-based company said earnings fell to $53.7 million, or 43 cents per share, in the second quarter from $73.8 million, or 59 cents per share, a year earlier. On an adjusted basis, the company earned 65 cents per share, one cent above analysts' estimates.

Revenue rose 10 percent to $1.44 billion, in line with estimates.

Dick's raised its full-year adjusted earnings estimate to $2.47 to $2.51 a share, from May's increased outlook of $2.45 to $2.48 a share. The company also raised its same-store sales outlook to between 4 percent and 5 percent from its May forecast of 3 percent to 4 percent.

Shares of Dicks Sporting Goods Inc (NYSE: DKS) fell 3.68 percent, to $48.68 apiece.

The Home Depot, Inc. (NYSE: HD), the biggest home-improvement retailer in the country, said Tuesday its fiscal second-quarter earnings rose 12 percent as customers spent more on remodeling and repair projects in the second quarter.

Net earnings rose to $1.53 billion, or $1.01 a share, in the second quarter, from $1.36 billion, or 86 cents a share, a year earlier. Analysts on average were expecting a profit of 97 cents a share.

The Atlanta-based company boosted its full-year earnings outlook by five cents to $2.95 a share, above the earlier forecast $2.90 a share. Home Depot said sales should be $73.6 billion, a rise of 4.6 percent.

Shares of The Home Depot, Inc. (NYSE: HD) rose 3.54 percent, to $54.69 apiece.

The TJX Companies, Inc. (NYSE: TJX), the discount retailer, said fiscal second-quarter earnings rose 21 percent as it continued to appeal to budget-conscious consumers worried about a slow economic recovery.

TJX, owner of the Marshalls and T.J. Maxx chains, reported net income of $421.1 million, or 56 cents per share, up from $348.3 million, or 45 cents, a year earlier. Revenue rose 9 percent to $5.95 billion in the quarter.

TJX also raised its full-year profit forecast by a penny to between $2.39 and $2.45 a share and forecast current-quarter earnings of 56 cents to 59 cents a share on a 2 percent to 4 percent increase in same-store sales.

Shares of The TJX Companies, Inc. (NYSE: TJX) rose 1.6 percent, to $44.95 a share.